Sep. 7, 2012 at 12:30 PM ET
No matter who ends up occupying the White House in January, many of the forces that have kept unemployment high and jobs growth slow will be beyond his control.
With employment growth stuck at a slower pace than in any recovery in the past half-century, the presidential campaign now turns on which candidate -- President Barack Obama or former Gov. Mitt Romney -- has the better plan to boost employment. The latest jobs data will do little to change the debate.
The economy added just 96,000 new jobs in August, well below the roughly 130,000 economists had been expecting. Gains in the prior two months were revised down by a combined 41,000. Manufacturers cut 15,000 jobs last month, while another 7,000 government jobs were lost. Temporary employment fell by almost 5,000 workers.
Other recent reports had painted a somewhat brighter picture. Fewer people applied for unemployment benefits last week, and a private survey by payroll processor ADP found that companies created some 200,000 new jobs in August. Another private report showed that service sector companies, such as hotels, retailers, and financial services firms, expanded at a faster rate last month.
For many voters, the health of the job market is summed up in the unemployment rate tracked by a separate government survey. That number, which dropped to 8.1 percent in August from 8.3 percent in July, could help bolster Obama's claim of slow, steady progress in getting Americans back to work.
But a closer look at the data undercuts that argument. The jobless rate fell last month largely because so many people gave up looking for work, went back to school, retired or otherwise left the workforce. Their departure shrank the labor participation rate to its lowest level in more than 30 years.
“Under those circumstances, it is hard to characterize the drop in the unemployment rate as any sort of good news,” said Paul Ashworth, chief U.S. economist at Capital Economics.
With the pace of job growth stalled, the Obama campaign this week tried to shift voters’ attention to the future. In his speech Thursday night, the president argued that the economy is still suffering the lingering damage from a once-in-a-lifetime financial crisis created by Wall Street excess. While he acknowledged only halting progress in repairing economy and appealed for patience, he stressed his administration’s commitment to help households still suffering from the impact of the Great Recession.
Republicans, including Romney, argue that government spending on the kind of programs Obama highlighted are precisely what is holding back economic growth. They also argue that the White House has stunted the recovery with too much regulation and taxation.
Romney was quick to seize on Friday’s job data to try to dampen Obama’s Thursday night appeal.
"If last night was the party, this morning is the hangover," Romney said in a statement after the jobs report was issued.
The government will issue two more rounds of monthly jobs data before voters go to the polls in November. While the monthly payroll growth has become a proxy for the health of the job market, the data are notoriously fluid and subject to revisions that could swing the payrolls number up or down by as much as 100,000 in either direction. The two upcoming reports are unlikely to reshape the campaign.
The Labor Department’s latest numbers, though a bit weaker than expected, confirm what economists have known for some time. The current recovery, far weaker than past economic cycles, is not creating paychecks fast enough to return millions of workers sidelined by the 2007-09 recession back to work. High unemployment, in turn, has sapped consumer spending, which accounts for roughly 70 percent of the U.S. economy.
While both sides disagree on the causes, there’s no disputing that this is the worst economic recovery in 50 years. This far into the previous five recoveries, the economy was expanding at an average pace of 4.4 percent, twice the current average.
Though new hiring has been crawling along at a snail’s pace, companies are still managing to squeeze more work out of their existing staffs. Corporate profits are rising in part because that weak job market has all but halted wage growth since the recession ended three years ago. Average hourly earnings, along with the number of hours worked, were flat in August, according to Friday’s data.
Many employers say their reluctance to hire stems from uncertainty over policies that will be implemented by the next occupants of the Capitol and the White House. The most immediate concern is a disastrous combination of automatic year-end tax increases and spending cuts known as the “fiscal cliff.” Unless defused, the fiscal hit will almost certainly plunge the economy back into a nasty recession.
But no matter who wins the election, it’s far from clear that either party will be able to resolve the budget impasse.
“The lame-duck Congress will punt the "fiscal cliff" problem down the road, postponing the tax hikes and spending cuts for a few months,” said IHS Global Insight chief U.S. economist Nigel Gault. “That means that extreme uncertainty over fiscal policy is likely to remain a fact of life — and a deterrent to risk-taking — well into 2013.”
That uncertainty – and reluctance to hire – will be stoked by a series of other forces holding back the four-year-old recovery:
Even the Federal Reserve – the economic fire brigade of last resort – seems to have run out of tools to fight the fire. Friday's weak jobs report give the central bank more reason for another big money drop known as quantitative easing or QE. But after two rounds of more than $1 trillion in pump-priming, and short-term interest rates already at zero, most economists see diminishing returns from another effort to stimulate growth by pumping more money into the system.