Unemployment, The Economy And The Chicken-and-Egg Conundrum

Job growth is lackluster because consumers won't spend, but consumers won't spend until the economy brightens. What can break the logjam?

July's job losses underscore a devastating economic conundrum. Businesses won't hire until they see more demand from consumers, but consumers won't spend until they feel more secure about the economy.

So what can break the logjam? Economists say it is a matter of slowly restoring confidence, and unfortunately, the process could take months.

"This could easily take till the middle of next year," says Ian Shepherdson, an economist at High Frequency Economics. "There's no chance of a sustained drop in unemployment in the near future."

Standard & Poor's chief economist David Wyss says that gradually, consumers just stop worrying about losing their jobs and little by little start spending again. "This happens every recovery," he says. This time, though, consumers are extra cautious because of the high debt levels they held going into the recession-- debt they're still burning off.

Friday's report showed the nation lost 131,000 jobs last month, the Department of Labor said, more than most economists had expected. Private-sector hiring, which many economists consider a better measure of the job market, rose by 71,000.

The public sector lost 202,000 jobs, as census workers were laid off and local governments made cutbacks. To a large extent, these are jobs state and local governments would have shed last year but didn't because of the federal stimulus package.

"You've extended the adjustment process," Wyss says, which he believes is better than having the blow of government and private-sector cuts all at once. "By extending it, now the government-sector cuts are coming when the private sector is starting to hire," lessening the blow, he says.

The overall unemployment rate held steady at 9.5 percent. When the overall rate holds steady while the number of paychecks falls, it indicates that many people have just given up looking for work. The underemployment rate was 16.5 percent, the same as in June. That includes unemployed workers who have put their job hunts on hold as well as part-time workers who would prefer full-time jobs.

One continued bright spot in the report is the manufacturing sector, which added 36,000 jobs in July. Copyright 2010 National Public Radio. To see more, visit http://www.npr.org/.

blog comments powered by Disqus