More on Friday’s terrible jobs report

I already posted yesterday about June’s terrible jobs data from the Bureau of Labor Statistics that showed anemic job growth in America of 18,000.

The private sector added 57,000 jobs last month — a pretty poor showing considering the economy needs to add twice that many to keep pace with population growth — but the public sector (all those evil government jobs) cut positions by 39,000.

If you don’t trust my characterization of how bad the report is, check out the economists who commented here at the WSJ.

The consensus had been for decent job growth, based on some pretty good indicators and based on the theory that some of the spring sluggishness was due to temporary disruptions like the supply chain issues related to the Japanese earthquake and tsunami, the spike in gas prices (prices are about 10% off their recent peak), bad weather, and so forth.

But it’s hard to blame June’s sluggishness on any of those factors. Look for a really bad initial estimate of 2nd quarter GDP.

The expectation — maybe now just the hope — of many economists is that the sluggish recovery will tick up a bit this fall. But we’re really just in the realm of hope right now rather than policy. The Fed has basically taken itself out of the game and probably wouldn’t embrace a 3rd round of “quantitative easing” (QE3) or any other type of expansionary monetary policy unless GDP turns negative or deflation becomes a serious threat. And rather than prime the economic pump with more stimulus, government at all levels seems set to contract even more.

Calculated Risk made a great, great post about all this on Friday afternoon. President Obama, following the lead of “bond vigilantes” and many conservative thinkers who still embrace some version of supply-side or trickle-down economics, has been using rhetoric suggesting that a suitable end to the debt ceiling debate and a longterm plan for a balanced U.S. budget will fuel confidence and automatically buoy the economy and create jobs. CR puts this notion to rest:

The main reason employment growth is sluggish is because the U.S. is recovering from a housing and credit bubble, and the subsequent financial crisis. There is still too much excess capacity in most of the economy for a large contribution from new investment (except in equipment and software). We see this excess capacity in housing, and in overall industrial production. There is also excess capacity in office space, retail space, and other categories of commercial real estate. In addition, household debt, as a percent of income, remains very high and household deleveraging is ongoing. That is why so many companies identify their number one problem as “lack of customers”.

Until the excess capacity is absorbed, and household balance sheets are back in order, the recovery will remain sluggish. [. . .]

I know there are policymakers who think the problem is confidence and deficits. But this is incorrect. Misdiagnosing the causes of weak employment growth will lead to the wrong policies. Oh well … this reminds me of 2005 when I couldn’t get any policymakers to pay attention to the housing bubble. Frustrating.

And let me repost here the graph I posted yesterday, from Calculated Risk:

If you’re having trouble figuring it out, it just shows job losses by percent for all the recessions post-WW II, aligned at the bottom of employment. Note how sluggish the recovery was from the relatively shallow recession of 2001. Note also that the bottom of employment came in mid-2009, largely thanks to the extraordinary — and highly controversial — steps taken by the Fed and the Bush and Obama administrations to end the slide.

Americans are now in the mood to cut government, and in the short run those cuts are going to make this graph look worse. That’s clear. Over the long run (a decade out, at least), leaner governments might turn out well for Americans’ quality of life. But in the short run, an embrace of austerity will make this jobs recovery even more sluggish.

Looking at the local level, I’d love to see — as I have been saying for a couple of years now — a more aggressive attempt to spend sales-tax money that has already been set aside. With interest rates so low, it would also be a good time to borrow money (via bonds) for infrastructure projects that we know we need, like new bridges on Highway 80 on the road to Tybee. That project is likely to be part of a new TSPLOST (more here), which might be voted on next spring. And it would fail, because the Republican primary voters will be in an anti-tax mood. If the TSPLOST vote is pushed back till fall 2012, it will have a better chance of success, but I think many urban Democrats in the region are going to be hard to convince about the need for highway projects. (I know I’m going to be a tough sell.)

And look at what I’m talking about: fall of 2012! We need better and safer bridges on Highway 80 RIGHT NOW, not several years from now when sales tax money may or may not be trickling in.

That’s the type of infrastructure project that I hoped would be the focus of the federal stimulus of early 2009, but that process (about 1/3rd of which was tax cuts, btw) got sloppy and unfocused. Still, that early 2009 stimulus prevented a far worse economic calamity, even though it was not enough to give the economy the escape velocity necessary to overcome all the headwinds that CR notes above or the extreme job losses visible in the above graph.

No matter what we do, the process of job recovery is going to take years. Let’s hope we make good policy decisions that will speed up the current lame recovery rather than slow it even more. Right now, it looks like we’re going to do the latter.