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Now the Bad News: Those August Jobs Were Rented


Despite what some on Wall Street say, the August jobs report shows little hope for recovery.

Secondly, the nation's fiscally dependent jobs growth machine is now beginning to falter. To be sure, the HES Complex appears to be the gift that keeps on giving jobs. Unlike the rest of the economy, it did continue to reliably expand payrolls after December 2007.

However, there's been a pronounced slowing of the pace of job gains, which unmistakably betrays the growing fiscal pressures. Thus, during the two years of recession ending in December 2009, the HES job-growth rate dropped to 35,000 per month -- a 40% retrenchment from the 2000-2007 boom period. And during this year's economic rebound, it's decelerated again -- averaging only 28,000 jobs per month.

In the case of Core Government Operations, the 11.3 million jobs currently reported for local, state, and federal payrolls outside of education already reflect a contraction mode. After growing by nearly 200,000 jobs during the two years of recession, government payrolls are now definitely shrinking -- contracting at a 10,000 monthly pace since last December.

Thus, the fiscally dependent job sectors have downshifted markedly. After creating upwards of 70,000 jobs per month during the seven-year boom, the combined HES Complex and Core Government Operations sectors have struggled to produce 20,000 new jobs per month since last December. Moreover, the headwinds owing to both Peak Debt and Obama Care will make it difficult to sustain even this pace during the medium-term future.

Peak Debt is a profound new condition of the nation's political economy. Expressed in the metrics of finance, the nation's public debt is now approaching what professors Rogoff and Reinhart have documented to be the tipping point of the crisis. Already, the sum of publicly held federal debt plus municipal bonds totals $12 trillion, and it will inexorably reach $16 trillion, or 100% of GDP, before the next president can even send Congress a remediation plan in the spring of 2013.

But in the realm of politics, the limits of discretionary deficit finance have already been reached. Uneducated in the specious math of the Keynesian economics guild, the tea party insurgency is fomenting a powerful anti-deficit backlash. Accordingly, the Obama light brigade already made its last charge up the aisles of Capitol Hill when it recently enacted a $26 billion one-year gift to the teachers' unions and Medicaid providers. After the upcoming rout of congressional Democrats in November, however, Washington will descend into a vicious partisan deadlock, bringing a halt to the fiscal-transfer gravy train for the foreseeable future.

This prospective development means that the really big bust in state and local budgets and employment will arrive with a vengeance in 2011-2012. At that point, the real reason the Obama stimulus has had so little impact will become apparent -- perhaps even to the Wall Street cheerleaders. The fact is, the largest single component of the $800 billion stimulus plan was an ill-disguised bailout of state and local governments -- a transfer that saved some existing payrolls, but funded no re-hiring whatsoever.
No positions in stocks mentioned.

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