Ever since the haze of summer lifted, there have been more and more signs that the economy was improving. In early September, the number of people looking for work rose, showing optimism about the economy from job seekers. Corporate mergers are on the rise, too, showing optimism among business executives. Then in September the stock market had its best September in 71 years, with shares rising nearly 8%. Just this week retailers announced that sales in September were better than expected, rising nearly 3% from a year ago. Some high-end retailers, like Nordstrom saw sales climb as high as 7.7%. So you would expect today’s employment report to be more good news, right?
And you would be: Wrong. September, it appears, was another bad month in terms of jobs for the economy. On Friday the government announced that the economy lost another 95,000 jobs last month. It was the fourth straight month that the economy lost jobs. The biggest disappointment was the government sector, which sent 76,000 to the unemployment line, on top of the 77,000 expected job loss from the census. Private sector employment rose 64,000, but that was less than the 75,000 jump economist expected, and pretty pathetic considering there are more than 14 million people out of work.
I had an old editor who used to say economic data is always bumpy at the turn. So when a piece of conflicting data would come out, like the jobs report today, he would say ignore it. The only thing that matters is interest rates. If the Fed keeps them low then the economy will always recover. But just how long can we ignore the poor jobs numbers. Is it fair to say that the double whammy of low-interest rates and nearly $800 million in stimulus spending was a bust? Increasingly, it looks like we need to come up with a new way to revive the economy. Here’s why:
The U.S. does not have the luxury of waiting indefinitely for job growth to resume. Already we’re at the absolute limit: any longer, and most of the unemployed will be long-term unemployed and, to a first approximation, unemployable. This country simply can’t afford an unemployable underclass of the long-term unemployed — not morally, not economically, and not fiscally, either.
Felix’s point is a good one. The longer we go without job growth, the more long-term damage this economic downturn will have on future growth. And without a rebound in growth we are never going to get the millions of people who are out of work back into the labor force. The weak recovery may turn into a weak economy period.
Second, the problem is we may have already entered a jobless recovery. Since the recession ended in July 2009, the economy has lost nearly 440,000 jobs. How does that stack up compared to other post-recession periods? Not great. We are actually ahead of the game compared to the last recession, which was a particularly jobless one. Fifteen months after the dotcom bust recession ended in October 2001, the economy has lost nearly 1 million additional jobs. That’s double as bad as today. But here’s the thing, the most recent recession was a severe one, much worst than the one at the beginning of the 2000s. So you would expect a recovery to be much stronger. For example, fifteen months after the severe early 1980s recession ended, the economy had already added over 4 million jobs. Not only are we not even in the ballpark of that recovery, we’re not even playing the same sport. Calculated Risk has a good chart that shows this recession versus others, and, as you can see, we are bumping along the bottom.
So it seems that we no longer have the option of waiting around for the recovery to take hold. We need to do something to boost the economy, but what? Today’s weak unemployment report makes it more likely that the Federal Reserve will choose to go ahead with its proposed purchases of long-term bonds. That should lower interest rates. But with mortgages rates already at all-time lows, and corporations borrowing at rates of 1%, I’m not sure where this gets us. We could cut taxes, but so far tax cuts, which were a large part of Obama’s stimulus package, haven’t done much either. Whatever extra money people get seems to be going toward paying down debt, and that isn’t a boost to the economy.
So here’s what I think the best two options are. First, a second much larger batch of fiscal stimulus–one that is not a mixture of tax cuts and gradual spending, but one that tries to get all of the money into the economy as quickly as possible. With government jobs becoming the employment problem, more stimulus could stall those layoffs quickly by giving money to states to plug their budgets. What about the debt? With interest rates so low, it probably makes sense for the government to borrow more.
The second option, which is more radical, would be to increase interest rates. The reason I like this option is it puts more money into the hands of savers. It will immediately boost the incomes of people who already have money in the bank. These people don’t have to pay down debts. And so they are more likely to spend. It could slow borrowing, but borrowing is not our problem right now. Spending is. And until we figure out how to get companies and consumers to open their wallets the recovery will continue to drag on.