Monday, March 12, 2012

Recovering US job numbers offer Obama little cheer

Business Times - 13 Mar 2012

Recovering US job numbers offer Obama little cheer


THAT the American economy added 227,000 jobs in February has to be construed as good news for President Barack Obama as he heads into the general election in November.

While it's true that according to the US Labor Department's jobs report issued last Friday, the unemployment rate remained at 8.3 per cent - and this is the number that the Republicans will be focusing on - the White House has to be content because it is now in a position to assert that the performance of the American economy has been making a slow but steady progress.

It should be recalled that before Mr Obama took office, America had lost 4.4 million jobs. At that time, the unemployment rate was only 6.7 per cent, but the American economy was losing 800,000 jobs a month. And the main concern among economists at the time was that unless the trend of long-term unemployment was arrested, the Great Recession could eventually turn into another Great Depression.

But that hasn't happened. The fiscal and monetary policies pursued by the Obama administration may have not resulted in a swift economic recovery, but it seems that even though the unemployment rate is higher than it was in November 2008, the trend of the recession-induced job losses may have eased.

The American economy has added 730,000 jobs in the last three months - an average of 245,000 new jobs a month - with the last 12 months of job growth being the strongest in five years. After adding 1.6 million last year, the economy is in a position to add close to three million jobs this year.

In fact, that the unemployment rate itself hasn't changed is explained by the fact that more laid-off American workers who for a long-time had stopped looking for jobs now are re-entering the work force, reflecting a growing sense of optimism about their prospects of finding employment.

Hence, according to the Friday job report, there has been a 0.2 per cent increase in the number of people re-entering the labour force - or about 476,000 more people - in February. But then, only 227,000 new jobs were added in the same month.

Or to put it differently, as new jobs are created, more discouraged workers are starting to look for work again; and until they find jobs they could actually swell the ranks of the unemployed and leave the unemployment rate unchanged.

So if the American economy continues to create 227,000 jobs a month until November, the unemployment rate could in theory fall to about 7.5 per cent. But if, at the same time, 476,000 people re-enter the labour force each month, the unemployment rate could stay about 8 per cent on the eve of the election.

Unfortunately for Mr Obama, American voters who are unfamiliar with the intricacies of estimating the unemployment number may not feel a sense of economic security if the unemployment rate gets stuck at 8.3 per cent until November.

And the Republican presidential candidates are expected to point to that number, as former Massachusetts governor Mitt Romney did last Tuesday. 'Eight per cent unemployment is not the best America can do; it's the best this president can do,' he said.

Indeed, the American economy recovery is continuing in a steady pace under Mr Obama - but the progress remains slow. That explains why Mr Obama's economic policies have yet to be translated into a political win. Opinion polls suggest that while Mr Obama's approval rating is improving, most Americans are impressed by his achievements in foreign policy and national security but are much less impressed with his performance in the economic arena.

Mr Obama's policies may have been responsible for halting the trend of mass lay-offs, but much of the job growth in the coming months would not amount to a return to normalcy in terms of hiring by the private sector, with unemployment among blue-collar workers in construction and manufacturing continuing to remain high above 12 per cent.

And a major crisis in the eurozone and/or a war in the Middle East could put a downward pressure on the economic recovery in a way that would make even the slight improvement in the job market seem insignificant at best.

All of which explains why despite the not-so-bad job numbers, Mr Obama and his aides remain subdued as they consider the economic and political forecasts. One nightmare scenario: Mr Obama's policies are finally starting to energise the American economy in March 2013. And the main beneficiary is the newly elected President Romney.

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