The Jobs Market: Is the Worst Over?
The latest jobs report was a welcome surprise. Jobs increased in January by 243,000, cutting the unemployment rate to 8.3%. The question remains: is this a blip, or has the economy turned a corner?
Earlier in the week, the Congressional Budget Report put out a more pessimistic report, showing unemployment rising to 8.9% by the final quarter of this year (which happens to include Election Day) and peaking at 9.2% in early 2013.
According to the CBO, we won’t return to pre-recession employment levels until 2019. Why the grim picture? CBO assumes more budget cutting as the Bush tax cuts sunset, the deficit keeps declining, and there is no further offsetting stimulus.
Though the short-term jobs numbers have been above expectations for both December and January, there is no assurance that this good news will continue in the absence of additional stimulus.
And the risk remains of either a spike in the price of oil, as a byproduct of the escalating conflict with Iran, or further troubles in Europe. Either could weaken this hopeful trend.
The European Union, wedded to an even more perverse brand of austerity economics than the U.S., remains our biggest export market. And even a modest hike in the price of oil is like a tax on purchasing power.
For now, a prime engine of economic growth is the Federal Reserve, which has pledged to keep interest rates at near zero for the next three years. That itself is both recognition of how fragile this recovery is and also a necessary tonic.
Astoundingly, senior House Republicans spent one recent morning morning raking Fed Chairman Ben Bernanke over the coals for his refusal to let the economy fall off a cliff. The ever-clueless Paul Ryan, chair of the House Budget Committee, attacked Bernanke for failing to pay sufficient heed to inflation. The Fed’s policy, Ryan opined, “runs the risk of fueling asset bubbles, destabilizing prices, and eventually eroding the value of the dollar.”
On what planet does this man live? Bondholders are now willing to lend the government money for 30 years with returns of under 4%. If investors were worried about inflation, the interest rate on Treasury bonds would be rising, but it has been steadily falling for two years. The more serious risk is prolonged deflation.
As Bernanke, nobody’s idea of a Bolshevik, told the committee, “We still have a long way to go before the labor market can be said to be operating normally. Particularly troubling is the unusually high level of long-term unemployment.”
And if Ryan and his fellow Republicans want to be sure that low interest rates don’t cause asset bubbles, the remedy is financial regulation — of the sort that Republicans relentlessly oppose.
The Fed has done all it can to fight unemployment — you can’t push interest rates below zero. More public investment is needed. The latest jobs report showed that the public sector actually shed a net 14,000 jobs last month.
And a much more aggressive policy of mortgage relief would reverse the current problem of sinking housing values dragging down the rest of the economy.
Still, let’s celebrate good news when it comes — and hope it continues. There is much still to be done to help these encouraging trends turn into a durable recovery.
Robert Kuttner is co-founder and co-editor of the American Prospect.