The economy lost 125,000 jobs in June. But that’s not the worst news contained in the economic report that came out on Friday about who’s working and who’s not. Here’s what we should be really worried about: American workers are losing faith in the economy faster than they have in 15 years.
In fact, the jobs numbers themselves are not really as bad as they appear. That’s because at least part of the drop was due to the fact that much of the work of people who knock on your door to make sure you live there is done. The Census bureau cut 225,000 temporary workers in June. Factor out the government completely and the private sector actually added 83,000 jobs. In fact, the unemployment rate even dropped in June to 9.5% from 9.7% the month before. Wow, this job loss is looking better and better. So does that mean we are out of the woods? Not even close.
But before you start to cheer consider this: The economy has to add 100,000 jobs a month just to keep up with population growth. And June is the month that new graduates flood the market looking for work. It’s likely that a good portion of the class of 2010 were told there is no room for them in the economy right now. What’s more, the government to calculates the unemployment rate based on the number of people looking for work, not just everyone who isn’t working. And the drop in the unemployment rate had more to do with the number of people looking than those that found work, which I find to be a very disturbing fact.
June’s decline in the civilian labor force of 652,000 was the sharpest one-month decline in 15 years in the Labor Department’s survey of households. Some people could be frustrated with their job searches, choosing to take time off or pursue other options like school. Some could be experiencing the end of their unemployment benefits, which required them to maintain an active job search. Whatever the cause, over the past two months almost one million people simply stopped looking for work.
One million people stopped looking for work. They gave up hope that they would find employment and decided the couch was a better option. Or took up some work that was off the books and I’m sure worse paid. Earlier in the week we saw a big drop in consumer confidence. But not spending is one thing. Not even going to look for work so you can start spending again is even worse. Combine these two things and you get the sense that Americans are giving up.
Remember the V-shaped recovery. Kiss that good-bye. Economists, it seems, are hitting the acceptance stage in the grief cycle. This is from Steven Blitz at Majestic Research (ht: WSJ’s Real Time Economics):
This is the economy we have, not the one we want. The one we want would be well along adding enough jobs to take in new entrants to the workforce and begin to cut into unemployment. Adding 83,000 private sector jobs, of which 20,500 are temporary positions, and losing 10,000 state and local government positions, is not the stuff of robust recovery but it also isn’t the makings of a double dip.
And with the market back down, and hiring slowing, even that may be a little too optimistic.
So where do we go from here? Increasingly, it looks like the stimulus we got so far is not going to be enough to pull us out of the recession or what ever you call the malaise we are in now. CNNMoney today makes the point that we are near the peak of the spending from last year’s stimulus bill and we still have plenty of recovery left to do.
This summer will be the peak of the $787 billion stimulus program in terms of creating jobs and pumping money into the economy. In fact, the Obama administration is calling it the Summer of Recovery because more than 30,000 miles of highways are being improved, more than 2,800 water projects have been started and 120,000 homes will be weatherized.
After that, it will be a downhill slide for stimulus even as the economy is expected to continue sputtering.
“It’s very hard to discern any impact,” said Brian Bethune, chief U.S. financial economist for IHS Global Insight.
That brings us to the big debate that economists have been having with growing intensity for the past few weeks. The two routes are more stimulus or austerity–namely cut everything, raise taxes, and hope that a falling fiscal deficit will make America look like a better investment and boosting the economy. Here’s the problem: Austerity almost never works. Heres what a UBS study had to say:
Indeed, some 30 debt-plagued nations since 1980 have tried to reduce their indebtedness through such austerity measures. In practically all cases, according to a study by financial giant UBS, the increase in national debt was only slowed, not reversed, by such policy pain.
So to those who look at the job report today and say more government spending is a waste of money, I say this: What other choice do we have?