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February Jobs Report: Slow But Steady Employment Growth

The February jobs reports wasn’t quite as good as January, when we saw some of the strongest job growth since the recession ended while the unemployment rate dropped to its lowest level since early in 2009, but it was still fairly good news nonetheless:

The slow melt-up in employment continued during February as the economy added 227,000 new jobs while the unemployment rate held flat at 8.3 percent

With warm weather helping to spur activity and as the European sovereign debt crisis [cnbc explains] receded into the background, the American economic engine continued its slow but steady drive toward recovery.

Economists had expected 210,000 net new jobs and the unemployment rate [cnbc explains] to hold steady at 8.3 percent.
Private payrolls in February grew by 233,000. Manufacturing added 31,000 jobs and services 203,000. Government subtracted 6,000 jobs from the total.

(…)

Professional and business services added 82,000, though more than half were temp jobs. Health care gained 61,000, while hospitality — primarily bars and restaurants — contributed 41,000 for the month, while the industry has added a total of 531,000 jobs over the past two years.

Though the construction trade was expected to benefit most from the unseasonably warm weather, employment in the industry actually was flat for the month.

In other good news, the employment reports for December and January were revised upward, showing that job growth for the past three months has been strong, although assuredly not nearly as strong as it needs to be. December’s job growth was revised upward to show 223,000 net jobs created, an January’s number was revised upward to show 284,000 jobs created. All told, and pending final revisions to January next month and revisions to February over the next two months, there have been 734,000 new jobs created over the past three months. At that pace, that would be able 2.8 million jobs created over the course of the year. Good, not great and not nearly enough to deal with the long-term unemployment problem, but still pretty good.

There were others signs of good news, including the fact that the labor force participation rate increased last month, which means that people are at least entering the job hunt again in the hope that things are improving. This is likely the reason that the unemployment rate itself didn’t go down. Additionally, the broadest measure of unemployment, U-6, is now at 14.9%, the lowest level its been at since January 2009.

That said, there are, as there have been for some time now, plenty of caveats. February marked the 36th straight month where the unemployment rate was above 8%, the longest such stretch since the Great Depression. And the number of unemployed people remains unacceptably high. Additionally, all-too-recent should remind us that these reports can bring false hope:

The recovery has been here before — last February, March and April saw net gains of more than 250,000 jobs each month. But then the effects of high gas prices, the earthquake in Japan and the resurgence of the fiscal woes in Europe kicked in, slowing job growth to a crawl.

“Everyone got burned last year, from being elated over the better economic data only to have their hopes dashed come spring,” said Ellen Zentner, an economist with Nomura Securities International. “If we can get past April and these trends continue, I’ll breathe easy.”

This year, the economy appears to be somewhat less vulnerable to shocks. There were 1.4 million more jobs in January than there were last April, and they were spread across more industries and more cities. Consumers have paid down some of their debt and begun to make large purchases, particularly cars. And so far, gas prices have not risen enough to dampen spending.

Of course, there are events outside of anyone’s control that could slow the rate of economic growth in the next few months. Gas prices continue to rise and are likely to dampen consumer and business spending in other areas if they continue to rise at this rate. The warm weather in February may have front-loaded some spending that ordinarily occurs in the early Spring, meaning that March and April might be slightly weaker than they otherwise would have been. And, of course, anything that increases tensions in the Middle East has the potential to push oil prices higher.

Nonetheless, there’s at least some anecdotal evidence that things are starting to turn around:

Martin Okekearu, 58, an engineer in Kansas City, Mo., with a master’s degree, has had long dry spells in his eight-month search for work. But in the last two weeks, he said, he has received two promising leads from manufacturing firms in the area. One found his résumé, which has been posted for six months, on the local employment center’s Web site.

He was relieved that either job would make use of his skills. “My younger son says, ‘Daddy, they talk about somebody educated — you are one of them. They talk about somebody experienced, you are one of them,’ ” he said. “The job market is improving.”

Others said it had become easier to find work, but only temporary or freelance work. “My feelings are mixed about the recovery,” said Pam Sexton, 45, also of Kansas City, who was laid off by Sprint in 2009 but later went back to work for the company on a contract basis. “So far, I’ve managed to find work, but a full-time, permanent job is somehow elusive to me.”

So what we’ve got right now is growth, not fast growth, but growth nonetheless, and if that continues then that’s good news for the economy. Politically, of course, it also happens to be good news for President Obama:

At this point, if we have a weak month between now and the election, it’s going to be the bad figure which looks like an aberration: only a sequence of two or three consecutive weak payrolls reports will really convince economists and the market that the recovery is going off the rails. It’s taken far too long to get here, but we’re finally moving in exactly the right direction, at an eminently healthy clip. Or, to put it another way: you can start breathing easier again, come the first Friday of the month. All those good job numbers were real, after all. And maybe next month the pundits won’t be on quite as many tenterhooks as they were this time around.

Oh, I think we’ll all be watching the monthly employment reports closely for quite some time before we’re assured that good, or at least better, times are hear to stay for awhile. Right now, though, things are moving in the right direction.

Related Posts:

About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May, 2010 and also writes at Below The Beltway. Follow Doug on Twitter | Facebook

Comments

  1. Hey Norm says:

    “…the 36th straight month where the unemployment rate was above 8%, the longest such stretch since the Great Depression…”

    What a coincedence…the Bush Recession was the worst economic contraction since the Great Depression. The connection is almost too much to fathom.

    “…Gas prices continue to rise and are likely to dampen consumer and business spending in other areas..”

    I’m interested to see how this plays out. People have already seen gas prices up in this range so they may not have the impact they did when they first appeared during the Bush Administration. In other words they may already be baked into the cake. Certainly the Republicans pushed back hard enough then (there’s already a video of Fox Anchors saying the Presidetn can’t do anything about gas prices) that politically it won’t be as damaging for Obama as Newt wishes it would be.

    Like or Dislike: Thumb up 11 Thumb down 2

  2. Rob in CT says:

    The gas price thing is scary. It could constrain any recovery. Question is how much.

    Not that it has anything to do with gas prices, but I’m having a guy come out and work up an estimate to install PV solar up on my roof. I checked it out a few years ago and didn’t go for it. This time I might.

    Like or Dislike: Thumb up 2 Thumb down 0

  3. Gold Star for Robot Boy says:

    The photo – when is that company hiring?

    Like or Dislike: Thumb up 5 Thumb down 0

  4. Peter says:

    @ Rob -
    Ask the solar guy whether you’ll need a new roof. You probably will, unless the roof is very new, and that adds substantially to the cost of the solar installation … and is not covered by utility rebates and tax credits.

    I work as a vendor representative in a Major Home Improvement Chain that (through a different vendor) does solar power installations. The rule of thumb is that it takes at least 100 serious inquiries from qualified potential customers to produce one sale.

    Like or Dislike: Thumb up 1 Thumb down 0

  5. michael reynolds says:

    And Mitt Romney dies a little inside. . .

    Like or Dislike: Thumb up 6 Thumb down 1

  6. OzarkHillbilly says:

    @Gold Star for Robot Boy: They aren’t. That sign is 3 yrs old. They were going to take it down but they laid off the guy whose job it was.

    Like or Dislike: Thumb up 7 Thumb down 0

  7. Brummagem Joe says:

    With the upward revisions for December and January it means we’ve been averaging close to 250,000 for three months and this is despite continued job losses in state govt. Given the depth of the trough we were in where something like 8 million jobs were lost this looks pretty good and if previous experience is any guide as recoveries gain strength then new job creation tends to accelerate although this time around it’s going to be up against the headwinds of weak housing and crimped state budgets. I have to smile at Doug’s continuing faint praise (you should take that list of related posts down Doug). Europe looks like it’s calming down also with the Greek debt issue resolved and the rates on govt debt have dropped dramaticallly. All we now is to avoid a war with Iran.

    Like or Dislike: Thumb up 3 Thumb down 1

  8. Hey Norm says:

    @ Gold Star…
    Next week I think.
    @ Rob…
    Make sure to look closely at the tax breaks and other incentives. We put a bunch of panels on our office roofs…but it was the tax deals that really put us over the top affordability wise. After Irene and the Halloween storm they look more and more attractive.

    Like or Dislike: Thumb up 1 Thumb down 0

  9. Commonist says:

    At this rate, Obama can say the course is sound and Romney’s an unpredictable, untried card that is too risky. Good enough.

    Like or Dislike: Thumb up 1 Thumb down 1

  10. Brummagem Joe says:

    Oh, I think we’ll all be watching the monthly employment reports closely for quite some time before we’re assured that good, or at least better, times are hear to stay for awhile.

    As Bloomberg points out this is actually the strongest six month stretch of job hiring since 2006

    Like or Dislike: Thumb up 3 Thumb down 0

  11. Tsar Nicholas II says:

    February’s was in fact a good labor force report, true.

    And quite unlike January’s numbers — which were more of a function of seasonality adjustment factors and the birth/death model — February’s reported W-2 job growth appears to be legit. Also in February the workforce, the labor force participation rate and the employment population ratio all increased. That’s a labor stats geek’s way of saying that things actually improved in February, as opposed to the window dressing with which these reports often can be laden.

    That all said, at the risk of being a wet blanket, here are some of the really bad items in the report, which for obvious reasons won’t be featured by the media: (1) Unemployment still is disastrously elevated. The U-6 rate is 14.9%. That’s ghastly. Even during the height of the Carter malaise, for example, U-6 unemployment never breached double digits much less approached 15%. (2) Wage growth is horrible. Over the past 12 months average hourly wages increased by only 1.9%. That’s below the effective inflation rate. No bueno. (3) Long-term unemployment still is a huge problem. 5.4 million people have remained unemployed for in excess of 27 weeks. That’s nearly 43% of all those who are unemployed, which is one of the worst ratios in history.

    Politically speaking, of course, these latest few reports help Obama. The media has and will focus on the good news and either will downplay or censor the bad items. That’s significant. Large swaths of Zombieland wouldn’t know the difference between U-6 unemployment and the band U2, and since they’re being told that jobs are being created and unemployment either is dropping or remaining steady it could create the perception that things are a lot better than they really are. Keep in mind that Obama can garner only 41% of the white vote and yet still win reelection. If reported job growth doesn’t crater between now and November Obama’s chances of being reelected will be extremely high, perhaps insurmountably so.

    Like or Dislike: Thumb up 4 Thumb down 4

  12. Rob in CT says:

    @Hey Norm:

    I’m fully aware of the subsidies available, CT and Federal. Thanks.

    @Peter:

    My house was built in 2001. The roof is original, and is in good shape. They did ask about that when setting up the home visit. My answer did not appear to concern them.

    I will have a list of questions for the guy, fear not. Also, as per my standard practice, if this gets serious I’ll get 3 bids.

    Like or Dislike: Thumb up 1 Thumb down 0

  13. Rob in CT says:

    Keep in mind that Obama can garner only 41% of the white vote and yet still win reelection.

    This is, of course, awful. How DARE non-whites matter?

    Like or Dislike: Thumb up 8 Thumb down 1

  14. Hey Norm says:

    “…Even during the height of the Carter malaise, for example, U-6 unemployment never breached double digits much less approached 15%….”

    The Carter recession was not even comparable to what Bush left us with….how hard is it to understand THE WORST CONTRACTION SINCE THE GREAT DEPRESSION”. I know you want to make other comaparisons to make Obama look bad…but THERE IS NOTHING TO COMPARE IT TO.
    http://dailydish.typepad.com/.a/6a00d83451c45669e20168e89ae307970c-popup

    Like or Dislike: Thumb up 7 Thumb down 1

  15. Brummagem Joe says:

    @Hey Norm:

    THE WORST CONTRACTION SINCE THE GREAT DEPRESSION”.

    Unfortunately the Tsar is so thick he doesn’t even know how they measure recessions…..he doesn’t even understand the concepts pf seasonality or biennial census adjustments. He either is or pretends to be as thick as a gatepost. What’s with this psychological desire to look completely stupid. It’s very strange.

    Like or Dislike: Thumb up 1 Thumb down 0

  16. Hey Norm says:

    In fact Tsar…and the other sufferers of ODS for that matter:
    Name a single instance of a similar economy digging out of a similar hole faster than we are in this recovery.
    Exactly.

    Like or Dislike: Thumb up 1 Thumb down 0

  17. Jib says:

    @Tsar Nicholas II: About U-6, the 70′s really were not bad for long term unemployment. Around 1980, industrial capacity utilization peaked at almost 90%, today it is low to mid 70%, after bottoming out around 67%. The 70′s unemployment was from oil shocks and was temporary. The big problem was an over heated economy with utilization running close to 90% and inflation very high. Then BOOM comes an oil shortage and shuts everything down. Stimulus to get past the oil shock contributed to the over heated economy and made inflation worse.

    Boom and bust with high inflation and uncertain energy supplies. Not fun but not what we are going though now.

    FWIW, unemployment in 1980 when Carter lost election to Reagan was 7.1%. And in 1984 when Reagan won a landslide it was …..7.5%. The difference was it was rising under Carter and dropping under Reagan after peaking at 9.7% in 1982. The trend is your friend.

    Plus people liked Reagan and Mondale was cold and out of touch with the times. The personalities of the candidates matter more than people like to admit. Especially if your side is looking at running Romney in 2012.

    Like or Dislike: Thumb up 4 Thumb down 0

  18. Jr says:

    So who the hell was Gallup calling when they did their polls a few weeks ago?

    The recovery is real…..but it is so damn frustrating due to how many jobs are being cut in the government. If it wasn’t for these stupid austerity measures that we have, there is more then a 50% chance unemployment will be below 8% by November.

    Like or Dislike: Thumb up 4 Thumb down 1

  19. Jib says:

    @Hey Norm: Actually, FDR and the great depression. Unemployment was 25% when FDR was elected and he reduced to 16% by the time he ran for reelection. A 9 point drop. If Obama did that unemployment would be 0% today. The first term of FDR was the highest 4 year growth in GDP during peace time. The highest 4 year growth in GDP ever was FDR’s 3rd term, during WW2.

    Dot let the revisionist historians fool you. There is a reason the people who went through the great depression loved FDR. No one ever did it better.

    Like or Dislike: Thumb up 7 Thumb down 1

  20. Neil Hudelson says:

    Anecdotally, I’ve seen an uptick in nonprofits hiring in both January and February. Lots of these nonprofits depend mostly on donations and charitable giving to function (a few have pledged memberships and long term investments, which help). The fact that they are receiving enough charitable gifts to start hiring is really a good sign.

    It’s also a good sign that they see an economy strong enough to make hiring worthwhile.

    Like or Dislike: Thumb up 2 Thumb down 0

  21. anjin-san says:

    There is a reason the people who went through the great depression loved FDR.

    My wife’s boss is a staunch conservative who lived through the depression. He can’t stand Obama. But he does say that FDR flat out saved the country. Twice.

    Like or Dislike: Thumb up 6 Thumb down 0

  22. Brummagem Joe says:

    @Jib:

    Who said the great depression wasn’t worse than this one? As best I recall GDP fell by 30% versus about 18% this time and the entire US banking system collapsed in 1932….when FDR took office every bank in the country was either bankrupt or had closed temporarily. Nevertheless it is without question the worst recession since the war and unlike most of the others it was a balance sheet recession not a tight money one which was the case in 1980-82 and these are much easier to fix. There’s no greater admirer of FDR than me but during his first term he had commanding majorities for his legislation in a way that Obama never did. Given the size of the problem and complete non cooperation of Republicans he’s actually achieved quite a lot over the last three years. Perhaps that’s why his RCP approval average is back around 50%.

    Like or Dislike: Thumb up 3 Thumb down 0

  23. Hey Norm says:

    @ Jib…
    That’s my point…not since the Great Depression. Nothing else is comparable.
    And they had the WPA…which built the Merritt Parkway here in CT. I’d love to build another Merritt parkway now. But Republicans want to pursue austerity. Because it has worked so well in Europe. Criminy…the New Deal started the TVA. We built shit then. During the Bush Contraction we paved some highways. And Republicans complained we spent too much.

    Like or Dislike: Thumb up 2 Thumb down 0

  24. Ron Beasley says:

    @Brummagem Joe:

    the entire US banking system collapsed in 1932….when FDR took office every bank in the country was either bankrupt or had closed temporarily.

    Today we have zombie banks that are bankrupt but are being held up by TARP and the FED. They are not loaning money and there is going to come a time when they can’t be held up any longer.

    Like or Dislike: Thumb up 3 Thumb down 0

  25. Brummagem Joe says:

    @Hey Norm:

    which built the Merritt Parkway here in CT.

    I love the Merritt, the bridges are wonderful

    Like or Dislike: Thumb up 1 Thumb down 0

  26. Brummagem Joe says:

    @Ron Beasley:

    Today we have zombie banks that are bankrupt but are being held up by TARP and the FED. They are not loaning money and there is going to come a time when they can’t be held up any longer.

    Sorry Ron but this is no longer true although it certainly was in early 2009 when nine of the top 12 banks were in the zombie or near zombie category. Today the only bank with real serious problems is BoA (and it certainly doesn’t deserve to be called a zombie). Nor is credit particularly tight if you’re credit worthy. Lending standards are tighter than they were in 2007 but they needed to be.

    Like or Dislike: Thumb up 1 Thumb down 0

  27. John D'Geek says:

    @Brummagem Joe:

    and this is despite continued job losses in state govt.

    Actually, state and local governments are hiring again. The Gov’t losses were Federal.

    Business Insider has the info.

    Like or Dislike: Thumb up 1 Thumb down 0

  28. Kylopod says:

    >Large swaths of Zombieland wouldn’t know the difference between U-6 unemployment and the band U2

    You speak as though these stats are mere talking points, rather than something affecting the lives of millions of voters.

    Like or Dislike: Thumb up 1 Thumb down 0

  29. Brummagem Joe says:

    @John D’Geek:

    Actually, state and local governments are hiring again.

    Only just…+1000 jobs….the first positive number for months…I’m not breaking out the champagne on state hiring just yet.

    Like or Dislike: Thumb up 1 Thumb down 0

  30. Hey Norm says:

    “…Nor is credit particularly tight if you’re credit worthy…”

    I just closed on a re-fi. It was with a local bank…which has held my mortgage for 10 years prior. They were more finicky than in the past…the appraiser actually came in the house. And they were insisting on 70-80% loan-to-value…where you used to be able to get 90-95% with no questions. But it wasn’t a real struggle. Just more sensible.

    Like or Dislike: Thumb up 1 Thumb down 0

  31. Hey Norm says:

    FYI…
    I pledge to spend all cash freed up by that re-fi in creating demand and doing my part to help the accelerating recovery. I urge all of you to do the same.

    Like or Dislike: Thumb up 1 Thumb down 0

  32. Moosebreath says:

    “I love the Merritt, the bridges are wonderful”

    So is the fact that the state owns the land on either side. When last I took it (which is decades ago), the lack of billboards was a big plus.

    Like or Dislike: Thumb up 1 Thumb down 0

  33. Rob in CT says:

    I never knew the WPA produced the Merritt. I grew up down in Fairfield County, and I drove the Merritt so much I know it very, very well. I love that little highway.

    Norm: I just refinanced too (and yeah, they wanted 75% LTV, but I lucked out with the appraisal – it came in way higher than I’d have guessed). I went with shortening the term to 15 years, myself. If all goes well, in ~13 years we’ll own our house free & clear. I hate debt with a passion that borders on irrationality.

    Have a good weekend, ya’ll. I’m stick-a-fork-in-me done and off to happy hour.

    Like or Dislike: Thumb up 1 Thumb down 0

  34. Ben Wolf says:

    @Brummagem Joe: The Greek debt crisis is unresolved and will continue to be so. Nothing has been done to address the structural imbalances which created the situation, unemployment eurozone-wide continues to rise and Germany’s export machine has come to a halt.

    Like or Dislike: Thumb up 2 Thumb down 0

  35. Hey Norm says:

    @ Rob…they also built the dam at the Barkhamstead Resevoir if you’ve ever seen that. Very cool.

    Like or Dislike: Thumb up 1 Thumb down 0

  36. Ben Wolf says:

    @Hey Norm: I’m glad you got a re-finance. Government money doing what it’s supposed to.

    Like or Dislike: Thumb up 1 Thumb down 0

  37. Brummagem Joe says:

    @Ben Wolf:

    Germany’s export machine has come to a halt.

    Cry me a river Germany’s export machine has come to a halt. Six months ago you were predicting the demise of the Euro. It hasn’t happened yet. I well understand the extent of the problem but like an elephant this problem has to be eaten one bite at a time. For the moment the bleeding has been stanched. Your predictions of disaster have so far been proved overblown. Watch this space.

    Like or Dislike: Thumb up 1 Thumb down 0

  38. Brummagem Joe says:

    @Ben Wolf:

    Do keep a sense of proportion.

    Germany’s economy slipped into reverse in the last quarter of 2011, with gross domestic product falling 0.2%, according to adjusted figures.

    The drop in Europe’s largest economy, reported by the Federal Statistical Office, was slightly less than the 0.25% that had been expected.

    The Statistical Office said the economy grew 3% overall in 2011, in line with preliminary figures released last month.

    The government is predicting a return to 0.1% growth in the first quarter of 2012, and expects 0.7% growth overall for the year.

    Carsten Brzeski, an economist with ING Global Research, said the fourth quarter slide was no cause for greater concern and the underlying factors supporting the German economy were still strong.

    Like or Dislike: Thumb up 1 Thumb down 0

  39. Ben Wolf says:

    @Brummagem Joe: Now you’re just lying, Joe. Unfortunate.

    Like or Dislike: Thumb up 1 Thumb down 0

  40. Ben Wolf says:

    For those who don’t base their economic decisions on name-calling and anger, the one figure you need to understand where the eurozone is headed is: 10.7%

    A 10.7% unemployment rate, up from 10.3% a month ago and more austerity on the way. And poor Germany won’t be able to pile more debt on the PIIGS to finance its exports. The latest debt agreement (the sixth or even seventh depending on how you look at it) is the latest stop-gap measure in a two year saga of failed bailouts. Greece’s GDP/debt ratio is still north of 140% even with it, still completely unsustainable as the country’s economy will continue to contract, its government will continue to cut spending and Germany will continue draining net financial assets.

    Nothing’s changed. Oh, nothing at all.

    Like or Dislike: Thumb up 1 Thumb down 0

  41. Brummagem Joe says:

    @Ben Wolf:

    For those who don’t base their economic decisions on name-calling and anger, the one figure you need to understand where the eurozone is headed is: 10.7%

    I’m neither angry nor have I called you any names. I just suggested you don’t have much sense of proportion and based on your prediction of the Euro’s demise a few months back I’d say that was an entirely reasonable conclusion. Nor am I particularly interested in having another of those endless circular arguments based on your simplistic reasoning (The Eurozone is 17 different economies not one). Certainly this overall problem is not permanently solved, and as Chancellor Merkel pointed out it will take years to solve, but is it nearer to resolution now when Italy and Spain can fund in the three’s versus the eights a few months back when you were predicting the demise of the Euro? I’d say yes, but you’re welcome to think otherwise and await Gotterdammerung.

    Like or Dislike: Thumb up 1 Thumb down 0

  42. Lomax says:

    Yes, and in the past week grocery and gas prices took another jump. This is something the government and the candidates don’t talk about much, especially the insane price of food.

    Like or Dislike: Thumb up 1 Thumb down 0

  43. Brummagem Joe says:

    @Ben Wolf:

    Now you’re just lying, Joe. Unfortunate.

    Er…what was that you were saying about name calling?

    Like or Dislike: Thumb up 1 Thumb down 0

  44. Ben Wolf says:

    @Brummagem Joe: Let’s test my “predictions”:

    Greece’s austerity measures would slow growth: correct

    Greece’s austerity measure would increase unemployment: correct

    Greece’s austerity measures would increase its budget deficits by triggering automatic stabilizers: correct

    The German economy would slow to zero or negative growth by the second quarter 2012: correct

    Italian austerity measures would trigger negative growth by the end of the first quarter 2012: correct

    Greece would default: partial default underway, full default to come

    Greece will exit the EMU: to be determined

    The EMU will not survive in its present form without a fiscal transfer union: to be determined

    American and British bond yields would fall despite record deficits: correct

    Interest rates in the U.S. would not rise despite record deficits: correct

    QE would not be inflationary: correct

    Attempts by the Federal Reserve to stimulate demand would fail because the Fed does not control the money supply: correct

    (The Eurozone is 17 different economies not one).

    You still don’t understand trade balance dynamics, nor have you made any effort to comprehend the EMU’s monetary system and why it ultimately dooms the euro to failure. In 2001 Warren Mosler wrote:

    Since inception a little over two years ago the euro-12 national governments have experienced moderate GDP growth, declining unemployment, and moderate tax revenue growth. Fiscal deficits narrowed and all but vanished as tax revenues grew faster than expenditures, and GDP increased at a faster rate than the national debts, so that debt to GDP ratios declined somewhat. Under these circumstances investors have continued to support national funding requirements and there have been no substantive bank failures. Furthermore, it is reasonable to assume that as long as this pattern of growth continues finance will be readily available. However, should the current world economic slowdown move the euro-12 to negative growth, falling tax revenues, and concerns over the banking system’s financial health, the euro-12 could be faced with a system wide liquidity crisis. At the same time, market forces can also be expected to exacerbate the downward spiral by forcing the national governments to act procyclically, either by cutting national spending or attempting to increase revenue.

    For clues to the nature and magnitude of the potential difficulties, one can review the US Savings and Loan crisis of the 80’s, with the difference being that deposit insurance would have been a state obligation, rather than a federal responsibility. For example, one could ask how Texas might have fared when faced with a bill for some $100 billion to cover bank losses and redeem depositors? And, once it was revealed that states could lack the borrowing power for funds to preserve depositors insured accounts, how could any bank have funded itself? More recently, if Bank of America’s deposit insurer and lender of last resort were the State of California rather than the Federal Reserve, could it have funded itself under the financial cloud of the state’s ongoing power crisis and credit downgrade? And, if not, would that have triggered a general liquidity crisis within the US banking system? Without deposit insurance and lender of last resort responsibilities the legal obligation of a non-credit constrained entity, such as the Federal Reserve, is systemic financial risk not ever present?

    Lo and behold, eight years later this is precisely what happened. Why did it happen? Germany and several other core members of the EMU run trade surpluses with the peripheral members. Those peripheral nations buy more goods and services than they sell, meaning they are experiencing a net drain on euros within their domestic economies. The only way to counter this is to attract foreign capital investment (unreliable) or for the governments of those countries to spend more. But as Greece is no longer monetarily sovereign it was forced to borrow those euros; the greater trade imbalances became, the more Greece had to borrow to keep its economy functioning.

    Without fiscal union this will continue. That you don’t consider tens of million of people falling into poverty and an unemployment rate of nearly 50% among people under 25 in some of these countries a severe problem is troubling. I’m not sure if you understand that this will permanently decrease european economic performance or you just don’t care. Just because Mr. Market is up a point does not mean the situation is getting better. The raw data tells anyone who cares to learn that things in the eurozone are getting worse.

    Like or Dislike: Thumb up 1 Thumb down 0

  45. KariQ says:

    Well, back what the jobs numbers mean in terms of the election: The Tsar is absolutely correct that current situation is horrible, the numbers are awful, and the represent a lot of suffering by a lot of people in “zombieland” (wherever that is) and even among those still living. In fact, the only standard by which the numbers look good is by comparison with the previous three years. By that standard, they look very good indeed.

    In electoral terms, that’s what really matters. Do voters feel that things are getting better? And if we keep getting numbers like these, they are going to think that yes, the economy is improving.

    Now all we have to do is avoid an earthquake followed by a tsunami followed by a nuclear meltdown followed by a threat to default on the national debt. If Europe kicks the Greek problem a little further down the road, that will help too. We’re going to have to pay the price on Greece eventually, but I’d like to see the economy a little stronger before that shoe drops. If it happens now, it could really hurt. If it can be held off another year, we could be strong enough to weather the blow without too much damage here. Europe, well, that’s another story.

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  46. Ben Wolf says:

    @Brummagem Joe,

    In the interests of fairness I did get a major call wrong. I expected disinflation if not outright deflation, but didn’t count on oil prices which stubbornly failed to correct. Not really surprising as I’ve never had a good enough knowledge of the energy sector for my tastes.

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  47. Lomax says:

    I don’t go by the government’s “cpi”, I go by my CPI (consumer price index):
    soft drink 12 oz: was $.50 three years ago, now $1.25
    gas prices: was $2.00 four years ago, now more than double! horrible! criminal!
    milk: about the same as gas!
    bag of chips: $1.88 two years ago, now almost $4
    1 onion: $.20 three years ago, now $1 each
    candy bar: $.50 two years ago, now $1
    Movie theater popcorn and drink: $ 10 three years ago, now almost $20! weird, insane!
    Now, don’t give me that stuff about my pay going up. In the last 5 years, I have recieved a .03 % cost of living increase. It certainly hasn’t doubled like food has.
    You don’t hear this kind of talk from the president or at the “debates”. Why?

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  48. Hey Norm says:

    @ Ben Wolf…
    What did Gov’t money have to do with my re-fi? It was with a local bank…that holds it’s mortgages and doesn’t re-sell them. The only role the Gov’t had was keeping interest rates at a ridiculously low level.

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  49. Lomax says:

    @Hey Norm: Refinance rates are very, yes, but a lot of people can’t refinance because the value of their home has sunk. Still, I would hate to return to 10 % + rates of the 1970′s under Carter!

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  50. Brummagem Joe says:

    @Lomax:

    Refinance rates are very, yes, but a lot of people can’t refinance because the value of their home has sunk.

    Well this is the essence of the real estate problem…the bubble has popped. The only solutions are re-possessions/resales, loan forgiveness programs (some of which are happening) and time.

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  51. Hey Norm says:

    “…You don’t hear this kind of talk from the president…”

    Nonsense.
    Obama at Osawotomie, KA:
    “…”What’s at stake is whether this will be a country where working people can earn enough to raise a family, build a modest savings, own a home, secure their retirement…”
    The SOTU:
    “…We can either settle for a country where a shrinking number of people do really well, while a growing number of Americans barely get by. Or we can restore an economy where everyone gets a fair shot, everyone does their fair share, and everyone plays by the same set of rules. What’s at stake are not Democratic values or Republican values, but American values. We have to reclaim them…”
    This is the basis of the entire inequality discussion.
    Romney’s answer is to provide more, deeper, tax cuts for the rich and slash spending that benefits the middle class…things like investing in infrastructure, which creates jobs, and education. Romney wants to exacerbate the inequality. He wants to keep your pay flat-lined. He doesn’t say it out loud…but that’s the end result of his policies…and Republican policies of the last 30 years.

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