Economic Intelligence (U.S. News & World Report), February 6, 2012
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Today’s employment report was “one of the best that we have seen since the recession began,” as my colleague Dean Baker noted in his analysis of the numbers. There were a number of hopeful signs, including a 50,000 job gain in manufacturing, and an increase in average weekly hours worked in the sector, which could indicate more hiring in the future. The 243,000 monthly increase in jobs brings average job growth for the past three months to 201,000, which is the best three-month performance for nine months. The biggest fall in the unemployment rate was for African Americans, with a drop of 2.2 percentage points to 13.6 percent. Unemployment among Hispanics also fell to its lowest level in two years. And the overall rate, as measured by the household survey, was 8.3 percent.
Of course this is still very high unemployment – and if we include the people who are involuntarily working part-time or dropped out of the labor force, the unemployment rate is 15.1 percent. And the really bad news, as Baker noted, is that at this rate of job growth we will not get back to full employment until 2020. This should be completely unacceptable, and of course the government could bring us rapidly toward full employment with sufficient stimulus and other perfectly feasible policies.
But with the very limited choices in our present political and electoral system, these kinds of positive jobs reports – if they continue – will likely propel President Obama to re-election. Most of the crucial “swing-voters” will probably vote on the basis of the economy, barring unforeseen events (more on that below).
And the improvement in the economy is the likely measure on which the President will be judged. President Obama will campaign on this, as he did in his State of the Union address:
In the six months before I took office, we lost nearly 4 million jobs. And we lost another 4 million before our policies were in full effect. . . ..In the last 22 months, businesses have created more than 3 million jobs.
This means that President Obama’s political fate could very likely be determined in Europe. That is the source of the biggest threat to the U.S. economy – and indeed the world economy, which has already slowed significantly due to the financial crisis in Europe. The eurozone is already in recession, and the European authorities – the European Central Bank, the European Commission, and the International Monetary Fund – are adopting policies that will almost certainly make it worse.
But the big threat from Europe is not the recession itself, but the possibility of a Lehman Brothers-type financial meltdown. This is a risk that the European authorities are taking as they use, and unnecessarily prolong, the crisis in order to force certain “reforms” on the weaker eurozone economies such as Italy and Spain. The latter are “too big to fail,” in terms of the size of their debts. And then there is Greece, where the European authorities, together with the private creditors, are pushing the country to the brink of a chaotic default.
The Obama Administration’s Under Secretary of the Treasury for International Affairs, Lael Brainard, has been to Europe 17 times in the last two years, and Treasury Secretary Tim Geithner has also made a number of trips. It’s not hard to figure out what their message has been, and it has sometimes been public: they are worried about European authorities causing a major financial crisis.
The European leaders have some reason to listen to the Obama administration: they probably prefer Obama to the Republican alternative, and they can also guess that he is very likely to be the next President of the United States, which is their main ally and trading partner. This could push them to show more caution in the coming months than they have in their games of brinkmanship over the last two years. Indeed there has been some change of course since December, when the ECB poured $638 billion into the private banking system to head off a liquidity crisis. Some of this was used to buy sovereign bonds and helped provide some temporary relief there too.
But in any case, you can be sure the Obama team is watching Europe as closely as they are following the economic news in the United States.