[Mb-civic] Bush's jobs deficit Economist

[Michael Butler]

Bush's jobs deficit

Aug 6th 2004 
>From The Economist Global Agenda


According to the latest figures, American companies added far fewer workers
to their payrolls last month than economists had forecast. This comes a week
after the equally unexpected news that growth slowed significantly in the
second quarter. How worried should George Bush be?


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AMERICANS have fallen prey to a variety of economic anxieties in the past
year‹some real, some imagined. First, they fretted that growth was not
translating into jobs, then that growth might spill over into inflation, and
most recently that growth itself could no longer be taken for granted. The
American economy expanded by 4.5% in the first quarter of this year, by a
shade over 4% in the final quarter of 2003, and by 7.4% in the quarter
before that (all at annualised rates). But figures released late last month
showed that growth slowed unexpectedly in the second quarter of this year,
to just 3%. And now, a week later, Americans are back to worrying about
jobs. According to the latest monthly figures, published on Friday August
6th, American companies added 32,000 workers to their payrolls in July, far
short of the 200,000-plus that economists had been expecting.

These figures will add to fears that the employment outlook is darkening.
Despite three months of strong job creation between March and May, hiring
ebbed in June and the proportion of Americans participating in the labour
market remains pretty weak by historical standards. Moreover, if the past
few months are a guide, the actual number of jobs created in July may be
even lower than the figure released this week: also on Friday, the Labour
Department revised its job-growth numbers for May and June down by a
combined 61,000.

None of this will please President George Bush as he battles for re-election
in November. He will no doubt try to shift attention away from the job
numbers' failure to meet expectations, and towards the 1.5m jobs that have
been created in 11 straight months of employment growth (as well as the
latest unemployment figure: the rate fell in July, from 5.6% to 5.5%).
However, as his opponents are so keen to point out, a net 1.1m jobs have
been lost since he took office, and there is no chance of reversing that
loss before the election. Furthermore, the fall in unemployment might have
as much to do with the low participation rate as with job creation.

Another worry for the president is weaker spending. One of the abiding
motifs of America¹s recovery so far has been the ³indefatigable consumer².
But the American consumer is now looking as tired as the cliché. According
to figures released on Tuesday, consumer spending fell by 0.7% in June. The
Federal Reserve¹s recent anecdotal report on the American economy, the
so-called ³beige book², paints a greying picture: Chicago is doing well, but
New York, Cleveland, Richmond, Kansas City and San Francisco show evidence
of a slowdown, albeit modest.

It is becoming increasingly apparent that the gains from America¹s
productivity-led recovery have been unevenly distributed. Corporate profits
are strong, and business investment leapt by almost 9% in the spring. But
pay has lagged behind, and the wages of production workers have stagnated.
Of course, through its tax cuts, the White House has done its best to
provide what employers will not‹a substantial boost to take-home pay. But
the effects of those tax cuts are beginning to fade, just as prices at
American petrol pumps rise.

What consumers do not earn, or receive back from their government, they must
borrow. Household debts grew by more than 10% in the first quarter, and now
add up to more than 115% of disposable income. HSBC, a bank, says that the
recovery is built on ³marshlands of debt². With interest rates now rising,
this ready source of spending power may be about to dry up. Indeed, the
beige book reports that borrowing by homebuyers declined in San Francisco
and New York, two of the hottest property markets in the country.

 According to Alan Greenspan, the chairman of the Fed, the American economy
has trespassed on to a ³soft patch². All recoveries go through them from
time to time, he says, and this one should prove short-lived. He may well be
right. But if the soft patch turns out to be something a bit marshier, the
recovery¹s foundations may not be as secure as many had thought.




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