ShareThis
by Don Azarias
September 1, 2012
With the European Union’s debt problem turning into a full-blown financial crisis and signs that China’s factory productions are slowing down in recent months only add to the uncertainties that can stunt the budding growth of the U.S. and global economies. Mainstream economists and analysts are getting anxious about the possibility of a stalled economic growth. And if Europe debt crisis continues to worsen, it will be a drag on the U.S. economy.
According to the Associated Press (AP), job gains were weak across the board last month, with the private sector adding only 80,000 positions. The number of jobs at all levels of government fell 4,000 in June. Only local governments added jobs and it was a scant 4,000. State governments cut 1,000 jobs. Overall, the government payrolls dropped 13,000 in the second quarter. The federal government cut 7,000 jobs in June. It hasn’t added jobs since March 2011. Construction employment fell 28,000 in May, the fourth straight decline while the manufacturing sector added just 12,000 jobs.
Looking at those indicators confirms that the economic growth is slowing down if not stalling. Moreover, the unemployment rate remained unchanged at 8.2 percent.
Analysts say the economy needs to create roughly 125,000 jobs a month just to keep the unemployment rate steady.
The market reacted adversely after the jobs report was released. The Dow Jones industrial average (DJIA) dropped 146 points in the first hour of trading. Stock index futures fell sharply after the jobs data. Government debt yields also fell sharply, with the 10-year note below 1.5 percent. The dollar also fell against the yen. Also, the weak payrolls report could cause the Federal Reserve to move closer to launching a third round of bond purchases. Furthermore, the level of employment is about 5 million jobs below where it was in December 2007, when the economy fell into recession.
As I have mentioned time and time again, job creation fuels the nation’s economic growth. When more people have jobs, more consumers have money to spend. As an essential part of the equation, consumer spending drives about 70 percent of the economy.
The unemployment rate was unchanged at 8.2 percent according to the Labor Department. The economy added an average of just 75,000 jobs a month in the second quarter—one-third of the pace in the first quarter. And for the first six months of 2012, employers added an average of 150,000 jobs a month. That’s fewer than the 161,000 average for the first half of 2011. Weaker job creation has caused consumers to stop spending. Fueled by Europe’s debt crisis that’s causing a major impact on U.S. exports and the scheduled expiration of tax cuts at year’s end only increase economic uncertainty for U.S. companies, making them unable and hesitant to hire.
Traditionally, a slowdown in hiring and a rise in the unemployment rate, affect an incumbent president’s public standing. This is currently what’s happening to President Barack Obama’s poll numbers and Republican presumptive presidential candidate Mitt Romney continues to hammer Obama on his inability to turn the economy around.
A Federal Reserve report, meanwhile, shows that Americans lost 40 percent of their wealth during the Great Recession, most of that due to plunging home values, though incomes and retirement pools such as stock funds suffered as well.
The economy has added just 137,000 jobs a month since employment hit bottom. Analysts are saying that, at that pace, it would take three more years for employment to return to where it was in January 2008. There are still a lot of unemployed workers who are too discouraged and had stopped looking for work and are no longer included as part of the unemployment rate. Consequently, the number of unemployed Americans presented by the Labor Department is grossly understated.
Overall, the economy lost around 5 millions jobs that were never recovered since the Great Recession officially ended three years ago. The nation lost nearly 8.8 million jobs between January 2008 and February 2010. Since then, it has regained more than 3.8 million jobs which is less than 44 percent.
Polls show Obama’s handling of the economy is affecting his reelection chances. A vast majority of the American people are overwhelmingly concerned about the fragile economy and loss of jobs. But still Obama and his Democratic allies continue to blame former President George W. Bush for the slow economic recovery. Will they also blame him for the drought caused by triple digit temperature readings that continue to scourge the entire nation?
After almost four years in office, isn’t it about time that Obama and the Democrats finally own up to the economic mess?