NEW YORK (
) -- Job growth is on the agenda again on Capitol Hill, which will force traders to consider what a new stimulus measure would mean for the economy and the market.
Legislators on the House Financial Services Committee will question economists on the need for additional stimulus to jump-start job creation, the day after Senate Republicans broke ranks with their party to help push a $15 billion jobs package past a filibuster. But even if the Senate bill passes in the upper chamber, much work needs to be done to get it passed -- the House already OK'd a measure tabbed at $154 billion. The two bills come a year after passage of the $787 billion stimulus bill, which is still winding its way through the economy and remains a source of great debate between liberals and fiscal conservatives.
Once one strips the debate of political passion, the nation is left with a number of choices, each with their own downsides.
- One, Congress can trust that the original stimulus and slow recovery will be enough to boost job creation on its own. The risk is the economy can't boost job growth on its own, or it will take far too long. A continuing sea of unemployed would translate into an even slower recovery or double-dip recession, as consumer spending and government revenue rolls take a hit.
- On the other hand, a new, big jobs package could expand the already bulging deficit, which raises the specter of inflation, higher interest rates and, again, a slower economic recovery. It would also bog down the Obama administration's legislative agenda.
The dire nature of the employment situation, while steadying by some measures, isn't lost on anyone. The unemployment rate officially stands at 9.7%, but that doesn't even include part-timers looking for full-time work or the so-called "discouraged workers" who've given up looking for jobs. Lumping those groups together raises the unofficial rate to a whopping 16.5%.
Since the recession began, the economy has shed 8.4 million jobs. More striking, the Labor Department's latest January jobs report showed more people are going unemployed longer, with about 6.3 million people out of work for at least six months. This phenomenon has coincided with stark productivity gains in the private sector, meaning employers are figuring out how to do more with fewer workers after slashing their payrolls to the bone.
Job cuts are continuing at several major firms as well, with
making layoff headlines in recent days and weeks.
But most economists will say that the broader economy is improving in many respects, and they'd be right. Many economic measures -- factory production, gross domestic product, inventories and jobless claims -- have improved, making the lack of job creation that much more befuddling. Still, key improvements are giving many experts a sense that job growth is coming, at some point.
So much so that Chris Low, chief economist at FTN Financial, says additional stimulus isn't needed.
"We have some really good indications that
growth is coming soon, including the first growth in manufacturing payrolls in years, some pretty decent temporary hiring, which is always a precursor of the turn," he says. "There's strong survey evidence, too, suggesting companies are on the verge of adding employees. So, I would argue the stimulus we already had has been enough."
But there's a deep chasm between what economists see and what regular folks are currently feeling. A report from the Conference Board released this morning showed consumer confidence plunged in February, pressured by declining sentiment and growing worries about the labor market.
Lawrence Mishel, president of the Economic Policy Institute, is expected to tell the House committee today that additional stimulus is vital.
"When the housing and stock bubbles collapsed, people lost wealth and income and cut back. Businesses lost customers and pared back," Mishel will say, according to prepared testimony. "Exports fell as the world economy declined. That vicious cycle is continuing, though at a slower pace, and that's why government has to intervene. Businesses won't invest and start hiring until consumer demand picks up, which won't happen with 27 million people unemployed or underemployed. Obviously, the overwhelming need is to create jobs -- millions of them, as quickly as possible. As long as employers are creating only a single job for every six unemployed workers, consumer sentiment and unemployment will not improve, and the recession will continue."
If anything is to be done, several economists believe a tailored focus on small business, which accounts for the vast majority of the nation's jobs, is the best approach. A key feature of the Senate's scaled-back jobs measure would exempt businesses from paying a 6.2% social security payroll tax on new hires. The bill also includes a $1,000 tax credit for each new hire an employer keeps on for a year. Still, the tax exemption would only last through December.
That may not be enough. Peter Cardillo, chief market economist at Avalon Partners, believes the economy is healing on its own better than the general perception, but he also says a clear way to jump-start small business growth is through an aggressive tax lift.
"The administration would need to take a different approach in creating new jobs," Cardillo says. "The only way they can really do it is by really giving real tax relief to small businesses, something that would certainly induce businesses to start hiring again. The plan of tax credits and things like that, I don't think that's the real ingredient for small businesses to go out and hire. In order to really get this jobs market really turned around at a faster pace, we'd need some
tax incentives, something that will be really long-lasting."
"Notwithstanding the political realities, I think what the small business community would like to see is to take
TARP funds and just give them a tax cut," adds John Canally, economist at LPL Financial. "Just cut the rate they pay on their taxes. Don't give a jobs credit. Don't do anything else. Just cut the rate they pay on their taxes. That would, in their minds, stimulate hiring. I think that would certainly help, but I don't think that's politically realistic."
But the clear political reality is that there is little appetite for new spending. Many experts agree that last year's stimulus measure worked to save some jobs, create others and helped boost GDP. But other experts say its scattershot approach led to waste, leaving voters whipsawed with sticker shock and Congress in legislative gridlock.
"The idea of spending more money is just not politically palatable," says Canally. "According to my sense of what's going on from speaking with people in Washington, if it comes down to either you vote 'yes' and you increase the deficit or 'no' and you don't increase jobs, you're better to vote no."
-- Written by Sung Moss in New York