Mortimer B. Zuckerman
Less Faith in Obama's Economic Abiltities (c) Wayne Stayskal
Jobs data paint a discouraging picture of more pain to come
We are now looking at unemployment numbers that undermine any confidence that we might be nearing the bottom of the recession.
The appropriate metaphor is not the green shoots of new growth. A better image is to look at the true total of jobless people as a prudent navigator looks at an iceberg.
What we see on the surface is disconcerting enough
The estimate from the Bureau of Labor Statistics of job losses for June is 467,000. That increases by 7.2 million the number of unemployed since the start of the recession. The cumulative job losses over the past six months have been greater than for any other half-year period since World War II, including demobilization. What's more, the job losses are now equal to the net job gains over the previous nine years, making this the only recession since the Great Depression to wipe out all employment growth from the previous business cycle.
That's bad enough. But here are nine reasons we are in even more economic trouble than the 9.5 percent unemployment rate indicates
1. June's total included 185,000 people who were assumed to be at work, many of whom probably were not.
The government could not identify them; it made an assumption about trends. But many of the mythical jobs are in industries that have absolutely no job creation: finance, for example. When the official numbers are adjusted over the next several months, look to some of the 185,000 boosting the unemployment totals.
2. More companies are asking employees to take unpaid leave. These people don't count on the unemployment roll.
3. No fewer than 1.4 million people wanted or were available for work in the past 12 months. They were not counted. Why?
Because they hadn't searched for work in the four weeks preceding the survey. The assumption is that they had found work or don't want it, but there are other explanations: school attendance, family responsibilities, sheer exhaustion.
4. The number of workers taking part-time jobs because of the slack economy, a kind of stealth underemployment, has doubled in this recession to about 9 million, or 5.8 percent of the workforce.
Add those whose hours have been cut to those who cannot find a full-time job, and the total of unemployed and underemployed rises to 16.5 percent, putting the number of involuntarily idle workers in the range of an overwhelming 25 million.
5. The inside numbers are just as bad.
The average workweek for production and nonsupervisory private-sector employees, around 80 percent of the workforce, dropped to 33 hours. That's 48 minutes a week less than before the recession began, the lowest level of activity since the government began tracking such data 45 years ago.
Full-time workers are being downgraded to part time as businesses slash labor costs to remain above water and factories operate at only 65 percent of capacity. If American workers were still putting in those extra 48 minutes a week now, 3.3 million fewer employees could perform the same aggregate amount of work. With a longer workweek, the unemployment rate would reach 11.7 percent, not the official 9.5 percent (which in turn dramatically exceeds the 8 percent rate projected by the Obama administration).
6. The average length of official unemployment increased to 24.5 weeks.
This is the longest term since the government started to track these data in 1948. The number of long-term unemployed (those out of a job for 27 weeks or more) has now jumped to 4.4 million, an all-time high.
7. The average worker saw no wage gains in June, with average compensation running flat at $18.53 an hour.
8. The jobs report is even uglier when you consider that the sector producing goods is losing the most jobs -- 223,000 in the last report alone.
9. The prospects for job creation are equally distressing.
The likelihood is that when economic activity picks up, employers will first choose to increase hours for existing workers and bring part-time workers to full-time status.
Many unemployed workers looking for jobs once the recovery begins will discover that jobs as good as the ones they lost are almost impossible to find because more layoffs in this recession have been permanent and not temporary.
Instead of shrinking operations, companies have closed whole business units or made sweeping structural changes in the way they conduct their business.
For example, General Motors and Chrysler shut down hundreds of dealerships and reduced brands; Citigroup and Bank of America cut tens of thousands of jobs and exited many parts of the world of finance.
In other words, we could face a very low upswing in terms of the creation of new jobs, and we may be facing a much higher level of joblessness on an ongoing basis.
Job losses may last well into 2010 to hit an unemployment peak close to 11 percent. And then joblessness may be sustained for an extended period.
Can we find comfort in knowing that employment has long been considered a lagging indicator?
It is conventionally seen as having limited predictive power because employment reflects decisions taken earlier in the business cycle. But today is different. Unemployment has doubled from 4.8 to 9.5 percent in just 16 months, a record rate so fast it may influence future economic behaviors and outlooks. Bear in mind that the lackluster increase in inventories suggests that there's little prospect in the pipeline of real growth in consumption, investment, and exports. So the terrible state of the labor market is likely to be a strong head wind against consumer spending for a long time as wages and overall income growth are decelerating and households, within a fairly short period, will have received their full portion of the stimulus package.
How could this happen when Washington has thrown trillions of dollars into the pot, including the famous $787 billion in spending that was supposed to yield $1.50 in growth for every dollar spent? For a start, too much of the money went to transfer payments--Medicaid, jobless benefits, and the like--that do nothing for jobs and growth. The spending that creates new jobs is new spending, particularly on infrastructure. It amounts to less than 10 percent of the stimulus package today.
Second, the stimulus package may have been well intentioned, but it was too small and too badly constructed to get money into the economy fast enough to replace lost consumer and business spending and to slow unemployment. Workers' pessimism is justified: About 40 percent believe the recession will continue for another full year. As paychecks shrink and disappear, consumers are more hesitant to spend and won't lead the economy out of the doldrums quickly enough.
It may have made him unpopular in parts of the Obama administration, but Vice President Joe Biden told it as it is when he said the administration misread how bad the economy was. The administration inherited the problem, but then it failed to understand how ineffective its solution would be. The program was supposed to be about jobs, jobs, and jobs. It wasn't. The recovery act may have been a single piece of legislation, but it included thousands of funding schemes for tens of thousands of projects, and those programs are stuck in the bureaucracy as the government releases the funds with typical inefficiency.
An additional $150 billion, which was allocated to state coffers so as to continue existing programs like Medicaid, did not add new jobs. Hundreds of billions of dollars were set aside for tax cuts and for new benefits for the poor and the unemployed, and that did not add new jobs. Now state budgets are drowning in red ink as jobless claims and Medicaid bills climb.
Next year, state budgets will have depleted their initial rescue dollars. Absent another rescue plan, they will have no choice but to slash spending or raise taxes, or both. The complete state and local government sector, which makes up about 15 percent of the economy, is beginning the worst contraction in postwar history in the face of a deficit gap of $166 billion for fiscal year 2010, according to the Center on Budget and Policy Priorities, and a cumulative gap of $350 billion in fiscal year 2011.
Similarly, households overburdened with historic levels of debt will be saving more. The savings rate has already jumped from zero in 2007 to almost 7 percent of after-tax income now, and it is still rising. Every dollar of saving comes out of consumption. Because consumer spending is the economy's main driver, we are going to have a weak consumer sector, and many businesses simply won't have the means or the need to hire employees. In the aftermath of the 1990-1991 recession, Americans bought houses, cars, and other expensive goods. This time, the combination of a weak job picture and a severe credit crunch means that people won't be able to get the financing for big expenditures, and those who can borrow will be reluctant to do so.
In recent times, Americans found myriad ways to fuel spending, even as incomes stagnated: borrowing against the once rising price of their homes and tapping plentiful credit cards. No longer. The paycheck has returned as the primary source of spending, and pay is eroding even for those who have jobs. This process is nowhere near complete, and, until it is, the economy will barely grow, if at all, and may well oscillate between sluggish growth and modest decline for the next several years until the rebalancing of the excessive debt has been completed. Until then, the private economy will be deprived of adequate profits and cash flow, and businesses will not start to hire. Nor will they race to make capital expenditures when they have vast idle capacity.
In other words, there are many more reasons today to expect the downturn to continue than to expect a turnaround. Consumer spending and residential investment could be even weaker than most estimates, and, as the level of fiscal stimulus begins its decline in the second half of 2010, we may be facing an even more difficult future.
No wonder poll after poll shows a steady erosion of confidence in the stimulus measures. One survey even showed 45 percent believe the limited results suggest they should simply be abandoned midway. The disappointment is understandable--but that would only make things worse. So what kind of second-act stimulus program should we look for? This time, it should not be an excuse to pass a lot of programs like those in the first stimulus package that do not really have the kind of multiplier effect on job creation and on economic growth that was intended. In any event, given the trends, it is absolutely critical that the Obama administration not play politics with the issue but really begin to prepare a second stimulus program, so that if the economy does take a major downturn, it will be possible this time to provide much more rapid government support to infrastructure spending that will maximize the creation of jobs. The time to get ready is now.
Unemployment may be the Achilles heel of the economy. Not much is said these days about technological unemployment.
Perhaps at no time in history has so much been produced with so few workers. That's one of the contradictions of the economy. At some point
the distribution problem will have to be faced.
-- Joseph DeLassus of MO
We had 25 years of pulling demand forward by increased personal and government debt.
Increasing debt (or merely shifting it from the private sector to the public, like the Fannie, Freddie, AIG, CitiGroup, and soon CIT bailouts did) only worsens the problem. There is still a ton of bad debt out there. It needs to be defaulted. Investors in bad mortgage debt (residential & commercial) need to take massive losses.
If the big banks all go under, they go under. Too big to fail is too big to exist.
Backstopping Citi debts to the tune of $300 billion was exactly the wrong thing to do. Geithner, Bernanke & Paulson all confuse Wall Street with the U.S. economy.
Everyone is dancing to Goldman's tune.
This analogy that halting the debt morphine too quickly might kill the patient (the economy) is crap. The U.S. economy cannot be "killed." No
matter how bad it gets, we will still have an economy. We need to expunge the bad debt and let companies fail. After that we'll be poised for
a true, sustainable recovery.
-- Iska Waran of MN
Zuckerman, your article, as usual, was well thought out and succinctly written.
The facts you present seem plain, and the solution you propose seems like common sense. So how is it possible that our erstwhile responsible Republican leaders in Congress -- with their large staffs of smart and educated people can have a clear picture of our economy (or they can just read your columns) -- and take the stand that they are against further stimulus?
The Republican Party seems to have transformed itself into a party of know-nothing, brutish, and uncaring yahoos. Or is it actually possible that the Republican congressional leaders want the U.S. economy to fail while under Democratic leadership?
I ask this regretfully, as someone who used to say he was a Republican.
-- Steve Wang of PA
The consumer-driven economy doesn't work anymore.
People are changing their habits. They are saving more and consuming less. They are realizing they do not need more "stuff." They still
like to go out to eat, to be entertained. Spending one's way to happiness has created a lot of stress and little happiness. The consumer
system is broken. You can't fix it. We need a new economic model. I don't see one on the horizon.
-- Phil of OR
Zuckerman, your article is right on.
I am glad someone is talking about jobs, jobs, jobs. I woke up this morning and discovered our tax bailout money is going to fund more
billion-dollar bonuses for Goldman Sachs executives. How many jobs can that create? And we still heard from guys writing comments that
we need to give these same guys more tax cuts. Don't we see these guys are taking us for a ride? We need good-paying jobs, like the
ones that FDR provided in the Great Depression. We have tried tax cuts for eight years and what a mess we are in now.
-- Joseph of TX
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(c) 2009 U.S. News & World Report