During the run-up to the election, the monthly jobs reports were relentlessly mined for tidbits that could predict the outcome of the election. These often-esoteric extrapolations got pretty ridiculous—the election wasn’t going to be determined by slight fluctuations in labor force participation.
The Bureau of Labor Statistics report released today, however, carries true political import. As Congress and the White House attempt to hammer out a year-end deal, today’s numbers show that unemployment remains a critical problem, and that recent progress was a little bit too good to be true—so any final deal must provide short-term stimulus and delay any austerity measures.
The top-line looks good: 146,000 jobs added, which exceeded most projections, and a drop in the unemployment rate to 7.7 percent, which is the lowest it’s been since 2007. But a deeper look reveals much more depressing indicators. The labor market shrunk as 350,000 people stopped looking for work, which contributed to the lower unemployment rate. The private sector contributed virtually all of the job growth, and the retail industry was the biggest contributor—good for now, but these are likely retailers amping up for the holiday season, and thus not a reliable hiring engine going forward.
Moreover, the rosy gains of the past couple months were overstated: today’s report revised the prior two months’ report downward by 49,000 jobs. We’re still a long, long way from full employment at this rate. And if done the wrong way, a fiscal cliff deal could retard progress even further.
Also today, the IMF released a study showing that spending cuts during economic downturns in the United States could have a “statistically significant and sizeable impact.” It found that for every dollar in spending cuts enacted, the United States could lose $1.80 in economic activity. (Belying the GOP talking points, it also found that revenue increases would have an impact on growth that is “very small and not statistically significant.”)
The White House, much to its credit, recognized this fact and made a strong opening offer in which it called not only for deferring the coming sequester cuts, but enacting $50 billion in extra stimulus spending for fiscal year 2013 as well as a mass mortgage refinancing program. This is exactly the right move—if anything, more is needed—and the administration should use today’s numbers to highlight the urgency of that position.
Significantly, the White House also called for a $30 billion extension of the unemployment insurance program, which today’s report shows is desperately needed, since, as the National Employment Law Project notes, “long-term unemployment will continue to push Americans into new extremes of poverty and economic insecurity.”
The federal unemployment insurance program for people out of work six weeks or longer will expire at the end of the year absent Congressional action, meaning that between Christmas and New Year’s 2 million Americans will lose their benefits. A million more Americans will lose their unemployment insurance in the first three months of 2013 if nothing is done.
This would be a severe hit to the economy—reducing economic growth by $48 billion, thus costing millions more jobs to be lost and furthering a vicious downward economic spiral. Retailers alone, the biggest jobs engine in this month’s report, would lose $16 billion in sales next year if the unemployment insurance program isn’t extended.
Spending $30 billion to create $48 billion in economic growth while also throwing a lifeline to many desperate Americans would seem like a no-brainer, but that doesn’t mean it will get done. The rumored Republican strategy at this point is to pass the middle-class tax cuts and nothing else—no unemployment insurance, no stimulus spending nor anything else involved in the cliff negotiations. They would come back to the table in January to negotiate all this anew, with what they believe is more leverage.
This strategy would leave many unemployed Americans in full-on panic mode: unlike the tax increases or spending cuts, which can be delayed and if nothing else felt gradually, the loss of unemployment insurance is an actual cliff: people stop getting checks immediately. Today’s jobs report underscores the magnitude of that tragedy.
For more on unemployment leading into the holiday season, check out Greg Kaufmann latest.