- The Washington Times - Sunday, September 4, 2011

The economy last month offered up no new jobs in celebration of Labor Day and appears in danger of slipping back into recession despite massive efforts by Congress and the Federal Reserve in the past three years to keep it afloat.

The White House will offer more proposals this week to try to gin up jobs to add to the 1.7 million created earlier in the recovery and beef up President Obama’s prospects for re-election.

Mr. Obama will offer a potpourri of renewed payroll tax cuts, jobs tax credits, extended unemployment insurance and targeted spending on public infrastructure jobs to put more than 1 million unemployed construction workers back to work.

Republicans have responded with proposals to cut corporate tax rates, extend tax cuts for upper-income individuals who often run small businesses, and roll back regulations imposed by Mr. Obama in hopes that businesses will respond by hiring more workers. In a move toward the GOP on Friday, Mr. Obama pulled a smog regulation that businesses had fingered as the most onerous of all.

While many of the proposals have merit, economists say, the fundamental problem is that businesses don’t need to add workers because their existing staff is sufficient to satisfy anemic levels of demand.

“There are no quick fixes on the horizon for the millions who are still unemployed,” said Richard Wahlquist, president of the American Staffing Association. “Until businesses see a significant and sustainable uptick in demand for their products and services, we will not see a meaningful increase in the number of new permanent jobs.”

According to surveys conducted by the National Federation of Independent Business, small businesses, which employ the most Americans, have complained for months that “poor sales” are their biggest problem and the reason they aren’t hiring.

Large businesses also have seen little reason to add to staff in a stagnant U.S. market and collectively are sitting on more than $1 trillion in profits that they otherwise could deploy to beef up employment and expand if new sales opportunities arose.

Heidi Shierholz, an economist at the Economic Policy Institute, said Friday’s jobs report showed that businesses have no reason to hire. In fact, they even cut back the hours of their existing workforces last month.

“The main issue is lack of demand,” she said. Employers have “substantial room to meet unmet demand by increasing hours of existing workers; if private-sector employers were to simply restore the hours of their workers back to pre-recession levels, that would be equivalent to adding over 1.2 million jobs.”

The best job growth experienced in the recovery - more than 150,000 jobs a month - came at the beginning of this year after a surge in demand at the end of last year. The upsurge in demand was prompted in part by a mortgage refinance boom as 30-year mortgage rates dropped to record lows in response to the Fed’s last easing campaign - giving consumers more cash to spend.

But the gains were fleeting and a repeat of that Fed campaign seems improbable, although Fed-watchers expect the central bank at a meeting this month to debate a revival of its program of purchasing Treasury bonds to lower long-term interest rates in light of Friday’s dismal jobs report.

“There was hope that the American consumer was making a comeback” at the end of last year, when back-to-school and Christmas sales were relatively robust, and that led businesses to add jobs, said Chris G. Christopher, an economist at IHS Global.

“Much has changed” since then, he said. “Consumers are pulling back and they face tremendous head winds,” including paltry wage gains, unemployment lingering at more than 9 percent, rising bankruptcies and foreclosures, threats of budget cuts and higher taxes at all levels of government, and high prices for food, fuel and other essentials.

Consumers were contending with all those obstacles even before a massive loss of confidence set in last month in the wake of the acrimonious debt debate in Congress and the worst financial rout since 2008.

Now, consumers have grown so cautious that “firms are not going to pick up hiring anytime soon,” Mr. Christopher said. IHS puts the odds of the economy tipping into recession at 40 percent.

Despite the danger of a double-dip recession and the expected flowering of proposals on jobs this week, analysts are not optimistic that anything significant transpire as big divisions remain between the White House and congressional Republicans over what to do.

While Mr. Obama wants to follow the classic formula of substituting government spending and demand for consumer spending and demand to create jobs in construction and other areas, Republicans are adamantly opposed to that approach and are pushing deregulation as the primary alternative because that would not add to the budget deficit.

“The political environment appears to be so dysfunctional at present that it seems highly unlikely any major new policy recommendations from the White House will be approved by Congress,” said David Greenlaw, economist at Morgan Stanley.

Moreover, with the fight over the budget deficit scheduled to heat up again after Congress returns next week, Washington is likely to end up doing more to discourage growth and job creation than help it, he said, just as it did this summer when political grandstanding over the debt limit became a major drag on the economy and helped cause the tenuous growth seen today.

Mr. Greenlaw noted that Congress chose inauspicious dates as deadlines for the supercommittee it created to recommend another $1.5 trillion in potentially unpopular and controversial budget cuts. The commission is required to make its recommendations just before Thanksgiving, and Congress must vote them up or down by Christmas - bracketing the most important selling season of the year when a quarter of all retail sales are made in the U.S.

That’s bad news for the economy, he said.

“Given what we know now about the degree of consternation in the general public surrounding the debt-ceiling debate, you couldn’t pick worse dates to reignite political paranoia on Main Street,” he said.

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