American employers added 157,000 jobs in January compared with (revised) 196,000 jobs in December. The number of unemployed, 12.3 million, is little changed while the unemployment rate edged upward from 7.8 to 7.9%. The disappointing increase in numbers of new jobs was generally attributed to the loss of public sector jobs at the state level, a large proportion of jobs lost being public school teachers. This is the direct result of state budget deficits, which were hit by a double whammy. The first was loss of tax income due to the economic downturn, the second the loss of federal funds due the austerity economics and “fiscal cliff” panic ruling national politics.
The fourth quarter of 2012 saw an economic contraction, which undoubtedly fed into January’s poor job figures. Quoting Dean Baker “A sharp drop in government spending, heavily concentrated in defense, coupled with a decline in inventories caused GDP to shrink at a 0.1 percent rate in the 4th quarter. Government spending fell at a 6.6 percent annual rate, driven by a 22.2 percent decline in defense spending, subtracting 1.33 percentage points from the growth rate in the quarter. A 40.3 drop in the rate of inventory accumulation reduced growth by another 1.27 percentage points.” Given the further cuts in federal spending, which will result from the debt ceiling deal being crafted in D.C., we can expect job creation to take further heavy hits.
We are at best in a long-term trend of stagnation in job creation, the new jobs barely keeping up with the increase in population. Labor participation rates remain at 30 year lows, while long-term unemployment rates remain high. Further wages and wage shares in GDP remain low with no signs of increase, while the level of economic inequality is increasing, and in particular income and job growth for the lower income strata, particularly people of color, remains at depression levels.
If austerity economics, focused on reducing the national debt, prevails, which unfortunately looks increasingly likely, the current stagnation could very well turn into an economic decline comparable to the 1930’s world depression. We seem to be in a moment comparable to 1937, when the Roosevelt administration, in a panic over government debt, put the screws on expenditure, leading to a second downturn. It is chilling to recall that this “ second depression” was only overcome through WW2.