Posted on: Friday, October 3, 2003
There's a lot riding on job data due today
By Bob Fernandez
Knight Ridder News Service
Entering the last leg of his four-year term, George W. Bush is on the verge of becoming the first U.S. president since Herbert Hoover in the 1930s to preside over an economy that lost more jobs than it added.
That's why the monthly jobs report, which will be released today for September, will be one of the most important economic gauges for the months ahead.
The nation's job base — an economic measure that most people relate to on a gut level — has shriveled by 2.7 million jobs while Bush has been president. In August it shrank by 93,000 paychecks.
Jobs issues are emerging as a leading issue in the presidential campaign because economists fear that if they are not resolved quickly, the nation could stumble back into hard times with output shrinking, corporate profits disappearing and consumers holed up at home unwilling and unable to spend money.
"Businesses don't feel confident to make the employment commitment," said David Autor, associate economics professor at the Massachusetts Institute of Technology. "I don't feel so optimistic about the economy. It's a very uncertain environment."
The economy has gone through recessions before — the most recent being in the early 1990s — and emerged with a burst of job growth.
Experts believe this will happen again, especially since the federal government has injected massive stimulus in the form of tax cuts into the economy, and the Federal Reserve has been vigilant with low interest rates.
But this job burst is long overdue — the recession officially ended November 2001 — and the economy is coping with new forces that appear to be driving down employment and at the same time preventing the creation of new industries.
Huge trade deficit
One such force is trade with China, which has generated a huge deficit and devastated parts of the manufacturing sector. Others are a surge in productivity, which relieved the need for corporations to hire additional employees, and a tentativeness among business executives. They simply don't appear convinced that the economy will stay the course and have not invested heavily in new equipment and personnel — despite strong profits.
The consensus is that the economy faces three paths. It could surge with growth and a sudden spurt of hiring. It could slowly heal, with hiring at first slow and then gaining steam (the most likely scenario). Or, it could end up back in recession because a rising unemployment rate and weak hiring leads consumers to stop buying cars and homes and clothing, further depressing the need for employees.
Alan B. Krueger, economics professor at Princeton University, said he doesn't think that in 20 years, people will liken today's economy to the grim times associated with Hoover, who was president at the start of the Depression.
But Krueger said the labor market was "surprisingly weak." He added it was "very unlikely" that the economy would generate enough new jobs between now and Jan. 1, 2004, to erase the job losses to date during Bush's years in the White House. But it's not impossible.
More output, less hiring
Once the war in Iraq was declared over, the economy gained momentum but an increase in hiring, expected in late summer, did not materialize.
Why? A surprising surge in productivity this year allowed companies to make more things, from cars to cans of soup, and serve more people with fewer workers. Most people believe this productivity will result in prosperity in the long run. But it's doing nothing to help the economy right now.
Economists say the Bush administration's policy cures — mainly two massive tax cuts that are costing hundreds of billions of dollars, in 2001 and 2003 — have failed to recharge the job market and now the nation faces a huge budget deficit because of those tax cuts, the recession and the mounting costs of rebuilding Iraq.
Underlying factors
Erica Groshen, an assistant vice president at the Federal Reserve Bank of New York, said this recession has been unexpectedly painful for three reasons:
It took longer than usual for the nation to work off the excess capacity invested into factories, equipment and technology in the late 1990s.
Low interest rates and stimulative government policies prevented a deeper recession, particularly in the housing and consumer markets, so there was less of an economic rebound after 2001.
Corporate managers have reacted differently to business conditions in this recession by closing plants, outsourcing work overseas and culling their workforces rather than only taking temporary steps to cut costs.
"The jobs that are gone are not coming back," Groshen said. But, she added, "I fully expect that there will be new jobs for the people displaced by this recession. ... Innovation is a strength of ours (in the United States) but it is hard for us to look into the future."
Charles Heckscher, professor at the School of Management and Labor Relations at Rutgers University, isn't so optimistic.
He said the weak job market is a reflection of economic trends that were in play in the late 1990s but that were not apparent because of the good times.
Companies have been "focusing on parts of their business that are highly profitable and not investing heavily in their workforces and equipment," Heckscher said. They have "backed away from a commitment to job security," he said.
"We have to figure something out or there will be massive unrest and unhappiness," he said.
