Dismal Job Numbers, More Political Paralysis in D.C.
Policy + Politics

Dismal Job Numbers, More Political Paralysis in D.C.

AP Photo/Marcio Jose Sanchez

A faltering U.S. economy, still feeling the effects of the crisis of confidence triggered by last month’s debt- ceiling standoff, created no jobs in August, leaving 14 million Americans unemployed and the unemployment rate stuck at a recessionary 9.1 percent.

Nearly two years into an economic recovery, corporate profitability has been restored. But the nation’s companies are largely sitting on the sidelines awaiting either a surge in demand or some signal from Washington that will restore business and investor confidence and trigger a wave of hiring.

The immediate reactions to the jobs report – Republicans blaming President Obama for the jobless recovery and Democrats calling for a new jobs program almost certain to be rejected by the deficit hawks that control the House of Representatives – suggests there will be no short-term resolution to the policy paralysis that has gripped the capital for most of the past year.

The president will offer his jobs proposal next week, and preliminary indications suggest it will call for renewing the 2 percent payroll tax reduction, continuing unemployment benefits for the long-term unemployed, and creating an infrastructure investment program, perhaps focused on the nation’s schools. The president is also likely to call for immediate reauthorization of transportation and aviation trust fund bills, which, unless passed, could further slow infrastructure spending and reduce construction jobs over the next year. The infrastructure bills were endorsed this week by both the U.S. Chamber of Commerce and the AFL-CIO.

The Republicans, meanwhile, have now put regulatory relief near the top of their agenda, calling on the Obama administration to hold off on major new rules that would force power plants and industrial facilities to clean up their smokestack emissions. Despite arguments by environmental organizations that installing scrubbers and other clean-up measures create jobs, the president on Friday caved in to one of the Republican demands, ordering the Environmental Protection Agency to postpone implementation of a tougher ozone standard, which could make it more expensive for businesses to build new facilities in areas of the country that exceed the new limits.

The intersection of the jobs crisis and the never-ending political squabbling in Washington is likely to continue throughout the fall. The government has no budget for the fiscal year that begins October 1, which means Congress will have to pass a continuing resolution to continue operating at this year’s levels. That will present House Republicans with another opportunity to use the threat of a shutdown to win spending concessions, which could put a further drag on economic activity and job creation.

In December, the bi-partisan “Super Committee” charged with coming up with $1.2 trillion in budget cuts over the next decade is due to report. Failure to reach an agreement will result in an automatic cancellation (“sequestration” in budgetary parlance) of $100 billion or more a year in domestic discretionary spending starting in 2013, which will also reduce economic growth.

“The threat of sequestration on top of the already passed budget cuts is a major fiscal risk,” said Joel Prakken, a principle at St. Louis-based Macroeconomic Advisers. “It would slow the economy, certainly taking a percentage point or more off economic growth.”

That could be the final blow for an economy that is barely growing now, and could send it into a double-dip recession. Last month, the private sector added just 17,000 jobs, although that total would have been significantly higher had it not been for the 45,000 Verizon workers who were on strike and counted among the unemployed last month. They have since returned to work.

The sector that gained the most jobs was health care – 30,000 in total – largely offsetting the losses in other sectors. Business services also added 8,000 jobs.  But with health-care spending slowing, cuts to Medicare and Medicaid entitlements on the Republican political agenda, and business putting increased pressure on insurers to hold down health care costs, it’s unlikely the sector can continue to add hundreds of thousands of new jobs per year, as it has throughout the recession.

In any case, the paltry increase in private-sector jobs was largely offset by losses in the public sector, especially at the state and local level where the intersection of tax collection shortfalls and balanced budget requirements has forced governors, mayors, and city managers to continually shed workers since the federal stimulus package, which shored up budgets, expired.

Governments at all levels lost 17,000 jobs last month, and that appears better than it really was because 22,000 Minnesota workers locked out of their jobs in July due to a budget standoff returned to work. Since the onset of the recession in the fall of 2008, local governments across the country have shed over 550,000 jobs, the Labor Department reported.

There were other disturbing signals in the jobs survey. The average workweek for all employees edged down by a tenth of an hour to 34.2 hours, while wages fell by 3 cents an hour after an 11 cent gain in July.  “Income is declining,” Prakken said. “When we run that through our consumption model, that means slower growth in the next few months.”

The weak jobs report coupled with the likelihood of continued drag from reduced federal spending will heighten pressure on the Federal Reserve Board to do something at its September meeting, which has been lengthened to two days to thoroughly review the state of the economy. Fed chairman Ben Bernanke could uncork another round of quantitative easing – purchases of government bonds – to prop up the economy.

But like the split along Pennsylvania Avenue, the Fed has become deeply divided in recent months.  A handful of inflation hawks are pushing for the Fed to pull in the reins and have even called for raising interest rates, which are currently hovering near zero. On the other side, the minutes of the last Fed meeting showed, there are members of the board pushing for more easing.