Just in time for the Labor Day weekend, a divided U.S. government is turning its eyes toward the nation’s jobs picture—and it’s not a pretty one.
A lack of job creation has plagued the U.S. economy through the 2008 financial crisis, the recession that followed it and the sluggish recovery that started last year. Now, although elected officials on both sides of the aisle say America’s unemployed workers are their top priority, the stance in Washington suggests that the real story there continues to be politics and punditry as usual.
Adding to the urgency of the jobs issue is the latest news on the unemployment situation.
On Friday, the Labor Department reported that no new payroll jobs were created in August, and the unemployment rate held flat at 9.1%. Analysts had expected a jobs gain of 65,000. The August numbers compare to July’s jobs gain of 117,000 and unemployment rate of 9.1%. The rate has stayed virtually unchanged since April.
“Employment in most major industries changed little over the month,” the department reported. “Health care continued to add jobs, and a decline in information employment reflected a [Verizon] strike. Government employment continued to trend down, despite the return of workers from a partial government shutdown in Minnesota.”
Economists responded to the unemployment news with predictions that the U.S. economy will remain stagnant for many months ahead, though they do not foresee a double-dip recession. The markets responded by pushing the Dow down 200 points in early trading on Friday, with both the VIX and gold rising.
One observer saw the glimmerings of a silver lining in the Labor Dep. report. Ian Shepherdson, chief U.S. economist for High Frequency Economics Ltd., in Valhalla, New York, pointed out that private jobs rose by 17,000, but government jobs fell by 17,000. “Allowing for the 45,000 hit from the Verizon strike, private payrolls would have risen by 62,000, so the labor market has not quite stalled completely,” Shepherdson wrote in an analyst note. “We think business confidence is starting to level off, assisted by lower energy prices and robust core retail sales, so fourth-quarter payrolls should be better.”
President Obama will deliver a speech on jobs and the deficit to a joint session of Congress on Sept. 8, at 8 p.m. ET. Obama had originally requested a session on Sept. 7, the same night that Republican candidates are scheduled to meet in California for a presidential debate hosted by NBC and Politico. The issue was resolved when House Speaker John Boehner (R-Ohio) asked Obama to appear before Congress on Thursday night—just half an hour before the start of the National Football League’s 2011 season kickoff game. Obama agreed, which led to media buzz that focused on the scheduling conflict rather than what the United States might do to create more jobs.
The disappointing employment numbers are typical of just about every piece of U.S. jobs data released over the last few weeks.
For example, 12,000 fewer workers filed initial claims for unemployment benefits this week than last, suggesting that the job market may be improving slightly, but that drop was due mainly to the end of the Verizon strike. A more accurate reflection of the labor market comes from the weekly claims report’s four-week moving average, which rose this week by 1,750 to 410,250. The 400,000 level is seen as the threshold for improvement—and analysts say that applications typically drop even lower, below 375,000, before job growth becomes sustainable.
But that level will be a long time coming, considering the market turmoil in August after Standard & Poor’s downgraded its credit rating of U.S. debt. Economists fear that politicians’ failure to adequately negotiate the U.S. debt ceiling signals a worsening climate for the private sector.
“The headline numbers are bad, and the underlying pieces are worse still. To think this is simply a matter of August stock market volatility is wrong,” wrote Steve Blitz, senior economist with New York-based ITG Investment Research, on Tuesday when August consumer confidence was reported at its lowest level in more than two years. “Confidence has been faltering since the spring and for some groups the level of expectations has never risen from recessionary levels.”
One of those groups appears to be advisors themselves. On Tuesday, Rydex|SGI released its Advisor Confidence Index, which fell to its lowest level in a year.
Blitz warned that the low level of U.S. job creation is reflective of a recession. “The recovery has never truly taken hold in payrolls and when you look at the confidence of those making less than $50,000 per year there was never any real lift from recession levels,” he said.
U.S. companies are simply unwilling to hire more workers, even though many of them are sitting on piles of cash. Since the United States started to climb—slowly—out of recession, market uncertainty has prevented companies from investing in new workers. Mass layoffs in July, for instance, involved 145,000 workers as employers took 1,579 mass layoff actions, the Labor Department reported a week ago.
PIMCO CEO Mohamed El-Erian said in August that the problem with a sharp growth slowdown is threefold: “First, initial conditions are very worrisome, including a very high and too persistent level of un- and under-employment. Second, other parts of the world are also slowing and, therefore, there are few engines of growth. Third, the over-indebted segments of this global economy desperately need high growth in order to safely de-lever.”
On Thursday, in an interview with Bloomberg, El-Erian sounded even more concerned: he put the chances of a recession at 50% in the eurozone, and 33% to 50% in the U.S.
Regardless of whether a double-dip recession does occur, the latest economic indicators show that the road to job creation won’t be easy.
Employers announced 51,114 planned job cuts in August following an announced 66,414 cuts in July, according to a Challenger, Gray & Christmas poll released on Wednesday. Also that day, the ADP national employment report showed that private-sector employment in the private sector rose by just 91,000. Friday’s Labor Department report puts the number of unemployed Americans at 14 million.
In the face of this data storm, the debt-burdened U.S. government looks ill-equipped to improve the employment situation.
President Obama on Monday committed to jobs creation with his nomination of Alan Krueger, a Princeton economist with a reputation as a labor expert, to replace Austan Goolsbee as chairman of the Council of Economic Advisers. But it remains to be seen whether Congressional Republicans approve the nomination, even though they previously approved Krueger to serve as the U.S. Treasury’s chief economist in 2009.