Published in the Wall Street Journal
Another month, another mediocre jobs report from the Department of Labor. This is consistent with the rest of the economic evidence that this is a lackluster recovery that so far is not turning into a durable expansion.
The economy shed 131,000 jobs in July and the number of jobs created in May and June were revised downward to 221,000 lost jobs. The unemployment rate held steady at 9.5% but that does not reflect the fact that the number of discouraged workers is also up 389,000 from a year ago.
Private employment did inch up in July by 71,000 positions, with a nice 36,000 pick-up in manufacturing jobs, but even that number is deceptive. The vast majority of those jobs were in the auto industry. Alas, not every struggling manufacturing plant in America can have a lifeline to the federal Treasury.
The average work week lengthened by 0.1 hours and wages bumped up by 4 cents an hour in July to $22.59. This means things are getting better if you already have a job. The amazing thing is how weak the recovery remains after so much fiscal and monetary stimulus.
The problem is if you're still looking for work, because the private sector isn't feeling confident enough to create new jobs. The declines in the household survey tend to reflect small businesses better than does the payroll survey, and small businesses in particular aren't creating new jobs the way they have in other recoveries. The shrinking size of the labor force is helping to keep the official jobless rate below 10%, but that's mostly because some one million workers have dropped out of the labor force since April.
So far the Obama team has thrown the entire Keyensian playbook at the economy. We have paid people to buy cars, purchase homes, pay off their mortgages, weatherize their homes and put solar paneling on their roofs. And of course there was the original stimulus package of $862 billion, though some of that remains unspent. None of it has put America back to work.
The policy lesson is that you can't have a jobs recovery without private confidence and investment. The Obama crowd bet that you could force-feed private investment with government spending and politically directed credit, but the result has been to traumatize business instead. Why would a small business owner hire anyone new if he knows that taxes are going up, health-care costs are sure to rise, and the cost of each new employee is uncertain? Nor can you inspire business confidence if you demonize bankers and business.
The economy is now 2.5 million jobs short of where it would need to be to get back under the 8% unemployment rate we were promised. With the federal government running a $1.4 trillion deficit, Speaker Nancy Pelosi is calling the House back into session to pass a $26 billion "stimulus" bill to give cash to states, cities and teachers unions.
As the evidence mounts that government spending doesn't create net new jobs, the White House insists we need to double down on spending and monetary stimulus. We've now had three years of this policy, and it isn't working. Time to try a different economic model, the one that worked in the 1980s after another severe recession.