Gloomy employment milestones
There is normally something for both optimists and pessimists in the monthly employment report.
When the payroll figures are disappointing, the unemployment rate is frequently better than expected. This month is no exception. While payrolls plunged by nearly half a million, unemployment barely budged.
On closer inspection there is little comfort in this report even for the most dogged optimist. The fact that unemployment only rose slightly was chiefly a result of a 155,000 decline in the size of the labor force. This could be noise, or a sign that discouraged workers are abandoning their search.
For statistical connoisseurs there were two alarming milestones. Since the start of the recession in December 2007, 6.5 million jobs have been lost – more jobs than were created during the previous business cycle. According to Heidi Shierholz at the Economic Policy Institute, this is the first recession since the 1930s to erase all of the employment creation from the preceding cycle.
The second discouraging sign is that the proportion of those out of work for more than six months is at its highest level since 1948, when records begin. Almost a third of the jobless are now classified as long-term unemployed – up from about 19 percent last year. This is bad news for U.S. productivity. As people stew on benefits their skills tend to atrophy. With more highly educated workers losing their jobs, this problem could get worse.
The figures are bound to be used as evidence that Obama’s costly stimulus package has been a dud. This is unfair. The time lags in fiscal stimulus are long. Payroll deductions were scaled back only a few months ago and much of the infrastructure spending will take many months to filter through. In addition the president’s package was never likely to halt the rise in unemployment, merely to slow it.
The figures should send the loudest signal to the Federal Reserve, which is still on the front line. Its credit easing program has always offered the best hope of economic stabilization. Recently the Fed has become less active.
The Fed should now put its foot back on the gas.