The Corner

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Abyss Ahead?


Today’s jobs number are so weak that financial-market participants are beginning to see another abyss in our future. One big factor is the extent to which the European economies are beginning to crater in a manner that is depressingly familiar. Spanish retail sales, for example, were 11 percent below their level of a year ago in April. Industrial production in Spain is down about 8 percent over the past twelve months. It’s hard not to panic when numbers that bad are visible in major world economies, and the upcoming Greek election is just the type of political event that could ignite a global panic. The fact that regulators have been force-feeding our financial institutions toxic government debt only adds to the risks.

Against that backdrop, the disappointing but steady growth of employment in the U.S. has been a small consolation. But today we learned that net job creation was only 69,000 in May, and the unemployment rate inched up to 8.2 percent. The latter is especially troublesome, as unemployment rate increases often are the first signal we see that the U.S. is heading toward recession. The deeper you look, the worse things get. Most tragically, long-term unemployment skyrocketed by about 300,000 workers, from 5.1 million to 5.4 million people. That is 5.4 million people who will be very difficult to reconnect to society.

While the Obama administration would like everyone to believe that things would have been much worse absent their brilliant Keynesian policies, there are clear signs in the industry details of specific harms caused by their war against business. Over the past year, for example, employment in information-related industries (like communication) has contracted by 46,000 jobs. A normal “new economy” recovery would see this sector leading and adding hundreds of thousands of jobs. That can’t happen this time because capacity constraints are rising fast, and regulators are unwilling or unable to help industry relax them by, for example, making more spectrum available. Investment-killing government actions are also visible in the financial sector. Insurance companies and securities firms are continuing to shrink employment, likely because of pessimism over the implementation of the Dodd-Frank bill. Consumers have been buying cars, and industries that serve that sector have been fine, but the rest of the corporate sector is moribund.

The monthly ups and downs might explain some of this negative surprise, but that might matter very little going forward. There is so much to be worried about, so many coming events (especially Europe and Taxmageddon) that could precipitate high anxiety that we sorely needed a sign of strength to hold onto through the summer. The labor market has failed to deliver one, and that makes it hard to imagine what the near-term cause for optimism might be. I will be surprised if the next report isn’t much worse than this one.