Sunday Times (London)
October 7, 2012
by Irwin Stelzer
Friday's jobs report might, but only might, have been the last one that will have any effect on the race to the White House. By the time the next report is published on November 2, four days before election day, about 40% of all voters will have cast early or mail ballots. But the American Enterprise Institute's Karlyn Bowman, doyenne of America's polling analysts, says about 5% of voters are undecided — and 7% in the key swing state of Florida. My guess is that these Hamlets might continue to dither until polling day, and might be influenced by incoming data in the next 30 days.
Here are the facts. Total non-farm payrolls rose by 114,000 in September, with 104,000 of the new jobs added in the private sector. Previous job estimates for July and August were increased by 86,000, with government jobs leading the revisions. Average hourly earnings, average weekly hours worked, and the labour force participation rate all ticked up. The headline unemployment rate fell from 8.1% in August to 7.8% in September, prompting some conspiracy theorists, among them former GE boss Jack Welch, to claim the Department of Labour cooked the books to bring the unemployment rate below that prevailing when President Barack Obama took office, just in time for the election. Hilda Solis, labour secretary, says she is "insulted" by that suggestion, as she should be.
Now for the spins. The Obama camp, reeling from their man's dreadful performance in the first TV debate with Mitt Romney, says the economy Obama inherited was losing 700,000 jobs a month but, thanks to the president's policies, it has added 5.2m jobs since the recession ended, and brought the unemployment rate to below 8%, as he promised he would. "We have come too far to turn back now," says the president.
Romney argues that the 5m jobs added since the end of the recession are only half those lost since Obama was elected, despite wild spending and the addition of more than $5 trillion to the national debt, a 50% increase. There are still 23m workers unemployed, involuntarily on short hours, or too discouraged to look for work — 14.7% (the so-called U-6 unemployment rate) of the workforce. And some 4.8m workers have been unemployed for 27 weeks or longer (the government's definition of long-term unemployed), their skills atrophying and their psyches badly bruised, a job being more than a pay cheque. This dire situation, claims Romney, is the result of the rising healthcare costs to be loaded onto employers by Obamacare, and the drag on business investment created by the president's anti-business rhetoric and regulatory spree.
The Manhattan Institute's Diana Furchtgott-Roth, who served in the George W Bush Department of Labour and is no fan of the president, concedes that this is "a very, very good employment report", with hundreds of thousands moving into the labour force, but she finds the 14.7% U-6 unemployment rate disturbing.
There is broad agreement that unless growth picks up the labour market will remain weak — 7.8% unemployment is nothing to cheer about — but the prospects for an acceleration in growth are not unambiguously bright. The growth rate has been declining steadily, from 3% in the first quarter of this year to 2% in the second and a mere 1.3% in the third. The year-on-year gain in retail sales in September was 0.8%, far below last year's 5.5%. The hot apartment rental market seems to be cooling, with the decline in the vacancy rate in the second quarter the smallest improvement since early 2010, according to the property consultant Reis.
Even more ominous for long-term growth prospects is the decline in world trade as recession bites in the eurozone and growth slows in China. The World Trade Organisation estimates that the global volume of trade in goods will expand only 2.5% this year, half the rate in 2011 and far below the 14% in 2010. Olivier Blanchard, chief economist at the International Monetary Fund, now says: "It will surely take at least a decade from the beginning of the crisis for the world economy to get back to decent shape." As the crisis began with the collapse of Lehman Brothers in September 2008, we have about six years of a non-decent world economy ahead of us.
And Americans who are comforted by the fact that we are at least eking out some growth while Europe is in recession might heed the warning of Bill Gross of Pimco, which manages $1.8 trillion in funds. He says that America's reliance on debt is like "an addict whose habit extends beyond weed or cocaine and who frequently pleasures himself with budgetary crystal meth". Gross reckons the US must raise taxes or cut spending by $1.6 trillion a year, compared with the mere $200 billion in spending cuts and tax increases that would occur if America goes over the "fiscal cliff" at year-end. Greece here we come.
And yet, and yet. Car sales continue to boom, rising in September by 12.8% over last year, hitting a 4½-year high. The manufacturing sector picked up in September for the first time in four months and passed the 50-point mark the Institute for Supply Management sets as the point at which a sector is growing. The housing market continues to recover: prices are rising, new home sales are 28% higher than last year, and shortages of houses for sale are being reported in some regions. Consumers' sentiment is improving as the value of their homes and shares rises, which might give retailers a boost during the coming holiday shopping season.
There is a wall of money sitting on the sidelines and waiting to be deployed by investors. Private equity funds are sitting on $1trillion looking for deals, and corporations have a $2 trillion cash hoard, waiting for some clarity as to future tax and regulatory policy.
Presumably, that clarity will come on November 6, when we will learn whether businesses' failure to invest is really due to uncertainty or will be exacerbated by a new certainty: the tax increases and new regulations President Obama is promising if re-elected.
Irwin Stelzer is a Senior Fellow and Director of Economic Policy Studies for the Hudson Institute. He is also the U.S. economist and political columnist for The Sunday Times (London) and The Courier Mail (Australia), a columnist for The New York Post, and an honorary fellow of the Centre for Socio-Legal Studies for Wolfson College at Oxford University. He is the founder and former president of National Economic Research Associates and a consultant to several U.S. and United Kingdom industries on a variety of commercial and policy issues. He has a doctorate in economics from Cornell University and has taught at institutions such as Cornell, the University of Connecticut, New York University, and Nuffield College, Oxford.
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