This Stinks – A Rotten Jobs Report

Sorry. There is no other way to describe today’s employment report. It stinks. There is no saving grace. No excuse. No special circumstance to suggest it is an aberration. No. It just stinks.

One of the reasons I didn’t comment about this week’s ADP payrolls report was that I felt it would misrepresent things. In particular it excludes the public sector, and there’s a lot going on there worth waiting to hear about. What I didn’t expect, and as far as I can tell no one else did either, was just how rotten the private sector would be also.

The facts are deplorable.

Unemployment, in the narrow sense, rose from 9.1% to 9.2%. Not a huge change, but obviously in the wrong direction, and simply atrocious for an economy supposedly in recovery mode. Worse: the wider measure of unemployment – including the underemployed – also rose, from 15.8% to 16.2%. Both numbers better describe a failing than a successful economy.

The economy added only 18,000 jobs in June. This after a paltry 25,000 in May. Recall that April’s figure was a more respectable 217,000. Even at that April rate of progress we would take almost a full decade to get back to anything resembling a healthy jobs market. June’s data implies a much longer period of mediocrity. I have said it before, but let me shout it louder: we are stuck firmly in a stagnating economy, going nowhere fast. Remember: we need to add about 150,000 jobs a month just to keep up with population growth.

The gloom has forced large numbers of people to drop from the workforce. These people are not just retiring, they have just stopped looking for a job. Some may retire early. Others may simply fester and consume precious savings. Either way, the decline in workforce participation is a stark measure of both our declining productive capacity and the loss of faith in the economy. The message is ugly whichever emphasis you place on the data.

The big damage is coming from two sources. Private businesses are simply not hiring with much enthusiasm; and the public sector is in a state of contraction as states and local governments fore workers in order to cut spending. Please remember this: cutting government spending, especially at the local and state levels, means firing people: teachers, police, fire, and other government workers. That undermines those local economies and sucks what little wind we have from our sails. There is no way that such austerity builds an economy. On the contrary, it makes getting going much more difficult due to the loss of those incomes. In the vernacular it’s called cutting your nose off to spite your face. In economics it’s called austerity driven growth. In neither case does it make sense.

There are two explanations for the privates sector’s dismal hiring record. If you listen to Obama and the Republicans – yes they are in agreement on this – the reason businesses are not hiring is that they lack confidence about the future. According to this narrative, business is holding back and not investing or hiring because the Federal deficit and debt undermines confidence in the outlook for interest rates, taxes and all the other sensitive pressure points that can muck up business conditions.

The other narrative is one you construct if you actually listen to businesses directly, especially small business. Their number one issue, and their number one reason for not hiring, is that they see no increase in sales over the short to medium term. Hiring people is expensive. Especially in America where benefit costs also include the very high cost of health care. When the outlook for demand is weak, it makes no sense to hire. That seems straightforward to me. We have a demand problem. Not a supply problem.

The first of these two explanations is the one being tossed around in Washington by both the White House and the Republican leadership. They are in lock step. The solution, according to them, is to put first priority on cutting government spending. This will, they tell us, remove all that uncertainty and doubt stalling our doughty business leaders. Once the deficit is reduced, or, rather, when a plan to reduce the deficit is in place, a surge of confidence will unleash investment and hiring. And we will take off in a supply side zoom to renewed heights of wealth and fortune.

No we won’t.

The real explanation is the second. The one that business managers will tell you when they are not being politically correct. Demand sucks. It really, really sucks. And as long as these folks do their planning in the context of flat, or near flat, forecasts for sales, the economy will flounder.

The first explanation, the one being peddled by conservatives, right wing ideologues, and the White House, is fantasy designed to justify the downsizing of government. It has nothing to do with jobs. It is directed at the long desired goal, by the right wingers, of rolling back the New Deal. In order to attach credibility and practicality to this goal they wrap the failure of the economy to create jobs around their hidden agenda. By arguing that cutting government spending we create jobs they at least sound as if they care about the latter.

They do not.

Right wing economic policy, all of it, is currently focused relentlessly on the New Deal roll back.

The White House is either clueless about, or complicit in, this goal if it goes along. And all the current available evidence is that Obama is a supply side believer. He believes that the confidence fairy will pop back up if we cut spending. He believes in the inexplicable mysteries of market magic.

Faith based economics is running amok in Congressional and White House circles. Watch out: we will lose a lot more jobs as a result.

Oh.

One more thing.

The really bad news in today’s report – as if that jobs figure wasn’t enough – was that wages went down. Think about that. Wages actually declined. In an economy trying to shed debt and struggle back to life, a decline in wages is the very last thing we need. It makes debt reduction more difficult because there is less income to allocate to it. And it makes increasing consumption even more more so, since debt reduction is still the highest priority for a majority of our hard pressed households and thus squeezes any plans to spend.

The only problem worse than this would be if this combination of rotten employment and weak wages persists for a prolonged period.

I am glad you asked: the US economy has been stuck in exactly such a position since the end of the 2001 recession. The Bush regime oversaw the worst employment and wage years ever recorded during modern non-recessionary times. This dismal performance led households to pile up debt in the hope that they could pump up their standard of living. That blew up in our faces in 2007/2008. We suffered through a lost decade for most Americans between 2001 and 2011. Current policy seems destined to make sure to double that over the next decade.

A gentle reminder: wages adjusted for inflation, were precisely the same in 2007 as they were in 1996.

It needn’t be this way.

But Washington doesn’t care. Those folks have a different agenda all their own. And it isn’t about jobs.