Unhealthy Jobs Jolt

The first quarter slowdown in GDP portends stagnation. Possibly. That all depends on how odd the so-called oddities that caused the slowdown are. One thing is more certain: the jobs market appears to have hit a bump. Today’s news that first time claims for unemployment assistance jumped 25,000 back up to a total of 429,000 is bad news however we look at it.

This is the third week in a row that claims have topped the 400,000 mark, decisively breaking the improving trend that seemed to be in place earlier in the year. Something is going on in the labor market, and it cannot be explained away purely as a statistical quirk. To paraphrase Oscar Wilde: to lose one parent is an accident. To lose two is downright careless. After three weeks a quirk is no longer a quirk. It is a trend.

One explanation could be that the Japanese contraction in manufacturing, which is at a record level because of the after effects of the tsunami, is having large knock-on effects in the US. The auto industry has had to furlough workers as sources of parts dry up, which indicates we could see reduced activity for a few months and increased hesitancy in hiring.

But I doubt this is the only reason claims jumped.

General business conditions have not improved sufficiently for businesses to hire more workers. The outlook still appears to murky, and expectations are stuck on the neutral side of acceleration. Many companies are still able to squeeze more profit growth by extending work weeks and keeping a lid on costs. The incentive to hire remains too weak.

This is, of course, a policy failure. It could be remedied by a stronger commitment to getting people back to work, but our leadership, right across the board, has abandoned that goal and is now content to let the market work its own way out of the current predicament. Our social conscience has evaporated and has been replaced by a faux concern over the twin inflation and debt demons. Neither are real. Both are in the imagination of those in power. But, like many superstitions, they exert a hold on action far out of balance with their real potential impact.

In a nutshell we have moved on.

Apparently unemployment doesn’t matter to our policy makers. Squabbling over the deficit and worrying about the chimera of inflation do.

That is both sad and dangerous.

Sad because it diminishes us through realization of our collective willingness not to care any longer. Dangerous because lingering unemployment will corrode confidence and produce discontent and fear that will spill over into weaker consumption.

Economics is in large part psychological. Our leaders have fallen prey to imaginary demons. Our workers have fallen prey to a dispirited disbelief in our leaders.

I call that unhealthy.