The U.S. unemployment rate in December held steady at 7.8%, the government reported, but with more budget battles ahead, employers still have little certainty about which way the economy will go. (Steven Senne / Associated Press)
by Jon Healey, Los Angeles Times
The December jobs report released Friday by the Bureau of Labor Statistics showed that the economy remained in low gear, with private employers continuing to add jobs just slightly faster than the number of new workers seeking them. That’s about the same as it has been since the summer of 2012. In fact, the total number of jobs created last year — 1.84 million — was the same as in 2011.
At this rate, it will take seven years for the U.S. economy to get back to the robust employment rates seen before the 2008-2009 recession. President Christie will have already started campaigning for re-election by then.
There were nuggets of encouraging data within the jobs report, such as the gains in manufacturing and construction, the growth in wages and hours worked, and the growth in the labor force. Some pundits also said they were impressed that job growth, while slow, held up in spite of the threat posed by the possibility of across-the-board tax hikes and spending cuts on Jan. 1.
In fact, the retail jobs numbers were surprisingly lame, reflecting the dip in consumer confidence caused by the looming “fiscal cliff.” There’s also plenty of evidence that the uncertainty about tax rates kept many employers from investing and expanding over the last quarter of 2012.
So now that Congress and President Obama have struck a deal, the economy should really take off, right? Consumer confidence will rise, companies will start putting their cash stockpiles to work instead of just sitting on them?
That’s what Alan B. Krueger, the Obama administration’s top economist, implied in his assessment of the December report.
“With the passage of the American Taxpayer Relief Act earlier this week, more than 98% of Americans and 97% of small businesses now have certainty that their income taxes will not rise,” Krueger wrote. “Additionally, unemployment insurance was extended for two million Americans who are searching for a job, and companies will continue to receive tax credits for the research that they do and continue to have tax incentives to accelerate investment in their businesses. By allowing income tax cuts for the top 2% of earners to expire, this legislation further reduces the deficit by $737 billion over the next decade.”
Nice spin. The reality is that the deal didn’t eliminate the uncertainty about taxes. Instead of a “grand bargain” that charted a path for Washington out of the deficit wilderness, it merely created a new, higher tax bracket for individuals earning $400,000 and couples earning $450,000. All indications from congressional Democrats and the White House are that they will seek more tax revenue in future talks, possibly by eliminating some tax breaks for individuals and corporations.
Neither did the deal undo the across-the-board budget cuts that are slated to pull $109 billion out of the economy by Oct. 1. Instead, it merely delayed the start of those cuts by two months.
Clearly, the federal fiscal woes will remain a major source of uncertainty until Republicans and Democrats finally reach agreement on a long-term deficit-reduction plan. And while it’s impossible to quantify the effect of that uncertainty on the economy, there’s little question that it’s a drag on employment.
That’s not to say the deal reached this week provides no clarity. It signaled the end of a two-year, 2-percentage-point reduction in payroll taxes, which means less money in the pockets of all wage-earners. At the same time, by permanently extending the Bush-era tax rates for those earning less than $400,000 or $450,000, it set a new baseline for future tax discussions.
Yet by not addressing spending or the debt ceiling, the deal guaranteed that there will be angst aplenty in Washington in the coming months. That’s not likely to help shift the economy into a higher gear.