The dreaded ghost of high unemployment haunts President Obama and his prospects for reelection in 2012.
The Obama Administration is hanging its hopes on consumer spending, which makes up about 70 percent of economic activity, and the approximately $2 trillion in assets the industrial community has been sitting on. But despite recent stronger economic growth, Fed Chairman Ben Bernanke forecasts as much as five more years of high unemployment.
Obama has brought the unemployment disaster on himself to a large extent. Like a cross-eyed marksman shooting at the wrong target, he wasted most of his first year shoving against the public will to enact a massive health care overhaul. He also took faulty aim at pushing a stimulus package that brought almost no economic sunshine.
The dismal outlook for continuing joblessness and its political danger is really nothing new. On Sept. 11, 2009, then-National Economic Council Director Larry Summers said the nation’s unemployment rate could stay “unacceptably high for a number of years.” With his remarks about sustained high unemployment, Summers spoke of it as one of the most sensitive issues in the economy, as Politico wrote, covering the summers briefing. Summers also said that if the unemployment rate begins to decline, the White House may have an easier time “convincing voters” that the Administration’s enormous stimulus spending and vast federal intervention in the economy were effective. If, however, all the Administration’s pervasive economic encroachments didn’t move the needle on the employment rate, Summers said, it could hamper the President’s party.
Earlier that same week, the White House said its research indicated the $787 billion economic stimulus bill passed earlier in that year saved or created one million jobs. That’s on pace to hit the President’s goal to save or create 3.5 million jobs by the time the programs ends in 2010, White House officials said. All so wrong.
A glimmer of hope came when the Bureau of Labor Statistics reported Jan. 7 that the unemployment rate fell to 9.4 percent from 9.8 percent in December. The number of jobless dropped by 556,000 to 14.5 million.
Those in the Obama voter base still lag far behind other unemployed. Some 16.8 percent of blacks are jobless. And 13 percent of Hispanics are not working. Americans who have been unemployed for 27 weeks or more total 6.4 million. Government workers (federal, state and local) fared much better. Their unemployment rate was only 4.4 percent for 2010 and left only 958,000 jobless, BLS statistics state.
Following the disappointing job creation report, investor confidence fell significantly, according to the Rasmussen Reports polling. Economic confidence of consumers fell seven points. Investor indexes fell even more sharply—by 14 points. While 33 percent of consumers think the economy is getting better, 43 believe it is getting worse.
The economy is no longer on life support, but it is a slowly convalescent patient with a chronic illness. After every recession since 1960, employment started to pick up a few months after the recession ended. Why will unemployment linger so long this time? A big reason is the changing nature of recessions, according to Daily Business Review. After the 2001 recession, the lag was 19 months. After the current recession is finally ended, “millions of jobs will likely disappear in the construction, finance, and automotive sectors.” This increases the period needed for new jobs to be created and for workers to be trained to fill them.
The economy needs to produce a net gain of about 127,000 jobs every month just to absorb new job seekers created by population growth and immigration. But “most economists expect job growth to be weak over the next four years. Payrolls expanded by only 100,000 per month in 2010, Benanke told the Banking Committee. He also said about 40 percent have been unemployed for six months or more. “It erodes skills and may inflict lasting damage” on their employment prospects, he testified.
“Consumers have not been suffering from a lack of spending power, they’ve just been missing the confidence to use it,” National Retail Federation chief economist Jack Kleinhenz explained, according to a story in The Hill.
The Federal Reserve policy makers, meeting for the last time in 2010 discussed their strategy to buy an additional $600 billion of Treasuries through June to try to lower unemployment. As if printing money will give the economic any more of a boost than the bite-size spending in 2009 stimulus package– with its lack of “shovel-ready jobs,” as Obama finally admitted.
Obama’s appointments of William Daley as new chief of staff and Gene Sterling as National Economic Adviser were made to portray the Administration as moving toward the political center–a way to appear more friendly to the business community as well as soak up future contributions for the 2012 campaign. Daley was Secretary of Commerce under Bill Clinton. Sperling is considered philosophically center-left.
The most nail-biting news for Obama was Bernanke’s prediction the unemployment rate could be “8 percent two years from now” (about twice the historic rate) but “it will take 4 to 5 more years for the job market to normalize fully.
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