Bleak Jobs Report Indicates More Pain to Come

Published August 12, 2010

Commentators across the political spectrum had similar reactions to dismal jobs numbers released by the government in August but markedly different prescriptions for solving the problem.

Nonfarm payrolls fell by 131,000 in July, more than the drop of 60,000 economists had expected, the Labor Department reported.

AFL-CIO President Richard Trumka said in a statement the government’s “disappointing employment report shows the economy shed 131,000 workers, mostly because of the winding down of the U.S. Census. Of more concern is that private sector employment increased by only 71,000 new jobs. The unemployment rate was unchanged, but only because another 181,000 workers left the labor force.”

Then, on August 19, a new jobs report showed even more dismal results, as 500,000 people filed for jobless claims in the week of August 12, the highest claims level in nine months.

Trumka praised lawmakers for passing a $26 billion bill in August “to save hundreds of thousands of essential public servants—teachers, firefighters, and public safety officers—from joining the ranks of the jobless. But the economic recovery is still far too weak to power the job growth we need to offset the almost 8 million jobs lost since the recession began.”

Opponents criticized the bill as a bailout for state and local government workers whose support Democrats need in the fall mid-term elections. Nearly all Democrat lawmakers supported the bill, and nearly all Republicans opposed it.

Even Temp Work Is Falling
David Huether, chief economist for the National Association of Manufacturers, said, “While manufacturing has added 26,000 jobs per month so far this year, this is still just a small fraction of the 91,000 jobs lost per month during the prior two years. If this pace is maintained, U.S. manufacturing employment will not return to its pre-recession level for another six years.”

He said the government’s jobs news “shows little evidence that the labor market will significantly improve in the next couple of months. After starting to increase last October, temporary employment—a good indicator of future permanent jobs—slowed in recent months and actually declined in July.”

In addition, the government revised the June data to reflect a loss of 221,000 jobs, more than the 125,000 decline previously reported for June.

GDP Also Revised Down
The poor jobs reports came on the heels of the Commerce Department’s estimate that U.S. gross domestic product—the value of all goods and services produced—rose at a sluggish 2.4 percent annual rate from April through June. That’s down from 3.7 percent growth in the first quarter, indicating the economy is again slowing.

Peter Ferrara, director of entitlement and budget policy for the Institute for Policy Innovation, noted the official unemployment rate does not include underemployed persons or those who have stopped looking for work.

“The army of the unemployed and underemployed consequently totals nearly 26 million,” said Ferrara, who also served as a senior staff member in the White House Office of Policy Development under President Reagan and as associate deputy attorney general under President George H. W. Bush. “This would add up to an unemployed and underemployed rate of 16.5 percent, more than two-and-a-half years after the recession started.”

Ferrara sharply differs with the AFL-CIO’s Trumka on how to solve the problem.

Stuck in Record Stagnation
“The economy is stuck in record postwar stagnation because, since the beginning of this recession, it has been addressed with throwback Keynesian economics, proven to fail long ago, rather than the more modern supply-side economics that proved so successful in leading to a 25-year economic boom starting in 1982,” Ferrara said.

“President [George W.] Bush joined with the Democrat Congress to enact a Keynesian stimulus package in February 2009 that had no discernible beneficial effect on the economy,” Ferrara added. “President Obama, elected promising change, passed another Keynesian stimulus package a year later, only six times larger, which has again failed to generate any real recovery.”

Administration Seen as Anti-Business
F. Vincent Vernuccio, labor policy counsel at the Competitive Enterprise Institute, said the 2008 recession “has ballooned into a ‘great recession’ mainly because of the policies of Washington. The current administration is seen as anti-business. Many businesses, both small and large, are hesitant to expand or hire new workers because of the current hostile tax and regulatory environment. Uncertainty of new legislative burdens and taxes also contributes to this hesitancy.”

Vernuccio added that because the stimulus packages “have gone mostly to bail out government and union workers, most average Americans have not been helped. They have only seen their share of the national debt increase.”

Some Cause for Hope Seen
Robert Genetski, president of the financial consulting firm, said businesses are holding off hiring for a variety of reasons, including concerns about the higher taxes and regulations that will result from the ObamaCare legislation that became law earlier this year, and more tax increases to come if tax cuts enacted in 2001 and 2003 are allowed to expire as planned in 2011.

Nonetheless, he does see some hope in the jobs report.

“The gain in private sector jobs amounted to a modest 0.8 percent annual rate,” Genetski said. “However, total hours worked increased at a rapid 5 percent annual rate. The latter number shows that the economy is doing better than some of the data for the previous month had suggested.”

Steve Stanek ([email protected]) is a research fellow at The Heartland Institute and managing editor of Budget & Tax News.