Economy Slogs Along

by John M. Curtis
(310) 204-8700

Copyright April 2, 2010
All Rights Reserved.                                

               When Federal Reserve Chairman Ben S. Bernanke held interest rates steady at the last Federal Open Market Committee meeting March 25, he signaled that the economy was too weak to raise rates.  Wall Street has been, as usual, in its own parallel universe, rising nearly 40% since hitting its March 2009 lows of 6,500 to today’s close of 10,856.  While not official, a new ADP Employer Services report indicates that U.S. companies continue to cut payrolls another 23,000 jobs in March.  While better than the 24,000 lost in February, Bernanke knows that whatever recovery is currently taking place, it’s not setting the world on fire.  Since Dec. 2007, over 8 million jobs have been lost from the U.S. economy, the most since the Great Depression.  When the Labor Dept. jobs’ report comes out tomorrow, private economists expect an 184,000 jump, attributable to temporary government hiring.

            Government hiring doesn’t reverse the insidious private-sector losses started when the economy tanked under former President George W. Bush, over a year before President Barack Obama took office Jan. 20, 2009.  While Keynesians are happy about government jobs, supply-siders know that real economic recovery requires private-sector jobs creation.  “The labor market trend is still up,” said David Milleker, chief economist at German-based Union Investment GMBh.  Unemployment, now running at 9.7%, is still a lagging indicator of economic recovery.  Bernanke’s decision to keep the Federal Funds Rate at zero-25% indicates that economic recovery is still down the road.  “Today’s numbers might have disappointed relative to expectation but indicates not in the least a change in trend.  It takes some more time for private sector job creation to return to normal,” said Milleker.

            What Milleker isn’t saying is that “trends” don’t tell the whole story, especially when the employment curve looks flat.  All indications point to a relatively flat slope to economic recovery, meaning that it’s going to take a lot longer for growth this time around.  Some economics worry about a “double-dip,” where growth appears steady but actually heads in reverse.  “The economic recovery has not been long enough or strong enough along the way yet to produce the kind of rapid employment that people are hoping for,” said Joel Prakken, Chairman of Marcroeconomic Advisors LLC in St. Louis—the firm supplying the date to ADP.  Prakken is concerned that whatever economic recovery emerges, it’s not going to be the steep slope seen in past recoveries.  Some economists believe that severe winter weather, especially on the east coast, has slowed private economic activity.

            Unlike the early days of the latest economic downturn, most private sector jobs have been already lost to the recession.  More jobs losses now reflect fallout from the recession, still unable to begin replacing the 8 million lost jobs since 2007.  Employers scale back payrolls when demand for goods-and-services drop, not to mention job losses from insolvency and bankruptcy.  ADP’s recent report expects the economy to add 40,000 new private sector jobs unrelated to weather—a drop in the bucket toward economic recovery.  Whatever increases are found, if any, in tomorrow’s official jobs number could attribute increases to weather-related improvements, as demand picks up.  Labor Dept. stats include government jobs, likely to show a larger boost in payrolls than private sector companies like ADP.  More private sector employment is expected from Barack’s recently passed health care bill.

            Expanding the health care industry promises to add more jobs than any other potential industry.  Insuring 32 million jobs, over time, boost employment from the top-down in the health care and related businesses.  While not a single Republican signed onto Barack’s health care overhaul, the economy stands to reap the welcomed windfall of more jobs from expanding the medical-services industry.  Not only are U.S. tax dollars recycled to improve the health of ordinary citizens they provide jobs, boost government tax-receipts and reduce the expected whopping $1.7 trillion budget deficit.  While the GOP cast the health care debate in terms of jobs OR health care, adding 32 million to the ranks of the insured contributes to more health care-related jobs.  Government outlays for paying insurance premiums should be more than paid for by new tax revenues from new health care jobs.

            Boosting private sector jobs should fuel Wall Street to new heights in 2010, already flirting with yearly highs.  Wall Street’s relentless march ahead with the Dow Jones Industrials approaching 11,000, hints at better days ahead.  While the bears still forecast doom-and-gloom, Barack’s new health care bill should begin to add jobs to the economy.  More hospitals, clinics, laboratories, medical offices, etc. will have to be built under Obama’s new health care plan.  As the election approaches in November and 2010 winds down, the date certain in 2011 approaches for ending the Iraq and Afghanistan Wars.  Barack went along with the Pentagon last December to add 30,000 more troops to the Afghan theatre, at great expense to the national treasury.  When both wars end in 2011, it should give a needed jolt to the economy.  Less defense spending can only help spur the next economic boom.

John M. Curtis writes politically neutral commentary analyzing spin in national and global news. He's editor of OnlineColumnist.com and author of Dodging The Bullet and Operation Charisma.