No Confidence Vote
Written by Jeff Thredgold, President, Thredgold Economic Associates
September 6, 2011
I have not been at all shy the past year or so in demonizing the job being done by the Administration and the Congress in regard to damaging the American economy. Their constant childish bickering and their primary focus on extreme partisan politics rather than on the major challenges facing this nation have not served America and its citizenry well.
The month of August was characterized by an emotional political battle in regard to increasing the nation’s debt ceiling, i.e. our need to issue hundreds of billions of dollars of additional debt in order to cover insatiable government spending. The possibility of this nation actually defaulting on its already massive $14,300,000,000,000 national debt was hammered at Americans daily.
The downgrade of the quality of American debt by Standard & Poor’s from its prior AAA status to AA+ led to major stock market volatility in August. Emotional 400-point swings in both directions by the Dow average led investors of all shapes and sizes to question whether the stock market was the place to be.
Good news followed by bad news followed by good news, etc. regarding the European sovereign debt situation also weighed on U.S. financial markets and its investors. At least this issue was not of our making.
Prior evidence of the damage largely done by national politicians was the extremely poor performance of the U.S. economy during 2011’s first half, with the economy growing at an annual rate of 0.7%. This pathetic growth rate occurred despite massive amounts of government spending, unconscionable budget deficits, and unprecedented money creation by the Federal Reserve.
A huge plunge in consumer confidence to a 30-year low was another bit of evidence. As noted above, stock market gyrations were a third.
The latest evidence of economic damage brought forth by this nation’s leaders is the August employment report. As you have no doubt heard by now, the U.S. economy saw no net change in total estimated employment in August. Crystal-ball-gazing economists had expected a rise of around 60,000 net additional jobs.
Adding insult to injury was the fact that already tepid employment gains of the two prior months were revised lower by 58,000 jobs. The jobless rate stayed at an uncomfortably high 9.1% level.
The flat jobs number for August was the worst performance of the past 11 months. The dismal pattern of the past four months has again raised the specter of another U.S. recession.
My caustic view of political performance is shared by many economy watchers. Doug Duncan, the chief economist at housing finance agency Fannie Mae noted on Friday last, “The heightened market volatility has led businesses to question the durability of the recovery.” He continued, “More firms will likely stay on the fence with regard to future hiring, increasing the chances of outright job losses in coming months, and putting the odds of a recession in the coming year at a coin toss.” (latimes.com)
Paul Ashworth, an economist at Capital Economics noted, “The broad message is that even if the U.S. economy doesn’t start to contract again, any expansion is going to be very, very modest and fall well short of what would be needed to drive the still-elevated unemployment rate lower.” (latimes.com)
Perhaps most succinct is the cover story in the September 5, 2011 issue of FORTUNE magazine. It is entitled “AMERICAN IDIOTS…How Washington Is Destroying the Economy…and What We Can Do to Fix It” and was written by long-time business writer Allan Sloan.
One highlighted statement (page 61) states…”If I sound angry, it’s because I am. Think of me as an angry moderate who’s finally fed up with the lunacy and incompetence of our alleged national leaders—and with people stirring up trouble from which they hope to benefit politically or financially.”
Back to the Jobs Info
As noted above, the abysmal August employment report saw no net change in total employment, the first such result since 1945. The unemployment rate stayed at 9.1%.
Goods producing employment dipped by 3,000 jobs in August, with losses in manufacturing (down 3,000 jobs) and construction (down 5,000 jobs) more than offsetting a rise in mining & logging employment (up 5,000 jobs). Private sector service providing employment rose by 20,000 jobs in August, led by gains in education & health services (up 34,000 jobs) and professional & business services (up 28,000 jobs).
The information sector lost 48,000 jobs, most tied to a Verizon strike by 45,000 workers, which has now been settled. This result will actually add to the September employment data. Overall government employment fell by another 17,000 jobs during the month.
- The number of unemployed people was estimated at 13.97 million in August, with roughly six million people out of work for more than six months
- The “underemployment” rate, that which includes the unemployed, those working part-time who would prefer to work full-time, and those discouraged workers who are not seeking a job but would accept one if offered to them rose to 16.2%, versus 16.1% in July
- The average workweek for all employees on private non-farm payrolls dipped by 0.1 hours to 34.2 hours in August. While seemingly uneventful, the decline equates to the loss of another 400,000 jobs across the broad economy
More pressure will now fall to the Federal Reserve to “fix” the economy. What the Fed can do from this point—with short-term interest rates effectively at zero and long-term interest rates already at a 50-year low—is somewhere between zero and none.
The Fed’s Open Market Committee meets again on September 20-21 for what is now a two-day meeting. Fed Chairman Bernanke correctly noted at a much ballyhooed speech in Jackson Hole, WY on August 26 that one of the economy’s primary problems is government spending and deficits being out of control.
Yes, the Fed can pull a few new tricks out of the monetary policy bag. But unless and until the Administration and the Congress get serious about the long-term direction of government spending, the American economy will struggle, will languish, will suffer, and will be a mere shadow of its potential.