The economic data plots look like EKGs of a patient who’s not getting sicker but isn’t getting better fast enough either. Unless you’re hiding under a rock somewhere—and it must be very hot under there if you are—this morning brought another in a series of weaker-than-expected jobs reports.
Payrolls were up by 80,000 last month and the unemployment rate was unchanged at 8.2%. That’s not the disaster that partisan politicians will say it is, but it is a clear sign of a downshifting in the pace of job growth from earlier in the year.
In the first quarter of the year, payrolls were up an average of 226,000 per month; in the second quarter, which includes last month’s data reported out today, that average monthly gain fell to 75,000. The fact that the unemployment rate has been stuck hovering around 8% for months now also confirms that we’re stuck just north of neutral.
Isn’t there anything anyone can do about this? Just for a (very refreshing) moment, put aside the campaign sparring and congressional gridlock, and let’s think about this. Actually, I just went on the new MSNBC show, The Cycle, and they asked me what I’d do if I were king for a day (I of course said my first ruling would be to make me king for a month—btw, I think their team is mixing things up in a very cool, fun, and interesting way).
First, some diagnosis. For the record, it’s not the President’s fault—to the contrary—his fingerprints are all over what growth we’ve seen so far. It’s not health care reform or the EPA or high taxes or the liberal media or the conservative media. It’s:
a) Consumer demand remains weak and when your economy is 70% consumer spending, that’s kinda important;
b) Housing is not as bad as it was, but it’s bumping along the bottom—that’s better than continued home-price declines, but neither is the sector leading us out of the woods;
c) Europe is definitely shaving growth off of our economy, through diminished exports and financial distress;
d) Fiscal policy is pushing the wrong way in various ways. It’s not just nervousness around the fiscal cliff (the big tax hikes and spending cuts set to kick in on Jan 1, 2013). It’s fiscal drag from fading stimulus and state budget cuts.
Next, prescriptions—and remember, I’m king:
Monetary policy: Benny B and Co. over at the Fed keep saying they’re waiting to see if the economy has slowed for real. I think we can say, based on that quarterly deceleration in job growth cited above that it likely has.
There’s more the Fed could do and they should do it, but without getting into the details of their “quantitative easing,” the key diagnostic point is that the Feds are targeting interest rates. In this case, it’s longer term rates, and their actions are intended to bring those rates down (short term rates are already about zero).
But investors aren’t sitting on the sidelines (and atop heaps of cash reserves) because interest rates are too high. It’s because demand is too weak and they just don’t see projects here in America that promise to yield them much of a return. That’s why the profitability you see—and there’s been plenty in the corporate sector—has come from abroad. In fact, last month corporate profits stumbled, as even foreign emerging market economies began to slow.
No, the only thing that will really help right now is a solid slug of job creation measures, the more direct the better.
—We should get started right away on two big, phat infrastructure projects: 1) bury the power lines (and I was writing about this before last week’s derecho), and 2) repair the public schools (FAST!)
—Fiscal relief to states to prevent more layoiffs of teachers, cops, etc. Last month saw yet another significant decline in local education jobs (-14,000) and in all but three of the last 25 months, the public sector has shed jobs.
—Kick the FHFA into gear regarding cooperation on principal reduction. If this means rolling some heads, then do so. This is a time for such action.
—Extend unemployment benefits which are now fading—they’ve got a great bang-for-the-buck and to extend them is perfectly consistent with the downshift in the job market and the fact that long-term unemployment remains highly elevated.
Boom—four simple, solid ideas that can get to work quickly, complementing and juicing the Fed’s monetary stimulus (which is why Bernanke, not exactly a radical economist, has called for fiscal help). IMHO, that’s what we should do. If you’ve got a different diagnosis and prescription, lay it on me.
OK…dream over. For the record, most of these ideas are on the White House’s agenda. When the President said today something like, “We’ve got good answers—but we’ve got a stalemate,” he speaks truth.
But back here in reality, my kingship over, what will we do? Bake in the sun until the problems fix themselves, I guess.