Why Lousy Jobs Numbers Might Be OK

Layoff reports look high and private employers are cutting payrolls, but "churn" may save us.

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Is this the real start of something ugly? The number of employees on private-sector payrolls fell by 79,000 in June, according to today's ADP National Employment Report. This was the steepest fall in nearly six years and nearly four times the estimated loss.

Ian Shepherdson, chief U.S. economist at High Frequency Economics, summed it up in a morning note: "This is grim." He figures that we can expect weak jobs numbers from the Labor Department tomorrow.

Also in the news: Job-cut announcements were up 21 percent in the first half of the year and up 47 percent in June, compared with a year ago, according to a report by outplacement firm Challenger Gray & Christmas.

Paul Kedrosky, who blogs at Infectious Greed, has his own layoff-tracking tools, and "they are all through the roof right now," he writes.

So what does this mean for our economic future?

David Leonhardt at the New York Times points out that "layoffs have very little to do with the economy's problems," noting that gross job losses were lower last year than any years during the glitzy 1990s boom.

He writes:

Unfortunately, gross job gains—the new jobs created—have fallen more sharply than job losses. Companies have gone on a "hiring strike," notes Ed McKelvey, a Goldman Sachs economist. Existing firms aren't expanding much, and not enough new firms are starting. The country is suffering from an innovation deficit.

Layoffs will almost certainly increase in coming months, and the pain, both financial and psychological, that comes with any individual layoff tends to be severe. The victims of these layoffs deserve help, in the form of extended unemployment benefits. But the long-term solution can't revolve around efforts to slow globalization, technological change, and other forms of economic churn. We need more churn, not less.

It's a bitter pill. The economy won't be saved by payroll inertia: "It has to start with smarter, more strategic investments in education, physical infrastructure, and other things that can create the high-wage jobs of tomorrow," according to Leonhardt.