Poor Job Growth Rains on Wall Street

by John M. Curtis
(310) 204-8700

Copyright August 7, 2010
All Rights Reserved.                                

            Unable to grow private sector jobs over the last three months, President Barack Obama finds himself behind the eight-ball trying to sell his economic program.  His $787 billion stimulus program was supposed to either save or create millions of new jobs.  With cash running out, three’s growing concern about the economy slowing down.  Last week’s GDP rate of 2.4% was under economists’ expectations for future growth, causing Wall Street to sell off.  Without a steadily rising stock market, publicly traded corporations don’t have sufficient capital to expand payrolls, eventually reinstating the 7-million lost jobs since Dec. 2007.  Now at 9.5%, the unemployment rate doesn’t tell the whole story, especially about the chronically unemployed who have given up on finding jobs.  Obama’s Keynesian plan of subsidizing government jobs has petered out leaving the private sector bereft.

            Private sector employers only added 71,000 jobs in July, offset by losses in local, state and federal jobs, leaving the net gain at a paltry 12,000.  Over 200,000 jobs are needed a month to stay ahead of normal population growth.  Obama’s decision to push for national health care March 22, 2010 won an age-old Democratic battle but lost the war against unemployment.  White House officials believe the country can do both, expand jobs and implement a $1 trillion dollar health care plan, but haven’t shown they can grow the economy running massive budget deficits.  If the government stimulus-based recovery loses steam, the recession could double-dip, further hurting private-sector job growth.  Private sector job growth is directly connected to a rising stock market, something that can’t happen unless the government gets control of short-sellers, private equity and hedge funds that bet against the market.

            Without an advancing stock market, the private sector doesn’t have the capital needed to expand payrolls.  Consumer demand also doesn’t start until the unemployed go back to work.  Today’s sluggish jobs growth and low consumer demand directly relates to publicly traded corporations not having the needed capital to add jobs.  Many companies today hire temporary workers to offset current gyrations in the stock market where private equity and hedge funds start short-selling in response to cyclical profit-taking.  With government census jobs winding down, the economy could lose another 20,000 to 30,000 more jobs a month.  Some economists worry that further contraction in the jobs market—whether private sector or government—could cause the current 2.4% growth rate to go negative.  Prospects for adding significant private sector jobs look more and more dismal.

            Federal Reserve Board Chairman Ben S. Bernanke hinted that more rock-bottom interest rates and stimulus may be needed to keep the economy from double-dipping.  “If we don’t see significant job growth by the end of the year, the economy could be in serious trouble,” said Bill Cheney, chief economist of John Hancock.  Cheney knows that you can’t create private sector jobs without a rising stock market.  Since yesterday’s home equity lines are no longer available, it’s imperative that the stock market continue to inflate until publicly traded corporations have enough cash to begin adding to payrolls.  “Employers do not want to take chances,” said Sung Won Sohn, an economist at California State University Channel Islands, formerly with Wells Fargo Bank.  With demand down and companies strapped for cash, the stock market provides the best source of operational cash.

            Hiring temporary jobs provides some hedge against the growing possibility that the economy could deteriorate in Q-3 and Q-4.  “There is a very clear recovery during the first half of the year, but there are still questions whether that will continue in the second half,” said Jose Maria Alapont, CEO of a Michigan-based parts supplier.  While car sales don’t necessarily predict the overall economy, they do reflect consumers’ perceptions of job security and future growth.  Fed Chairman Bernanke will keep rates low, and, if needed, add liquidity to the bank system, making consumer loans more available.  Without more government bailouts, a number of states could start running further into the red, putting more pressure on unemployment.  Whether Democrat or Republican, no one wants to see more state workers, or those like school teachers dependent on state aid, to face more unemployment.

            President Barack Obama faces his greatest challenge of creating more private sector jobs.  No capitalist society can thrive only on government-sponsored jobs without severe economic, social and political fallout.  Instead of busting the budget, the president should look for ways to reassure the business community that his policies are pro-growth.  When Barack signed regulatory reform into law July 21, he needed to reassure Wall Street that they could get their piece of the pie without, compromising economic growth.  Barack has more work to do with his Treasury Secretary Tim Geithner and Fed Chairman Bernanke to make sure that currently unregulated private equity and hedge funds don’t sabotage the current fragile bull market with runaway short-selling.  Without a sustained rising stock market, it’s doubtful companies will generate enough cash to hire long-term permanent employees.

About the Author    

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.

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