The Breakdown | Explaining Southern California's economy

Stuckflation continues: 80,000 new jobs in October does not a recovery make

Unemployment in America grinds on as job seekers confront a weak recovery.
Unemployment in America grinds on as job seekers confront a weak recovery.
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The BLS released October employment numbers this morning, and the numbers were disappointing. We were looking for around 100,000 new jobs, but we got only 80,000. The pattern for the past few months has been for a low number to be revised up. August, for example, came in at zero (yes, zero) but was later revised up, as was September.

So that's the silver lining. Taking revised data into account, we added about 100,000 more jobs than the BLS originally thought at the end of the summer and into the early fall. 

Altogether, this was enough to shave 0.1 percent off the unemployment level: we went from 9.1 to 9.0 (Hooray, U.S. economy!). Obviously, this is a dismal pace of improvement, unlikely to do much at all to bring the economy back to "full" employment of around 4 percent anytime soon. 

In Southern California, we should continue to remain well above the national unemployment level — north of 12 percent in LA County, worse in the surrounding region. The BLS will release that data later this month.

So what we have is sluggish national GDP growth (in the 2 percent ballpark) and stubbornly high unemployment. The situation is similar to the "stagflation" period of the late 1970s, except that back then inflation was also running high. At the moment, we seem to have very little inflation in the U.S. economy, although we did have an oil shock earlier this year, during the Arab Spring.

Increasingly, I think that we're not seeing a replay of Great Depression-type conditions, as many economists think, but a resumption of stagflationary conditions. But because of the low inflation, and the fact that we seem to be like a ship trapped on a reef or a person slogging though sticky mud, I've started calling the current situation "stuckflation." 

This is why the traditional recipe of Keynesian stimulus — pumping money into the economy in an effort to replace lost consumer demand — hasn't been as effective as many had hoped. The playbook for escaping stagflation was established by Paul Volcker, who was the Federal Reserve Chairman in the late 1970s. He raised interest rates until the economy tipped into recession, which broke the back of inflation and eventually restored GDP growth when the economy recovered. 

But inflation isn't the enemy this time around. Unemployment is. When the government has promoted employment that's close to "full" on a steady basis, inflation has been the price. However, one of the things that's probably keeping a lid on inflation is the crummy employment situation. Given how bad it is, it seems prudent for the government to quit worrying about inflation and just keep spending money at a furious clip until employment and GDP growth begin to trend back up.

The alternative would be to impose spending cuts — austerity — which would probably induce another recession, as it would allow already weak demand in the economy to collapse. Suffering would ensue, but companies that are in bad shape — including most of the big banks — would fall apart or be broken up, opening space for new companies to enter the picture, with better growth and hiring prospects. 

Unfortunately, the price of austerity could be unemployment that spikes to 15 percent, or higher. So simply enduring the stuckflation, for a few more years, could be a gentler way to deal with the problem.

Follow Matthew DeBord and the DeBord Report on Twitter.