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Hope, but Worry Now

12:00 AM, Jun 2, 2012 • By IRWIN M. STELZER
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To many observers the choice is simple: These are the worst of economic times, or almost—and we are on the brink of something worse. Incumbent politicians fear this is the case, and challengers, sotto voce, hope it is. They focus on what to them is the long run—the 22 weeks until Election Day, November 6, when voters will tell them whether they can continue in office or must find gainful employment in the private sector.

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The Department of Labor reports that only 69,000 new jobs were created in May, about one-third the average monthly gain in the first three months of the year. The unemployment rate rose to 8.2 percent from 8.1 percent in April. To make matters worse, the figures originally reported for March and April were lowered by 49,000, and the number of workers unable to find jobs for 27 weeks or more rose from 5.1 million to 5.4 million. The broadest measure of unemployment, the number unable to find full-time work or too discouraged to look for a job, now exceeds 23 million, up from 14.5 percent to 14.8 percent of the work force. Markets tanked, wiping out all of the year’s gains.

This is not the only piece of information that worries the White House and provides talking points for President Obama’s opponents. First-quarter GDP growth has been revised downward from the originally reported 2.2 percent rate to 1.9 percent, better than the recession-like figures being recorded in many other countries, but not something the Obama team can crow about, especially after spending something like $1 trillion on various stimulus packages.

After three quarters in which bank lending rose, it fell in the first quarter. Corporate profits, which have held up well until now, are starting to show signs of weakness. Profit margins are dropping from last year’s peak, as is investment in equipment. Share prices are tumbling. The Purchasing Managers Index is signaling a slowdown in economic activity, or at least in the rate at which it has been increasing. The phasing in of new employees at wage rates below those of “legacy employees” is depressing average wage rates. The Bureau of Labor Statistics reports that manufacturers’ labor costs are 2.7 percent lower than they were at the beginning of 2005. And on an inflation-adjusted basis manufacturing workers are taking home about what they did in 2000. That is contributing to the return of some manufacturing operations to the U.S. as productivity increases, but the price for that progress is being felt by more workers than the number of new jobs being created. A slide in real earnings by the many is creating employment opportunities for the few, not the sort of electoral math that appeals to incumbents seeking reelection.

Add capital flight, record high (11 percent) unemployment and recession in the eurozone, fear that a Greek default will trigger financial upheavals in global financial markets, slowdowns in China, India, and Brazil, and Putin’s renewed assault on the private sector—so much for looking to the BRICs for growth—and it is no surprise that the Conference Board, an industry research group, reports that consumer confidence has fallen to its lowest level in four months, and remains far below anything that might give forecasters hope for a near-term upturn. “Consumers were less positive about current business and labor market conditions, and they were more pessimistic about the short-term outlook,” says Lynn Franco, in charge of the survey.

All of this is obvious both to the president and to Mitt Romney, who locked up the Republican nomination with a primary win in Texas. Obama says that job losses have been reversed, thanks in good part to his policies, but concedes “we have more to do”; Romney says weak job creation proves we need a new hand on the tiller of the ship of state. Obama points to the devastating effects of austerity in Europe and calls for more spending here despite deficits that cannot be reduced substantially even if Congress heeds his plea to soak the rich, while Romney argues that the skills that made him a successful equity investor at Bain Capital can be applied to bring fiscal sanity and jobs to America.

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