After producing job gains averaging 220,000 per month in the three months to April, the economy added just 54,000 in May, below expectations. The private sector did a bit better, adding 83,000 jobs, but that was well off the healthy rate of hiring enjoyed earlier in the year. The unemployment rate rose to 9.1%, from 9.0% in April.
America's job woes have also been self-inflicted. Private firms have added over 1.7m jobs in the past 12 months, but the government has shed nearly half a million over the same period (not counting the loss of temporary Census jobs last year). Local governments alone have cut 446,000 positions since September of 2008. Some of those government jobs losses reflect a sensible rationalisation of workforces. Too many of them reflect the damaging effect of pro-cyclical budget cutting due to balanced-budget rules in cash-strapped states. More federal aid to states might have dampened the reductions, easing the drag on national growth.
The ongoing debt-ceiling battle is an additional source of uncertainty. Legislators continue to bicker over how and how much to trim from the federal budget in exchange for an agreement to raise the nation's statutory limit on borrowing. Failure to raise the ceiling by August will trigger default. Just yesterday Moody's, a ratings agency,threatened to downgrade America's debt rating if a deal on the ceiling weren't reached by next month.
In a global economy this volatile, the American economy is going to have a rocky month here and there. But American government officials are doing themselves no favours. Federal Reserve officials are overly concerned with inflation given the outlook for slowing global growth. Now is no time for policy tightening. And elected representatives in Washington are playing with fire. By cutting too much spending in the short-term and turning the debt-ceiling fight into a political battle, Congress risks making a large unforced error. The economy is simply too vulnerable at the moment for politicians to make those kinds of mistakes.
06 June 2011
The American Job Market - A Self Inflicted Wound
Excerpts from The Economist. Government policy to reduce the deficit and move towards fiscal responsibility is proving economically reckless. It is now costing us jobs and putting us at risk for a double-dip recession.