No Celebrations Yet: A Lot More Needs to Happen Before Growth in Jobs Returns

Nov 4, 2009
This article is part of a series called Opinion.

PB020150Lies, Damned Lies, and Statistics

The economy grew 3.5% in the last quarter, signaling a definite end to the recession and the start of a recovery. That’s great news, but look closer and it doesn’t seem that there’s much to celebrate yet. Six-tenths of a percent came from spending by the federal government and another 2.2% from residential construction and auto purchases. The latter number is directly linked to the cash-for-clunkers and the housing credit. That leaves only 0.7% from private industry. This is why we’re not seeing any growth in jobs. The economy is growing because it’s being propped up by taxpayers (and the Central Bank of China) instead of by real growth in GDP. In some places this is known as a ponzi scheme.

The government claimed this past week that the stimulus package has added 650,000 jobs so far. Well, to be precise, “created or saved” that many jobs.

Jobs have been added, but just how many have been “saved” is another matter. There’s no doubt that spending on jobs has a multiplier effect; the money earned by a nurse at a hospital funded by the stimulus may go to saving the job of the mechanic at the auto repair shop where she has her car worked on. But that connection is impossible to make with any degree of precision. When it comes to estimating the number of jobs saved, the White House’s estimate is as good as yours or mine. And it’s likely that any estimate of jobs saved — since there’s no way to dispute it — is an optimistic reading of the numbers. If you’re going to make things up, then why hold back?

The fact remains that the economy has shed an average of 400,000 jobs per month since the beginning of the year. That rate of decline has slowed, and shows signs of continuing to slow even more, but it’s still a net loss. Economists predict that unemployment will start to drop in February, reaching 9.4% by the end of 2010.

Light at the End of the Tunnel

Despite all the bad news, there are signs that the situation will genuinely get better on the jobs front. Numbers from the U.S. Commerce Department show that exports and investment in equipment are both growing aggressively. That will continue since the dollar remains weak and the economies of India and China are showing significant growth. Construction and related industries will also continue to grow, with or without further tax credits, as the inventory of housing is at its lowest point in 30 years.

2010 is an election year, and nothing focuses the mind of the political class as the prospect of an election that may not go well. So programs like a tax credit for hiring are very likely to pass soon. Unfortunately, having politicians determined to do something can often mean a lot of very bad ideas being implemented. There are already rumblings about a second (or third) stimulus, which will only distort long-term growth prospects further. Recent earnings reports from companies show that plenty of them are back in the black and in a position to make new hires. Lighting a fire under them with a tax credit for new hires is one thing; piling on costs and subsidies for new projects that will undoubtedly result in new taxes on them is another.

Some things are almost always a lie: the check is in the mail; I’ll respect you in the morning; and I’m with the government and I’m here to help. Let’s hope we don’t get reminded of that yet again.

This article is part of a series called Opinion.