The stimulus is working … just not for you
The following is a guest post by Bruce Yandle, distinguished adjunct professor of economics at the Mercatus Center at George Mason University and dean emeritus of the College of Business & Behavioral Science at Clemson University. The opinions expressed are his own.
Following the release of the Bureau of Labor Statistics July Employment report, President Obama and his advisors have been hammered about an unyielding 9.5% unemployment rate and a meager July job growth.
There are calls for more stimulus by some, less by others, and new defensive moves by a determined Federal Reserve Open Market Committee to shovel more monetary coal on the fire.
Since the passage of various federal programs in an effort to “save” the economy, the elusive recovery still lacks steam. Despite TARP-inspired bailouts of GM, Chrysler, and AIG; the large $862 billion American Recovery and Reinvestment Act passed in February 2009; Cash for Clunkers as well as actions taken by the FDIC, the overall economy remains in sad shape and the nation’s unemployment rate seems oblivious to the massive effort to bring it down.
But what if we just looked at the targeted sectors of the stimulus effort? After all, Congress did not pass legislation addressing the entire economy.
After examining the BLS employment growth data from July 2009 to July 2010 for a few major sectors, such as autos and banks and manufacturing, there were some that actually grew (see chart below).
Federal government employment takes first place — it grew 7.1%. But much of that growth involves lingering census workers so we can’t really count that.
The auto industry follows the federal government in employment growth. Bailouts seem to matter. Employment in the motor vehicle and parts sector grew 6.3%. Meanwhile, privately provided health and educational services grew by almost two percent.
There was also positive growth in professional and business services. In fact, this was a leading growth sector before the Great Recession as well. Apparently, there is still a lot of muscle left in this keystone to the economy.
And, as expected, state-funded education recorded positive growth. Following a special August congressional session, another dose of funding is headed that way again. However, state government employment growth without the education sector is negative. And so is employment growth for local government.
As for other losses, commercial banking was the first to go negative, but only by a small amount. Undoubtedly, the FDIC and TARP salvaged some jobs. Manufacturing registered a small employment decline, but nothing like the larger losses registered by the financial activities and real estate sectors. These two were caught directly in the gears of the housing collapse.
Of all the losing sectors, construction was the biggest one. We know that a popped housing bubble leaves little chance for an early recovery in housing related construction. But we heard a lot of talk about shovel-ready jobs when the large stimulus package was being debated. There was an employment run-up in heavy & civil construction but the full sector did not catch fire.
But for where the stimulus money was directed — autos, banks, teachers, and healthcare — it seems to have worked as Congress intended.
Unfortunately, there was little in the stimulus package for the unidentified, unorganized smaller businesses, where most employment growth always occurs, which is why the unemployment rate hangs still at 9.5%.
Had we wanted to stimulate the entire economy we would have seen tax cuts for all employers and employees, a sure-fire way to put money in the pockets of everybody. So while the sectors that were targeted with trickle-down money have done relatively well, the everyman is still looking for a better day.