We’re Still 12 Million Jobs Away From Normal
The U.S. economy created 163,000 non-farm jobs in July, according to the Labor Department. That's better than economists expected, but still about 12 million short of what the economy needs to get back to normal.
It's hard to imagine how it can get there at a time when the government is cutting back on spending.
Pleasant as it may be, today's jobs report does little to change the stark reality of the current economic slump. The U.S. isn’t making any progress toward regaining the level of employment that prevailed before the recession. The average payroll growth of the last three months, at 105,000, is hardly enough to cover natural growth in the population and labor force.
As a result of the tepid employment growth, the share of the U.S. population with jobs has remained depressed. As of July, the employment-to-population ratio stood at 58.4 percent, compared to an average of 63.3 percent in the 10 years preceding the recession. To get back to the pre-recession level, the U.S. would need another 11.7 million jobs. Most troubling, that number has been more or less stable since December 2009 (see chart).
The longer all those millions remain out of work, the less likely they will be to ever rejoin the labor force. This process, known to economists as hysteresis, could permanently impair the U.S. economy's ability to grow.
The threat of permanent damage is why it's crucial for the government to provide economic stimulus in the short term, even as it sets out plans to eliminate budget deficits in the longer term. With interest rates as low as they are, added government spending could actually pay for itself as the extra economic growth it produces outweighs the increase in debt.
Instead, the government's stimulus program is petering out. Worse, politicians are struggling to figure out how to avert the "fiscal cliff" -- a combination of tax hikes and automatic spending cuts that could subtract 4 percent or more from the country's gross domestic product.
The U.S. needs immediate stimulus combined with a credible plan to get its finances in order in the longer term. What part of this is hard to understand?
(Mark Whitehouse is a member of the Bloomberg View editorial board.)
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