The Jobless JumpSeptember 6, 2008
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Friday's jobs report for August was dismal by any measure, with payrolls falling by 84,000, and another 58,000 jobs lost in downward revisions for June and July. Private sector job losses were even higher at 101,000 for the month, and overall job losses for 2008 now stand at about 600,000.
The cries of recession are naturally back in four-part political harmony, though those predictions have been wrong so far. We've been hearing that the economy is "already in recession" for at least a year, but there's only been one quarter of negative growth -- a reduction in GDP of 0.2% in the fourth quarter of 2007. The economy has been growing since, albeit too modestly to keep anyone happy.
The August job losses also need to be put into the context of the eight million new jobs created after the Bush tax cuts passed in May 2003 through 2007. At 6.1%, the jobless rate climbed from 5.7%, thanks in part to a surge in the size of the labor force and an expansion of federal jobless benefits. In September of 1996, when Bill Clinton was running for re-election, the jobless rate wasn't much lower at 5.5%.
If you're looking for silver linings, such as they are, average hourly earnings are still rising and have climbed at a 4.3% annual rate in the last quarter. Productivity growth has also been stronger than expected, which paradoxically hurts job creation as cautious companies squeeze out more efficiencies rather than add labor costs. The percentage of private companies adding jobs also popped up -- to 48.9% -- which is the highest in many months. So the economy seems to be muddling along, rather than slipping into recession. Given the magnitude of both the housing slump and the credit writeoffs on Wall Street, the fact that the U.S. economy has avoided a downturn so far can only be called remarkable.
The bad news is that there isn't much reason for businesses to start taking more risks. The credit crunch is continuing, amid uncertainty over the banking system and housing market. The Treasury's plan for a taxpayer backstop of Fannie Mae and Freddie Mac was supposed to reassure markets, but instead the uncertainty over the fate of the mortgage giants has so far only contributed to higher mortgage rates. Mark that down as another Beltway triumph.
Political uncertainty is also a negative, with the policy risks for 2009 still unknown. A Democratic sweep in November all but guarantees a huge tax increase, which won't restore animal spirits. Meanwhile, the jobless numbers will likely cause the Federal Reserve to maintain negative real interest rates even longer than it already has. This means greater risk of future inflation, and with it further declines in real incomes.
Amid this news, we couldn't help but notice yesterday's White House press release declaring that "the bipartisan economic growth package that President Bush signed into law is having its intended effect." The argument is that the economy would be worse were it not for the $150 billion in tax rebate checks. Thanks for the very small favor. The checks goosed consumer spending for a few months but without any permanent change to the incentives to work or invest.
As a political matter, any rebate impact is wearing off just as the fall election campaign begins. Most voters want to know where the economy is headed now, rather than that it could have been worse in the summer. Yesterday, Barack Obama was naturally blaming Republicans for the job losses, even though the failed "stimulus" was also his idea. He even wants to do it all over again.
Memo to Republicans: This is what happens when you settle for political stimulus gimmicks rather than tax cuts that are immediate, permanent and at the margin. Memo to John McCain: You'll need a better argument than "these are tough times" and "I'll fight for your future."
