Job Growth Hits the Wall as Financial Turmoil Hits the Job Market

We were afraid this shoe might drop, and drop it did last month, with a thud, right in the middle of the US job market, which lost 4,000 jobs last month, the first such loss in four years.

A central question surrounding today's jobs report was whether it would provide clear evidence of a contagion effect from financial markets. Are the bursting housing bubble, the credit crunch, and recent financial market turmoil having a negative impact on the job market?

The answer is an unequivocal "yes." The fingerprints of these problems are all over today's jobs report. Several factors point to the beginning of a new and troublesome trend in the job market: negative revisions of earlier months' data, widespread losses and slowdowns across industries, and weak labor force growth.

True, the unemployment rate held steady at a relatively low 4.6%. But that was entirely due to a large monthly fall off--down 340,000--in the labor force (those who leave the labor force are not counted among the unemployed). In other words, the unemployment rate was unchanged due to fewer job seekers, not more jobs. Had the labor force leavers instead been unemployed, the rate would have jumped to 4.85%.

Moreover, the credit contagion and housing bust are unlikely to disappear soon. To the contrary, at this point, we need to worry about a viscious cycle wherein slower job growth eventually leads to slower wage and income growth, less consumer demand, reinforcing further weakness in hiring.

Thus, now is the time to start exploring ways to regenerate growth. The Fed is likely to cut interest rates at their meeting later this month, and Congress might begin assembling a jobs package to keep a slowing economy from grinding into recession. It would also make sense to beef up our Unemployment Insurance program, making sure it's ready for a bunch of new customers.

The deteriorating job market is a stark reminder that we need economic policy based on productive investment and the creation of good jobs. The other kind of economic policy--the type that relies on asset bubbles in the housing or stock market--has demonstrably failed.

Comments

[FreedomCorpse]

I am looking forward to all those naysayers who always belittled critics of the current economic policies experiencing what I experienced 4 years ago due to trade agreements and other corrupt economic policies. They will be unpleasantly surprised to say the least

[CharlesMac]

(cont)

And now we have a private equity bubble which has showed its tenderness in the real estate.. subprime.. aggregate instrument.. hedge fund.. liquidity debacle.

This private equity bubble has replaced our fondly forgotten venture capital bubble of the dot.com era.

One thing we know for sure since 1987 is that markets have NO ABILITY to discount future assets. So how do we know all of the businesses bought by private equity groups were really worth what they paid? And was the bank financing of there acquisitions, sound investments? Historically, over-exuberance is not restricted to the Average Joe.

So say our economy slows and these private equity assets (ie companies) can't service debt or, for other reasons, run profitably... They will start cutting their biggest expense.

It is called employee termination.

In case it hits us, you should know what it is called.

It is called debt-funded capitalism.

This could get real exciting as personal debt has claimed a lifetime achievement high. People could get REAL nervous about their job. And debt funded consumer spending, the offspring of an overabundance of low interest money and exaggerated assets, could slam on the breaks.

Who knows, though?

Let's watch.

[CharlesMac]

I always enjoy the look of surprise when an indicator is presented which is trailing way behind that which we see everyday.

Over a year ago, real estate developers were not sending their project teams and employees onto their next development. They were skipping spec homes and terminating them.

If you have had dinner with your old corporate friends since the beginning of the year, you heard about frozen head counts and budget revisions.

If you have been paying attention at all, you might venture a guess that there has been an undeclared and unnoticed war on 50+ yr males. Check out the cast of guys chatting outside of your local convenience store some morning. Too old to be pretty, too young to be retired. And they are way off of the statistical unemployment radar.

Then there are the displaced technology victims of the H-1B visas. Search through the obfuscation of the government statistics and you find 500,000 jobs going to compliant foreigners. Since the IT industry is still nowhere near employment levels of 6 years ago, it is a fairly easy guess that a lot of careers came to an end. Maybe they contributed to the huge increase in part time employment in the US.

No sense even discussing manufacturing or the future of the car industry.

If you know anybody who has one of the millions of small, 3 or 4 man businesses, ask him how business was this past winter and summer. Ask them if they used as much daylabor or seasonal temp help as in prior years.

(cont)

[mrcontinental]

McDonalds, Burger King, Popeyes, etc are all hiring. There are plenty of jobs available.

And custodial services are in demand as well.

Just stay single and live with four room mates and take leftovers from work home to eat and you'll be fine.

[olephart]

"Thus, now is the time to start exploring ways to regenerate growth. The Fed is likely to cut interest rates at their meeting later this month, and Congress might begin assembling a jobs package to keep a slowing economy from grinding into recession."

You're looking at the situation from a traditional perspective. These solutions may have been germane prior to Bush but he has fundamentally upset the apple cart with his borrow and spend game plan. Further, Corporate America in its quests for profits has strangled the geese that lay the golden eggs. Real earnings for a majority of Americans have not increased for 6 years.

First, cutting interest rates may give the Stock Market a temporary boost but it does not alter the demand side of the equation. Moreover, it will put into question the value of the dollar and raise the specter of an inflationary monetary policy. This will have the opposite effects that lower rates traditionally bring.

Second, a jobs package suggests even more deficit spending. Allow me to remind you that Bush is already using that economic policy and its out of gas. Any additional borrowing will require those who are even now looking to lessen their exposure to the already falling dollar to buy more dollar debt.

We're inching toward the cliff as the ground under us is giving way. Its time to return to the sound Liberal economics of pay as you go Government. More to the point, no economic solutions will be found while we are at War and our current Foreign Policy dictates War ad infinitum.

[MsJoanne]

Excellent post!

I have long said that the people in this country seem to get lost in the economic equation. With no decent wages, there is no discretionary spending. With enough to get by, you can't buy anything which supports the economy which then supports jobs. Talk about an ugly cycle of neglect and dispair!

But the Bush cabal don't care because they and their rich chums will move their markets overseas (they are buying there!) and American citizens be damned. This is what the Greed is Good mentality buys you. CEOs get millions, workers get enough to scrape by on and the economy tanks.

Bush doing his best to spend us into several lifetimes of debt certainly didn't help. HELLO! He is spending our tax dollars - long before they're collected. And the way it seems to be going, you can't collect taxes from the unemployed. Now we will have a cycle of never ending debt.

[FogBelter]

Mr Bernstein, went to the Mall today and noticed Macys already has Christmas Trees displayed. I think it's only September 8th, correct me if I'm wrong. That Christmas decorations are already up gives me the feeling all is not well with the economy from the Retailers perspective.

At this point, I'm not only Bearish on the Economy, I'm Polar Bearish! Meaning, not only do I lack confidence in a soft landing, but I feel the economy is treading water in the middle of the Arctic Credit Sea with all safe havens viewable to the Horizon melting.

If we come out of this mess that deregulation and lack of oversight of the Financial sector has brought us with only a Recession ... We should consider ourselves lucky.

[ImmanuelGoldstein]

Well look on the bright side. Bill O'Reilly can start fighting the 'War on Christmas' that much earlier!

[dadw5boys]

Do you see now what Grenspan meant when he said
" These ARTIFICIALLY low interest rates can not be sustain for long without doing long term damage to ther U.S. Ecomony".
This was just before he resigned.