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Weak Jobs Report Puts Ball in Fed's Court

12:00 AM, Sep 8, 2012 • By IRWIN M. STELZER
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The party conventions are over, the signs and funny hats are overflowing trashcans in Tampa and Charlotte, and reality returns to center stage in the form of Friday’s jobs report. It’s rare that a single data report matters much. After all, we can’t project a trend from a single data point. The report that the economy added a mere 96,000 jobs in August is an exception. No matter that the unemployment rate fell to 8.1 percent from 8.3 percent—that is only because 368,000 more workers dropped out of the work force, and the labor force participation rate dropped to its lowest level in 30 years. For every worker who found work, four simply stopped looking and joined the ranks of what economists call “discouraged workers.”

President Barack Obama and Fed chairman Ben Bernanke.

President Barack Obama and Fed chairman Ben Bernanke.

“Consider some startling numbers,” invites the Lindsey Group in its latest client bulletin. “The number of adult males eligible to work in the civilian economy has expanded by one million over the last year. But the number declaring themselves not interested in working has expanded by roughly the same amount. Overall, if the labor force participation rate was the same as it was a year ago the unemployment rate would still be 9.1 percent – unchanged over the past year.”

Five million of the 12.5 million unemployed workers have been job-hunting without success for over 27 weeks. Most important, over 23 million workers, 14.7 percent of all workers, are either out of work, involuntarily on short hours, or too discouraged to continue the job hunt. To complete the gloomy picture, the job-creation figures for June and July were revised downward by 41,000.

Here’s why this matters. First, it might prove to the majority of Americans that they are right to believe the country is on the wrong track, and that the president is wrong to claim that he is bringing manufacturing jobs back to America—in fact, some 15,000 such jobs were lost in August as the manufacturing sector contracted for the third consecutive month. Diana Furchtgott-Roth of the Manhattan Institute calculates that given the average growth in the labor force, the job-creation rate recorded last month would take 32 years to bring the unemployment rate down to Obama’s promised 6 percent. Only if the economy adds 300,000 every month would the unemployment rate drop to 6 percent by the end of the first year of his second term.

In short, it won’t be easy for the president to defend his massive spending and borrowing to create jobs. In less than four years he has added $5 trillion to the national debt, about half of what all of his predecessors combined managed to pile up in over 200 years.        

Unfortunately for Mitt Romney, this bad news is not necessarily good news for his campaign. He chose to ignore the advice of some economists and resurrect the question Ronald Reagan put with devastating effect to the hapless Jimmy Carter some three decades ago: “Are you better off than you were four years ago?” To which the president responds, “You bet we are.” When Obama moved into the White House, the economy was losing 800,000 jobs per month. For the past two years it has been adding an average of around 150,000 jobs. Not as many as Obama says he would like, but “recoveries have ups and downs. The economy is starting to heal,” says Alan Krueger, chairman of the president’s Council of Economic Advisers. Whether the Obama medicine is hastening or slowing the healing process is something voters are being asked to decide.

The second reason this report is so important is that it will enable the Federal Reserve Board’s monetary policy committee to do what Chairman Ben Bernanke hinted in his Jackson Hole speech he and several of his colleagues have been wanting to do: give the economy another boost, using “extraordinary methods” if necessary.

The chairman’s stated goal is a “sustained improvement in labor conditions.” Which is why he may have found worrying a study by the National Employment Law Project, a liberal research and advocacy group. It claims to show that the mid-wage, mid-skill jobs lost during the downturn are being replaced by low-wage, unskilled jobs. Jobs paying about $14 to $21 per hour accounted for 60 percent of the jobs lost between early 2008 and early this year, but only 22 percent of total job growth. 

Fed watchers at Goldman Sachs now say that there is better than a 50-50 chance that the Fed will announce further measures to boost the economy when it meets next week, perhaps including (my guess) an announcement that it will keep interest rates at current near-zero levels beyond the end of 2014 date now agreed.      

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