Obama adviser urges reality check over jobs

Obama adviser urges reality check over jobs
By Sarah O’Connor in Washington
Copyright The Financial Times Limited 2009
Published: June 5 2009 19:22 | Last updated: June 5 2009 19:22
http://www.ft.com/cms/s/0/e46ddc28-51f9-11de-b986-00144feabdc0.html


A wave of enthusiasm greeted Friday’s news that 345,000 jobs were cut in the US last month, far fewer than during the darkest days of this recession.

But Austan Goolsbee, a senior economic adviser to Barack Obama, US president, was unmoved.

“If you lose 300-plus thousand jobs, that’s bad,” he said. “There’s no sense in which that’s good. It’s just better than it’s been for several months. Everybody ought to take stock of that.”

Mr Goolsbee’s attempt at a “reality check” highlights just how savaged the US labour market has been, and how accustomed to it everyone has become. For the past six months, the average monthly drop in jobs was around 700,000; twice the number in May.

But, as Mr Goolsbee says, an economy shedding 300,000 jobs a month is not a healthy one. Aside from this recession, it is one of the worst monthly numbers for a quarter century.

“I hate to be the skunk at the picnic, but I’m really not all that excited about this,” said Sheryl King, senior economist at Merrill Lynch. “We’ve seen the worst, and we’re starting to see what we normally see at the tail end of a recession. But [this] is still suggesting the economy is in a recession and the end is several months away.” The data reveal signs of deepening distress for some groups and industries, but elsewhere there are reasons for optimism that simply did not exist a month ago.

First, the ugly side. Unemployment, at 9.4 per cent, is the worst since 1983, but for some groups it is even worse. For example, about 1 in 5 under 20-year-olds is unemployed. The rate held steady between February and April at around 21.6 per cent, but last month it leapt to 22.7 per cent.

Men have also suffered more than women, and the male unemployment rate last month reached 10.5 per cent – 2.5 per cent higher than for women. This is largely because men dominated industries, such as manufacturing and finance, that have contracted most.

Manufacturers are still laying off vast amounts of people. The number of factory jobs fell by 156,000, with car-making, machinery and metal products accounting for half. Many analysts warn that the bankruptcy and radical restructuring plans for General Motors and Chrysler will accelerate the job losses over the summer.

The Obama administration is aware that certain industries will be changed for good and will never again employ as many people as before.

The construction industry has shed massive numbers since the housing bubble burst, but last month it looked as if its downsizing had begun to slow. Employment dropped by 59,000, compared with an average monthly job loss of 117,000 over the previous six months. Analysts said this was likely due to government-funded projects such as road and bridge-building.

Joe Biden, vice-president, said the government would “ramp up” such stimulus projects over the summer, adding that it would not be satisfied until the US economy was adding jobs on a monthly basis.

In a few sectors, that is already happening. The service sector – which accounts for 80 per cent of US economic activity – shed around half the number of jobs in May than in April, and some companies have begun to hire workers again.

Department stores increased their payrolls by 4,500 jobs and restaurants and bars by 8,900 workers, indicating that Americans are venturing out again to shop and socialise.

One other area which caught economists’ attention on Friday was that of temporary workers. The sector has been dropping an average 73,000 jobs per month, but last month the rate slowed to just 7,000.

Temps are seen as a leading indicator for the labour market, because when business activity starts to pick up, many companies hire them to help cope. Having the confidence to employ full-time staff takes longer.