Today, American business pages are full of reports about the shrinking jobs market in the US. Just when many economists were expecting positive news about employment, unemployment rates have grown back to 9.2%, and that is not including underemployment and the large numbers of people who have dropped out of the workforce.
While you might think the concern should be for the unemployed, the focus of most articles is the negative effect on growth, and the problems it presents for Obama’s re-election.
Economists were stunned. They had been expecting job growth to strengthen in June as oil prices eased and supply disruptions caused by the Japanese tsunami and earthquake receded. Instead, the government’s monthly snapshot of the labor market showed that several industries, including construction, finance and temporary services, shrank. At the same time, leading indicators like wages and the length of the average workweek, which tend to grow before employers begin adding more jobs, actually contracted.
Most analysts are not yet forecasting an outright slide back into recession, but at a time when President Obama and Congress are focused on spending cuts, Europe is in financial crisis and even China’s growth is slowing, there is little expectation of anything other than a prolonged slog for the United States economy.
Recent debates in the US Congress have focused on the huge public debt and how to address it, raise taxes, cut spending, or both. If you are concerned about employment, it does not look like a good time for worrying about debts, but recent political battles have focused on the debt limit and whether to increase it.
Budget strains were evident in the public sector as the federal government slashed 14,000 jobs, and state and local governments cut an additional 25,000. Nearly three-quarters of the job losses at the local level came in education.
Clearly, further cuts in government spending need to balanced by expansion in the private sector. That takes time, and the priorties may be different, but some are still optimistic.
For hopeful signs, some economists pointed to more recent data showing a pickup in retail sales at chain stores and a rise in an index of business hiring. In manufacturing, analysts expect an increase in auto production in the fall, partly because disruptions in supply will have diminished and partly because of built-up consumer demand.
Daniel J. Meckstroth, chief economist of the Manufacturers Alliance, a trade group, said consumers who had been delaying purchases of cars, washing machines, refrigerators and other big equipment that breaks down over time would eventually start buying again as they paid down debts.
“Spending was severely cut during the recession,” Mr. Meckstroth said. “Now, the longer you wait, the more pressure there is to make purchases. You can’t postpone some things indefinitely.”
Others believe this thinking is overly optimistic.