What's Tanking the Economy
Everyone agrees the latest jobs report is a disaster, but economists are split about the underlying cause.
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Everyone agrees the latest jobs report is a disaster, but economists are split about the underlying cause. Did increased gas prices choke off employment? Did uncertainty in Europe? How about job cuts in the public sector? The bottom line is the U.S. added only 69,000 net new jobs in May, far below Wall Street expectations of 150,000, and low enough to renew fears of a delayed recovery through the summer. Here are your economic antagonists:
Blame Europe Time's Josh Sanburn
argues that the threat of Greece's departure
from the Eurozone and Spain's debt woes
have spooked U.S. companies from making any aggressive moves. "The optimism seen from employers in the first part of the year has quickly waned, as businesses sense that problems in Europe regarding Greece and the future of the Eurozone are far from over." He notes that the two regions are ricocheting bad news off each other as new numbers
from the Eurozone show record high unemployment of 11 percent, the lowest level since records began in 1995.
Blame public sector job cuts The Guardian's
business correspondent in New York Dominic Rushe
blames reductions in government jobs at the federal, state and local level. "The public sector is going through its worse culling in living memory," he writes. "Some 22 million people are directly employed by the US in one capacity or another and millions more hired on contract. The private sector would have to be roaring ahead to pick up the slack as an employer of that size cuts jobs. And the sad truth is, it is not." He notes that over 140,000 public sector jobs were erased last year and losses have continued this years, albeit, at a slower pace. Adding a tinge of nuance to that assessment, The New York Times' David Leonhardt
says "while the federal government and local governments are cutting workers," state government have stopped cutting.
Blame the gas prices
One of the sunniest ways to look at today's jobs numbers is to blame it on high May gas prices. Ahead of today's report, gas prices dropped sharply with a gallon of regular declining by 32 cents since its peak in April. The earlier surge in high prices put the kibosh on consumer spending in May, says Ian Shepherdson of High Frequency Economics. "The good news," he says in a research note obtained by USA Today
, "'is that gas prices are now dropping rapidly,'" which could lift job growth in coming months."
Blame the "spring slowdown"
In the last two years, the economy has slowed down markedly starting in the spring, notes the Associated Press
. "Another year, another jobs slowdown." This time around is no different, except, on the positive side, it's less severe.
LAST YEAR WAS WORSE: During last year’s slowdown, job growth came in below 100,000 for four straight months — from May through August. The average was 80,000 jobs a month.
2010 WAS WORSE YET: In 2010, the economy lost jobs four straight months, from June through September. The average loss was 76,000.
As Yahoo's econoblogger Daniel Gross notes
, "Once again, the jobs figures testify to a slowing of growth in the spring." It's not exactly clear why the economy all of a sudden plummets; Each year has had major events such as Europe's 2010 debt shocks and Middle East unrest in 2011, which sent oil prices surging. The upside is that it's better this spring than in 2010 or 2011. ‘‘We’re forming a base,’’ said Joel Naroff of Naroff Economic Advisors. ‘‘The level of confidence going into the spring and summer is definitely higher this year than last year.’’
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