Christina Romer, the outgoing chair of the president’s Council of Economic Advisors, said arguably the only positive thing you could say about employment in August: the numbers were “better than expected.”
The economy added 67,000 private sector jobs, but it also lost 54,000 jobs overall, the unemployment rate ticked up to 9.6%, and the broader measure of unemployment, which includes discouraged workers and “involuntary part-time workers,” increased to 16.7%. Furthermore, private sector job creation did not keep pace with population growth, which will result in a rising unemployment rate and an increasingly weak economy.
In his speech this morning, President Obama pointed out that private sector employment increased every month this year for a total of 750,000 jobs from January to August. But to keep pace with population growth, the economy must create 150,000 jobs per month or 1,200,000 jobs so far this year. The shortfall of private sector job creation and steady population growth has resulted in 450,000 more unemployed persons now than there were at the beginning of the year.
Government employment failed to make up for the shortfall in hiring in the private sector. While federal stimulus contributed to an increase in payrolls of 62,000, state and local governments suffering from budget shortfalls have shrunk payrolls by 100,000 so far in 2010.
If confidence in the private sector remains weak and federal government stimulus is eclipsed by state and local shortfalls, President Obama will have to consider further job creation measures. As Christina Romer indicated in her departing address this week and advisor Laura Tyson said in last Sunday’s New York Times, these measures should be considered long-term investments, not parts of an emergency stimulus.
Facing significant political pressure, the president is leaning toward more tax cuts for individuals and businesses. But, indebted households will likely use tax cuts to pay down debt as they have done for the past two years and businesses that are skeptical about the economic recovery may not want to borrow, even with government subsidies. The best long-term investment to support economic growth and create jobs would be a multi-year infrastructure program that puts Americans to work, makes the economy more competitive, and gives businesses the confidence they need to invest and hire.