The news of the day, no doubt, will be ADP’s reckoning that a quarter million jobs had been lost last month:
Wednesday’s broad mix of housing, labor and factory reports gave Wall Street little hope that the recession is nearing an end.
The ADP said private-sector employers cut 742,000 jobs in March, greater than the 706,000 revised cut in February. The reading was well ahead of Wall Street’s expected forecast of 655,000. The ADP National Employment is produced by Automatic Data Processing, in partnership with Macroeconomic Advisers.
According to the report, the labor market’s weakness was distributed across all major components tracked by ADP, which suggests the recession has gone way beyond the housing crisis that propelled it. (See “The Fuel That Fed The Subprime Meltdown.”)
“I don’t expect this to get better for several more months,” said Joel Prakken, chairman of Macroeconomic Advisers. “Even with the help of the stimulus, we’re not going to see an abatement of these declines until the middle of the year, and it won’t be until the end of the year when we see signs of employment stabilizing.”
To be sure not all of the news was bad. Loss of manufacturing jobs seems to have slowed last month; February saw a slowing in the decline of housing prices.
Unemployment is currently rising like a rocket, because businesses that normally would be expanding and hiring are not, and those businesses that would normally be contracting and shedding workers are doing so very rapidly. Businesses that ought to be expanding and hiring cannot, because the depressed general level of financial asset prices prevents them from borrowing money or selling bonds on profitable terms.
In response, central banks should purchase government bonds for cash in as large a quantity as needed to push their prices up as high as possible. Expensive government bonds will shift demand to mortgage or corporate bonds, pushing up their prices.
Even after central banks have pushed government bond prices as high as they can go, they should keep buying government bonds for cash, in the hope that people whose pockets are full of cash will spend more of it, and that this will directly pull people out of joblessness and into employment.
In addition, governments need to run extra-large deficits. Spending – whether by the United States government during World War II, following the Reagan tax cuts of 1981, by Silicon Valley during the late 1990’s, or by home buyers in America’s south and on its coasts in the 2000’s – boosts employment and reduces unemployment. And government spending is as good as anybody else’s.
I don’t believe that Dr. DeLong has recognized what’s really happening today. The long-hoped for change in American behavior is occurring: Americans are saving more, at least private citizens are, and, necessarily, consumer spending has slowed.
As I see it the problem with all policy to date is that it has been retrospective in nature, trying to put Humpty together again. Politicians want things to go back to the way they were. They won’t.
Construction is unlikely to be the hotbed of activity it was a couple of years ago for the foreseeable future. Will retail ever be as hot as it has been for the last several years?
Meanwhile, every action aimed at restoring the status quo ante will only serve to slow the recovery.
Lobbying provides the best ROI of any investment that a company with the jack to do it can make. As long as that’s the case it’s hard for me to see why anybody would do anything else.
That’s one thing that slightly perturbs me about all our efforts to boost the economy. If the growth of the past 7 years was by and large a bubble that should not be replicated, then shouldn’t we be getting prepared for an economy shrinking down to its “proper size”? Not to mention that if Americans are, in some cases, actually choosing saving over spending to a much greater degree, stimulating consumer spending is going to be rather difficult.
Dave,
Your comment on construction makes me think of my brother, who I spoke to today:
My brother owns a construction business that specializes in office remodeling. Essentially, a company leases office space and my brother configures it to their needs. Work in this area is plummeting. My brother has laid off half of his employees (was 12, now six) and will probably go down to 3 employees in the next few months. With the drop in employees, his group health-care per employee has gone up and he will have to cancel it, which will also cancel his own insurance.
There are few new businesses renting office space, fewer businesses who are moving to new or larger spaces (usually the opposite), and more of those “make do” with how the previous lessee configured the space. My brother has been doing this for about 25 years and he thinks he will survive, but just barely. He’s lucky in that he’s single, kids are gone, so he can live cheaply. As a consequence, he hasn’t paid himself anything from the business for over a year, instead living off of savings, in order to keep the business afloat. Of course, that has effects as well – with no personal income personal credit, is hard to come by, but fortunately he doesn’t need it for now. Business credit has been a severe problem as well.
I think his business can be used as an indicator since most businesses lease office space. Anyway, thought you might be interested.