Those jobless numbers grabbing any headlines not reserved for Superstorm Sandy recovery efforts may be intriguing, but they’re not likely to prove much of a game changer.
The Labor Department reported that the economy added 171,000 new jobs during the month of October – all of it coming from the private sector, as government employment rates continued to dwindle – and that the unemployment rate edged up to 7.9 percent as more workers re-entered the labor market in quest of a job.
The modestly positive numbers propelled stocks to a modestly higher opening, but those gains quickly dissipated as investors turned their attention to the election. By 1 p.m., the Dow Jones industrial average and the Nasdaq were both about 0.3 percent lower, while the S&P 500 had lost about half that.
Just as the numbers didn’t mean much for investors, it likely won’t matter much to the presidential campaign, coming as it does just days before the election.
The data gives those on both sides of the political divide ammunition to direct at their opponent. If you’re a Democrat, the fact that the figure was a positive surprise – significantly higher than the 125,000 new jobs the economists had forecast were created during the month – is good news, and a sign that private sector job creation appears to be accelerating. If you’re a Republican, you get to point out that even at a higher-than-expected rate, job creation is still running well below the rate it needs to in order to replace the number of jobs lost during the recession, and that the only reason the formal unemployment rate isn’t higher than 7.9 percent is the fact that so many workers either have given up hunting for a job or have settled for part-time gigs.
Still, the data show that when voters go to the polls next week, it will be at a time when the employment picture is rosier than it has been since the last presidential election four years ago. What may be more significant, in economic terms at least, is that the political and fiscal policy challenges – the governance challenge – is creating a big roadblock to both future job growth and the economy as a whole.
Jobs are created by companies, and those businesses right now are wary if not downright fearful of what lies ahead, starting with the fiscal cliff that looms on January 1: forced spending cuts and tax hikes that will kick in if Congress can’t agree on a more rational approach to deficit reduction. It costs companies money to hire – and more still if they discover that their profits will be significantly less than anticipated because of such exogenous factors, and they then must lay off some of those new workers. Better, the logic goes, to defer any hiring decisions until there is greater “visibility,” in market-speak.
The fact is that job growth is still too sluggish – 2.1 million jobs in the last 12 months, as Alan Krueger, chairman of the Council of Economic Advisers, said in a statement released by the White House earlier today. True, that’s up from 1.9 million in the prior 12-month period, and not really enough for Republican candidate Mitt Romney to say that the economy is at a “virtual standstill.”
But if it’s not standing still, it’s not growing rapidly enough to create new jobs, as the recent GDP estimate for the third quarter – which suggested the economy grew at a measly clip of 2 percent on an annual basis. Economists generally concur that growth of at least 3 percent is needed to put a significant dent in unemployment rates and to be deemed strong enough to be sustainable.
Odds are that this report will change as little on the political front as it does on the economic outlook. Those who believe that President Barack Obama has mishandled fiscal policy and oversight of the economy during the last four years won’t find anything much in this report to alter those convictions. Conversely, those who are convinced that Romney’s policies won’t do any better in stimulating job growth or the economy more broadly aren’t likely to be shaken loose from their views. To the extent that voters’ decisions will be affected by what is happening in the jobs market, those have been shaped already and nothing in the final pre-election report is likely to alter those.
What may well affect future job creation rates is the outcome of next week’s ballots. Perhaps the worst possible scenario – aside from a repeat of 2000, when the White House hangs in the balance for weeks – is one of gridlock, in which Congress is caught in stalemate for the next two years.
Another unnerving prospect is that enough races are uncertain or too close to call that lawmakers have their attention riveted to those outcomes rather than focused on averting the fiscal cliff, which is something that they will have to begin addressing within days of the elections if we are to prevent ourselves running full tilt over that cliff.
For now, we roll on ‘til Tuesday.