Like a lot of voters, the U.S. economy seems to be undecided about which way it will go until Election Day. The most recent unemployment report from the U.S. Bureau of Labor Statistics was uninspiring. It seemed to be positive
Like a lot of voters, the U.S. economy seems to be undecided about which way it will go until Election Day. The most recent unemployment report from the U.S. Bureau of Labor Statistics was uninspiring. It seemed to be positive that the U.S. unemployment rate dropped in August to 8.1 percent from 8.3 percent in July.
But that drop mainly was because of the number of people who stopped looking for jobs. According to the report, “Both the civilian labor force (154.6 million) and the labor force participation rate (63.5 percent of working-age adults) declined in August.” That 63.5 percent participation was the lowest since the same number in September 1981, during the depths of the recession that year, before President Ronald Reagan’s tax cuts kicked in and restored prosperity.
“People are becoming discouraged and have given up looking for jobs, and many students are going back to grad school instead of looking for work,” Esmael Adibi told us; he’s the director of the A. Gary Anderson Center for Economic Research at Chapman University. “Everybody expected 150,000 or more jobs would be created in August, but only 96,000 were. And the July number was revised downward, from 163,000 jobs created to 141,000. Clearly, the economy is not creating enough jobs.”
The immediate reasons, he said, are the recessionary or near-recessionary conditions in Europe, and “a potential slowdown in China, Brazil and India. That could reduce the demand for U.S. exports.”
Domestically, uncertainty is being caused by the Nov. 6 election, whether the Bush-era tax cuts will expire Jan. 1, and the other main component of the “fiscal cliff,” $120 billion in automatic spending cuts unless Congress agrees on reducing the deficit. Of course, almost everyone agrees that the endemic $1 trillion annual deficits must be reduced somehow, and we certainly have argued for large spending cuts.
But large cuts will be felt by people who depend on the U.S. government for contracts and jobs. The transition to less spending would be eased if taxes were cut to jump-start creation of private-sector jobs.
Unfortunately, at the recent Democratic National Convention, almost every speaker, from President Obama on down, called for increasing taxes on the “wealthy,” those making at least $250,000 a year. As we keep pointing out, in expensive California, someone making $250,000 a year, although possibly comfortable, is by no means rich. Many of those folks are small-business owners and operators. Raising their taxes could cost jobs at their small firms.
And let’s not forget that, if Gov. Jerry Brown’s Proposition 30 tax is passed Nov. 6, those “rich” Californians earning more than $250,000 would be hit again — a double whammy. Adibi said that so much uncertainty means businesses aren’t adding workers as they wait to see if conditions become better or worse.
The recent rise in the stock market, he said, is due to Federal Reserve Board Chairman Ben Bernanke’s announcement the Fed will begin a third round of “quantitative easing” — money creation — while keeping interest rates low. That means the investors for now are seeing the stock market, not bonds, as the better place to make a little money. Adibi also warned, “Down the road, that could mean inflation.”
Before the Nov. 6 election, two more jobs reports are due, on Oct. 5 and Nov. 2. The president insisted in his convention speech that he inherited a tough economy and needs to be given another four years to restore full prosperity. But if the jobless figures remain this stagnant, voters may decide to reject his plan, which calls for more regulations, further deficits and higher taxes.
