Markets eagerly awaiting the latest US non-farm payroll data today amid fears of a double dip recession in the world's largest economy
Fresh evidence of the stuttering nature of America's recovery from its deepest postwar recession will be provided by the labour department in Washington today when it reveals the latest figures for job creation in the world's biggest economy.
Always an eagerly awaited indicator of the economic health of the US, this month's non-farm payroll data has attained particular significance – not just for the dealers huddled around their computer terminals on Wall Street but also for Democrats facing midterm elections in November and for Barack Obama's chances of winning a second stint as president.
The numbers are stark – and for the White House deeply disturbing. In the two years between the official start of the recession in December 2007 and the bottoming out of the labour market in December 2009, the US economy shed 8m jobs.
Even were the economy to create jobs at the rate it managed during the boom years of the 2000s, it would take until March 2014 – well after Obama comes up for re-election – to return to the December 2007 levels. But the problem goes deeper than that, because demographic change means the labour market will have been swelled by 6.5 million new entrants by 2014.
Even with rapid jobs growth of the sort seen in the bubble years, it would take more than a decade – until April 2021, according to the Centre for Economic Policy Research – for the economy to catch up with the expanded labour force.
As things stand, there is little prospect of the US economy creating jobs at the rate it managed before the credit crunch, let alone at the much faster pace seen during the Clinton boom of the 1990s. America has traditionally been a jobs machine during recoveries from recession, creating employment opportunities much more quickly than European countries.
But the pick-up in job creation in early 2010 was much weaker than in previous economic recoveries, and in recent months has gone into reverse. Large numbers of temporary workers hired to conduct the US census have been laid off, while the end of the tax break to buy homes has led to a new downward lurch in the housing market.
Analysts said the small rise in pending home sales announced yesterday was nothing to get excited about, since they were still almost 30% down on their recent peak in April. Likewise, the 6,000 fall in weekly jobless claimants to 472,000 was not seen as heralding better times for a labour market still affected by foreclosures, a shortage of credit and the reluctance of small businesses – key to employment growth – to take on more staff.
A paper presented by the economists Carmen and Vincent Reinhart to last month's gathering of central bankers in Jackson Hole found that severe financial crises – such as the Great Depression, the 1973 oil shock and the sub-prime lending collapse – have deep and lasting effects on growth and employment.
"Large destabilising events evidently produce changes in the performance of key macroeconomic indicators over the longer term, well after the upheaval of the crisis is over," the Reinharts found. "There is little good news to be found in the result that income growth tends to slow and unemployment remains elevated for a very long time after a severe shock."
The official US unemployment rate is currently 9.5% but the real level of joblessness is higher. Large numbers of Americans who would like a full-time job are working part-time, while others have given up looking for work altogether.
Mads Koefoed, macro strategist at Saxo Bank, said: "The participation rate has declined precipitously in this recession and currently stands at 64.6%. Participation has not been this low since 1985 and while the declining labour market participation does impact the unemployment rate positively, it is certainly not positive for the average out-of-a-job American. It simply means people are giving up their search for a job."
For any country, high levels of unemployment present a policy headache. For the US, the problem is particularly acute since the social safety net is less generous than in many other advanced nations. The US model requires a flexible labour market to get the unemployed back into work fast – and that has not happened since the economy bottomed out in 2009.
Policymakers in the US have always tended to be sensitive to the need to prevent high levels of persistent unemployment, not least because memories of the 1930s dole queues have been as potent in shaping American economic decision-making as the hyper-inflation of 1923 has been for Germany.
John Schmitt and Tessa Conroy, researchers at the Centre for Economic ad Policy Research, a Washington-based thinktank, said it was time for action.
"The substantial political obstacles facing another round of economic stimulus and the Senate's decision not to extend long-term unemployment insurance benefits suggest that economic decision-makers might not understand the depth of the economic hole in the labour market."
Copyright Speakers Corner 2016