Washington Just when they might be needed the most, the rescue ropes that hauled the nation out of the Great Recession have become badly frayed.
A much-feared “double dip” economic downturn would find interest rates already slashed to near zero by the Federal Reserve and lawmakers leery of voting for billions of stimulus dollars as they face re-election.
Friday’s government jobs report added to the gloom and the sense that the recovery is losing steam. The Labor Department said private employers added about 83,000 jobs last month, considerably fewer than the 112,000 analysts had forecast.
That signals that could be years — not months — before the employment rate returns to pre-recession levels.
“We’re adding jobs but at an excruciatingly slow pace,” said labor market economist Heidi Shierholz of the Economic Policy Institute, a think tank. “Double dip or no, this is going to be an enormously long slog.”
Tools not working
The traditional mechanisms for blunting economic pain and nurturing a recovery are no longer available or are just not working:
- Unemployment benefits for hundreds of thousands of Americans are running out or have already expired. Successive congressional attempts to extend them anew have failed amid partisan wrangling on Capitol Hill.
- Lower taxes, often used as a quick remedy for economic distress, have already been tried. Now taxes are probably going up. The special homebuyer tax credit expired on April 30, and a wide range of income and investment tax breaks — pushed through Congress by former President George W. Bush — are due to expire in 2011 without congressional action to extend them.
- Mortgage rates have sunk to their lowest level in more than five decades. That should be good news for the battered housing industry and put cash into the hands of homeowners as they refinance. But a wave of refinancing hasn’t materialized. Some homeowners who qualify refinanced last year, but the many Americans who owe more than their homes are worth can’t easily do so.
- The Federal Reserve, in holding a key short-term interest rate that it controls at near zero percent since December 2008, has lost its ability to spur growth with further rate cuts. Although there are other steps the Fed can take, such as direct loans, further increasing the money supply or buying mortgage-related securities, many such programs already have ended or are being wound down.
- Federal aid to cash-strapped states, including Medicaid grants and money to avoid layoffs, is drying up, and efforts by President Barack Obama and his congressional allies to extend and enhance them have so far been thwarted by bitterly partisan battles in Congress.
Aversion to spending
Obama’s plea to stimulate economic growth now and cut deficits later got a mixed response from world leaders at the G-20 summit in Toronto last weekend. And, with polls showing rising concern among U.S. voters over government red-ink spending, Congress hasn’t been a whole lot more receptive. Republicans are showing near-solid opposition to any new stimulus spending.
Although Friday’s jobs report was widely seen as disappointing, Obama said it showed the nation headed in the right direction in terms of job creation — but “not headed there fast enough.”
The Labor Department report showed the overall jobless rate fell to 9.5 percent in June from 9.7 percent in May. But that was largely because many people gave up looking for work. Employers cut a net 125,000 jobs last month, a loss driven by the end of 225,000 temporary government census jobs.
In his February budget, Obama proposed $266 billion in new stimulus spending over the next few years. But it has been whittled to just $34 billion in a thus-far-futile attempt to win over a few Senate Republicans.
GOP filibusters have derailed the measure in the Senate three successive times, and now Congress is gone for its weeklong Independence Day recess.
Christina Romer, who heads the White House Council of Economic Advisers, predicts lawmakers home for the break will get an earful from unemployed workers on how “devastating it is” to be kicked off unemployment rolls. “I think ultimately we will prevail,” she said Friday.