Anyone for some more deficit reduction? We can start with another two months of congressional gum-flapping over the debt limit, followed by a heaping helping of spending cuts, this time hacking unemployment benefits, aid for dependent children and housing for the mentally ill (c'mon, budget hawks -- you know you want to.)
Today's dismal jobs report is the latest sign that 1) The economy is slowing; 2) Washington's focus on thrift rather than on employment is what is slowing it. True, the labor data often bounces around, meaning that next month may be better. Yet nearly two years into an alleged economic recovery, growing evidence shows we are getting nowhere fast:
"The economy clearly just hit a brick wall," said Paul Ashworth, chief United States economist at Capital Economics. "It's almost as if it came to a complete standstill."Before examining the job numbers, let me state the obvious. The reason the employment picture, not the deficit, needs to be our top priority is that the economy is suffering first and foremost from inadequate demand. Consumers aren't spending, so businesses see no reason to step up production and add workers.
Consumption is weak because Americans are still paying off the debt they amassed during the housing bubble, wages are stagnant and millions of people remain unemployed. As a side note, the high rate of joblessness also worsens the slump in housing princes, since people need work to be able to buy a house.
The cure? Stronger economic demand. But that won't pick up until more people get jobs and have money to spend.
Does that mean we can completely ignore the rising federal debt? Clearly not. But despite the fear-mongering on Capitol Hill, it doesn't pose an immediate threat. Interest rates remain low, inflation mild. That suggests financial markets are fairly sanguine about the need for urgent fiscal consolidation. By contrast, the recent bearish turn in stocks amid indications of an economic slowdown suggest that investors have grave fears about the pace of recovery.
By virtually every measure, the May employment report is bleak. The economy created a meager 54,000 non-farm jobs last month, well under the 150,000 monthly new positions required to keep up with the number of people entering the job market. In a strong recovery, the economy would be generating upwards of 300,000 jobs.
Unemployment ticked up to 9.1 percent. Counting people who are stuck in part-time rather than full-time work and those who have given up looking for work altogether, that figure is 15.8 percent, close to the record high 17.4 percent reached in October 2009. By that measure, nearly 25 million people are unemployed or underemployed.
- The services sector, a relative bright spot in the job market over the last two years, lost more than 2,000 jobs in May
- Businesses chose not to extend the number of hours employees work per week, indicating that companies aren't prepared to start hiring additional workers
- The average period of unemployment rose to 39.7 weeks, an all-time high
- Hiring in the construction and manufacturing sectors remain flat
- Hourly wages over the last three months rose only 1.6 percent, a dip from last year's growth rate of 1.8 percent
Such developments should raise the alarm in Washington, but probably won't. The political parties are dug in. The official narrative -- that the country is broke -- is written. It is a war of attrition, with Republicans laying siege to the White House in hopes of starving the enemy, and perhaps the economy, into submission.
The Obama administration has willingly played along, hoping that a show of fiscal rectitude will distract the American public from the reality that its polices are insufficient. That political calculus has proved a dangerous and, as the economy sputters, unrewarding gamble:
"Living here in Washington, in the past few weeks there has been all this talk about deficits and the debt ceiling as though that were the biggest problem right now," said Heather Boushey, a senior economist at the Center for American Progress, a liberal research organization. "My fervent hope is that this shocks policy makers into realizing the most urgent problem in front of us right now is jobs."The irony is that the grim employment picture represents a golden political opportunity. Polls suggest that the American public is far more concerned with getting people back to work than with tackling the deficit. Passing another stimulus plan may be impossible given the gridlock in Congress. But at least showing a willingness to change course in response to the country's "most urgent problem" is feasible. And essential.
Chart courtesy of the Center for Economic and Policy Research