In April, we added 241,000 new jobs in the private sector alone. In September, we lost 41,000 jobs in total. What happened?
The homebuyer tax credit expired, pulling the rug out from housing demand. Europe nearly imploded with the Greece debt crisis threatening to bulldoze its way through Portugal, Italy, Ireland, Spain, and even Great Britain. Cooperation on Congress cooled until it froze in a block of partisan do-nothingness. The Census wound down and states started to shed workers, countering the stimulus with 50 simultaneous contractions. There recovery sank, but there were too many anchors to blame one, exclusively.
Ryan Avent blames the central bank. He tells a story about the summer the Federal Reserve watched the recovery nearly die:
In late April, fears of a serious European debt crisis began to emerge. These fears sparked a mild panic and a renewal in the flight to safety. This flight manifested itself, in part, as a rush to buy American government debt. Treasury yields had been rising in the months prior to the crisis, but plunged from April through the summer. The dollar shot up; the trade-weighted dollar rose nearly 5% from late April to early June. In response to the pressure within markets, the Fed reopened currency swap lines it had used in previous stages of the crisis. It did not, however, take steps to offset the impact of the financial hiccup on growth expectations.
Markets reacted. The Dow fell over 13% from late April to early July, and was still 10% off its April peak in late August. From January to April, 10-year inflation expectations were stable at around 2%. These began falling sharply, and were down to around 1.5% by the end of the summer. Every signal available began flashing a decline in economic expectations starting in late April. But the Fed didn't act. Not until late August did Ben Bernanke hint at a course change, and matters improved almost immediately. The Dow has risen by nearly 13% since then. Inflation expectations leveled off in October. And the pace of private hiring has returned to early spring levels.
His Economist piece is an excellent distillation and polemic that concludes -- controversially and perhaps contentiously -- that the Fed's inaction cost the United States up to 800,00 jobs this summer.