- The Washington Times - Saturday, July 5, 2003

In yet another example of the U.S. economy’s failure to meet the consensus expectations of mainstream economists polled by media and survey firms, the U.S. unemployment rate jumped by 0.3 percentage point in June, rising from 6.1 percent to 6.4 percent. The consensus forecast called for a rise of 0.1 percent in the unemployment rate. The same consensus forecast predicted no change in the nonfarm payroll employment figures. In fact, nonfarm payrolls shed 30,000 jobs last month. It was an admittedly modest reduction, but it was kept relatively low by a downward revision of 75,000 jobs from May’s data. During the five months since January, the nonfarm economy has lost 394,000 jobs.

The depth to which the labor market has deteriorated is startling. From the cyclical employment peak in early 2001, when the economy was in the first quarter of a nine-month contraction, the U.S. economy has shed 2.7 million jobs. Far more worrisome is the fact that during the 21 months since the economy began growing again after September 2001, it has suffered a net loss of nearly 2.3 million nonfarm jobs. By way of comparison, by the 21st month of the infamous “jobless recovery” during 1991 and 1992, nonfarm employment reflected a net gain of 177,000 jobs compared to the employment level during the last month of the 1990-91 recession.

At 6.4 percent, June’s unemployment rate represented a 2.5 percentage-point increase compared to its cyclical low of 3.9 percent. Since the unemployment rate began rising, the number of unemployed workers has increased by more than 3.8 million, according to the Labor Department’s household survey, which reported an increase of 360,000 unemployed workers in June alone.

Meanwhile, compared to a consensus-projected increase of 6,000 in first-time applications for unemployment benefits during the last week of June, actual claims increased by 21,000, representing the first increase in a month. It was still another example of the economy’s failure to meet even modest expectations.

What’s to be done? More to the point, perhaps, is the question: What more can be done? Since the beginning of 2001, the Federal Reserve has cut short-term interest rates 13 times, reducing the targeted overnight rate from 6.5 percent to a 45-year-low of 1 percent. Fiscal policy has appropriately moved from contractionary in fiscal 2000, when the federal budget surplus was $236 billion, to robustly expansionary in 2003, when the budget deficit will likely exceed $400 billion. In the next fiscal year, which begins Oct. 1, the recently passed $350 billion tax-relief program will pour about $150 billion in tax cuts into the weak economy. Over the past 18 months, the dollar has depreciated about 30 percent against the euro, making U.S.-made goods far more competitive stateside and far more affordable overseas.

Democratic congressional leaders and presidential candidates bemoan the increase in the budget deficit and the deterioration in the labor market since the Clinton-era stock-market bubble burst. With the exception of presidential aspirant Dick Gephardt, Democrats are long on complaints and short on solutions. And, in Mr. Gephardt’s case, the proffered “solution” — an effective tax increase of about $2 trillion, which the federal government would then pour into the health-care industry — hardly qualifies as a serious antidote to current economic difficulties.

As readers know, this page has repeatedly beseeched the Fed to lower short-term rates; it has enthusiastically endorsed the necessary and aggressive reversal of fiscal policy; and it has accepted the dollar’s depreciation. We now fervently hope that the simultaneous expansionary thrusts of all three policy levers will be sufficient to generate the 3.5 percent annual growth rate during the second half of 2003 that seems to represent the latest consensus economic projection. Given the track record of the consensus forecasts, however, we won’t be holding our breath. And more disconcertingly, neither Democrats nor Republicans, liberals nor conservatives, have any further policy proposals for increasing employment in the short term. By default, we seem set to let economic nature take its course.

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