This morning, the Labor Department released the worst employment report since September of last year, with the economy creating only 18,000 jobs in June versus a Marketwatch consensus estimate of 125,000 jobs. (Yahoo Finance and Bloomberg had slightly lower estimates, but the report was a disaster by any measure.)
Private sector job growth also came in far below expectations at 57,000 net new jobs in June.
As if that weren't bad enough, both April and May employment numbers were revised lower, down a combined 44,000 jobs.
The unemployment rate moved up to 9.2 percent. The broader "U-6" measure of unemployment and underemployment spiked up to 16.2 percent, the highest level this year.
The rest of the report was bad as well: Hourly earnings were unchanged, with predictions of up 0.1-0.2 percent. The average workweek fell to 34.3 hours, below the estimate of 34.4 hours.
Fed Funds futures rose dramatically in the "back months" suggesting that the market is substantially lowering the probability of an interest rate increase by the Federal Reserve anytime this year.
If one can see a bright side to all this, it's that government at all levels shed a net 39,000 jobs in the month. I realize it's no fun for those government employees who thought of themselves just as men and women doing a job. And while many government workers perform important and legitimate functions, government is notorious for lack of productivity. At the end of the day these people are paid by taking money from the rest of us. So just as the nation won't be healthy until Washington, D.C. is no longer the strongest real estate market in the country, we also won't be healthy until the total number and cost of government jobs falls to, and remains at, a substantially lower level.
After an hour of trading, the Dow Jones Industrial Average was down 135 points with the S&P 500 down 17 points.
Barack Obama's economic advisor Austan Goolsbee called the report a "call to action" and then laid out several policy suggestions (more below). Goolsbee then blamed the economic slowdown on a "terrible oil price shock and a slowdown in the growth rate".
The problem for the Obama Administration is they they're to blame for both.
Releasing oil from the Strategic Petroleum Reserve showed Obama's economic ignorance and desperation. In fact, despite a 2% drop in oil prices on today's weak report, oil is still almost $3 per barrel higher than when that policy was announced. Oil prices are driven by big-picture supply and demand. As long as the Obama Administration is a barrier to creating new supply, the path of least resistance for oil prices is upwards. As for the slowdown in growth, that was just an odd comment, basically saying that the economic slowdown was due to the fact that economic growth slowed. Not much I can add to such wisdom except to say that the Administration's economic policies are obviously failing.
CNBC reporters asked Goolsbee twice whether the Obama Administration has any culpability. Goolsbee eventually said "Yes, we take responsibility." That's a start...and perhaps this kind of semi-honest talk will get the last victims of Bush Derangement Syndrome to recognize that this economy is no longer George W. Bush's fault or problem.
Goolsbee called for these five policy actions:
1) Extend the payroll tax cut
2) Pass free trade agreements
3) Create an infrastructure bank
4) Pass a patent reform bill
5) Pass balanced bipartisan deficit reduction agreement
He claimed these "would create hundreds of thousands of jobs if not millions".
Let's take these on:
1) Businessmen are not fooled into changing behavior by temporary government policies. Furthermore, the Administration displayed their usual economic ignorance by giving the tax break only on the employee side of the ledger. If they had to choose just one side to give a break to with a view toward creating jobs, it should have been the employer. That said, temporary policies simply don't have important economic impact because the rest of us know we don't live temporary lives.
2) Passing free trade agreements is a very good idea, though its impact would take some time. Furthermore, the Democrats tend to try to use these agreements to create new entitlement programs such as "job retraining" which end up lessening the benefit of the bills. Still, free trade is one of the most important things for a vibrant economy.
3) Does anybody but a White House employee think that we need the government to set up a "bank" of any sort? Furthermore, if infrastructure were so important, why did they do so little of it with the nearly $1 trillion "stimulus" plan, during which we heard so much about "shovel-ready projects" only to be told last month by President Obama that "shovel-ready was not as shovel-ready as we expected." The "infrastructure bank" is simply the Administration's latest scheme to divert taxpayer money to their increasingly disaffected union base. A perfect example comes with a union suggestion that if the legislation were to pass, it should require project oversight and inspection to be done by government workers (also likely to be union members) rather than by private contractors (who actually care about productivity.)
4) Patent reform is a good idea, though again this is a much longer-term impact and not going to create jobs in the next several months
5) Obviously, reducing our debt and deficit is critical, in particular because of the confidence (or lack thereof) which the eventual deal will instill in American entrepreneurs. If the legislation ends up being based on bogus assertions of revenue assumptions from class-warfare talking points, the markets and job creators won't be fooled. We simply must address the growth of entitlement programs' costs.
And Goolsbee missed one of the most important aspects -- because his boss doesn't want to go down this road: The private sector is massively over-regulated and fears becoming even more so. Dodd-Frank and Obamacare are just the latest, piling on the mess of Sarbanes-Oxley and the increasingly burdensome regulatory state. The use of the EPA, Department of the Interior, and Department of Labor to enforce rules which Obama couldn't get passed in Congress smacks of anti-business petty tyranny. Reducing debt and deficit is important, but reducing regulation -- and the threat of further regulation -- is just as important.
The June employment report is indeed a "call to action", namely to stop naively believing in Obamanomics and to start contributing to political candidates who promise to support repeal of much of this Administration's economic poison while we still have a patient to save.
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