Business Times - 09 Jun 2009
Lower job loss rate does not equal a recovery
By LEON HADAR
US President Barack Obama returned to Washington, after his trip to the Middle East and Europe, where he will presumably try to boost efforts towards what some officials and pundits are describing now as 'economic recovery'.
Economic recovery you said? But the US Labor Department reported on Friday that 345,000 Americans lost their jobs last month - adding to the six million already out of work since this recession began - as US unemployment rose to 9.4 per cent, which is the highest rate since 1983. And if one recalls the so-called 'bank stress tests', the unemployment rate applied in their worst case scenario was 8.9 per cent. So a 9.4 unemployment rate does not sound like great economic news.
Yet, both officials in Washington and investors in Wall Street seemed to be in a cheerful mood after the report was issued on Friday and digested over the weekend. They pointed out that the May figures were lower than expected and that it was the fewest jobs lost in eight months.
Hence, the current conventional wisdom is that the rate of US job losses is slowing down, that the economy is coming to the end of the plunge, the downturn is slowing, and it is possible that the worst is behind us and that the roller coaster is at the beginning of an upturn.
Indeed, there are signs that some sectors, such as health care, hospitality and education, are even adding jobs, while in industries such as retail, construction and finance, the job losses have clearly slowed down.
But vice-president Joseph Biden wasn't celebrating when he talked with reporters over the weekend. But he sounded a bit optimistic and made it clear that the Obama administration was going to do its best to accelerate the economic momentum.
'As much progress as we've already made, we still have a long, long way to go on the road to recovery,' Mr Biden said. 'A lower job-loss rate is not our goal,' he stressed. 'We will not be satisfied until we're adding jobs on a monthly basis' while getting Americans into secure jobs with good incomes, he said.
As part of this strategy, Mr Obama explained yesterday how the administration was speeding up implementation of his US$787 billion economic stimulus plan to boost its recovery efforts. More than 150,000 jobs have been saved or created by the first 100 days of the stimulus. Another major reason for the decline in job cuts have been the improving conditions in the financial markets.
But it was not surprising that the Republicans in Washington have been accentuating the negative. 'Today's announcement that the unemployment rate hit a 26-year high of 9.4 per cent demonstrates how much middle-class families, small businesses, and workers are struggling during one of the worst economic downturns in decades,' House Minority Leader, Republican John Boehner of Ohio said in a statement. He said the economy has lost more than 2.5 million jobs since the stimulus took effect 100 days ago.
Moreover, many economists expect the unemployment rate to rise above 10 per cent by the end of the year, getting close to 10.8 per cent which was the record for the post-1945 period. Indeed, there are growing concerns that the bankruptcy of General Motors could drive job losses higher in the coming months. Also worrisome is the very slow growth in the level of hourly wages. And if you add the official unemployment figures to part-time workers and those who are not counted as unemployed because they have stopped looking for work, the rate of underemployment is probably above 16 per cent.
The expectation among administration officials is for more improvement in the labour markets as the effects of the economic stimulus package become more evident in the construction industry as well as in the health and education sectors. They hope the economy will start to pick up by the end of summer. The hope is that the GDP growth will then start heading towards positive territory, indicating that the recession could be over.
At a minimum, the signs that the US economy may finally bottom out coupled with a slow recovery could certainly spell political good news for Mr Obama and the Democrats as they prepare for the midterm Congressional election next year.
But with their wealth eroded and facing high debt burden and tight credit conditions, most Americans still face bleak economic times, especially if the unemployment rate rises above 10 per cent. And even if the US economy starts to recover, the concerns over rising debt and the potential for inflation and growing downward pressure on the US dollar could mean that the good economic news could be followed by more bad economic news.
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