This article first appeared in the St. Louis Beacon, Aug. 15, 2012 - Fair or not, evidence of an economy that is growing or stagnating always plays a pivotal role in presidential campaigns. It is, after all, the economy stupid.
As someone who works with numbers for a living, I cringe every time I hear a candidate or their minion bandy about some economic statistic.
It is not that such data use is not informative, but shouldn’t there be a disclaimer? Like every other item consumed, caveat emptor. Consumers — voters — must exercise caution in how to interpret the numbers being used. The statistic that already has and will continue to be heavily used and abused is employment.
Mitt Romney, the presumptive Republican candidate has often said that the policies of the Obama administration have cost the economy jobs. The numbers support this assertion: Total employment in the non-farm private sector of the economy has fallen during Obama’s tenure in office. Data from the Bureau of Labor Statistics indicate that between early 2009 and 2012 the number of jobs declined by 515,000. (I use January-to-January comparisons.)
The facts do not lie, but the interpretation is a bit disingenuous. Much of that job loss reflects a hold-over of the effects from the recession and financial crisis that began in his predecessor’s last term.
During President Bush’s second term the economy added a total of only 267,000 private sector jobs. This figure masks a tale of two very different experiences, however. From January 2005 through January 2008, the number of jobs increased by nearly 5 million. As the Great Recession took firm hold on the economy, jobs declined by 4.6 million in 2008 alone erasing previous gains.
During Obama’s first year in office, the economy shed an additional 4.2 million jobs. Since early 2010, however, it has gained back about 3.7 million of them.While employment remains well below its pre-recession level, have the president’s policies been, on net, a positive for job creation or not?
Although the recession officially ended in mid-2009, there hasn’t been the usual post-recession bounce in employment. Why has employment growth failed to regain previous losses? Job growth occurs when employers are confident that future revenues will support the cost of hiring additional workers. When that confidence is shaken, employers find ways to use current staff more efficiently or postpone expansion.
We have seen such erosion of confidence before. Following the comparatively mild recession that occurred between March and November of 2001, job growth also was tepid. Between 2001 and 2005, jobs in the non-farm private sector fell by more than 900,000. And George W. Bush took much abuse for this since it occurred under his watch.
If the 2001 recession was mild by historical standards, why the non-job recovery? This period followed the events of Sept. 11, 2001. Among other effects, this shock caused tremendous disruption in the decision-making process of business. New costs were incurred, uncertainty over the path of future events increased, and employers pulled back: No one hired in this state of uncertainty.
The Great Recession has had a similarly jarring and lasting effect on expectations. Though the recession officially ended in mid-2009, the hangover has not dissipated. And ensuing government policy — including policies initiated by the president and gridlock in Congress — has not created an environment in which doubts about the future have been assuaged.
Like the post-9/11 era, the current state of doubt has cast a pall over job growth. Not being able to predict future fiscal policy — both taxes and spending changes that will or will not occur next year — has frozen near-term business plans and hiring decisions.
Employment growth remains inert and will not recover until employers become more certain of the future. Perhaps the results of the November election will lift the veil of doubt and allow the economy, and jobs, to grow once again.
R.W. Hafer is reasearch professor of economics and finance at Southern Illinois University Edwardsville and a research fellow at the Show-Me Institute, St. Louis.