The Labor Department reported on Friday that the economy continued to add jobs in July and that the unemployment rate fell to 7.4 percent, from 7.6 percent. But the pace of job growth slowed somewhat from the first half of the year and remains modest enough that the economy is years away from a full recovery.
Contributing to the hangover from the worst financial crisis in decades is a wave of cuts in domestic and military spending, known collectively as the sequester, which is causing government furloughs as well as job losses and curtailed hours among federal contractors.
Although the sequester became law on March 1, some of the effects, like the forced leaves, have begun to ramp up only recently. More job losses, rather than shorter workweeks, are predicted if the cuts remain in place into next year.
Congress left on Friday for a summer recess of more than a month, after a week in which Republicans’ divisions with one another and with President Obama suggested a new budget showdown may be coming in the fall. The disagreements leave no clear way to end the spending cuts that continue to slow the economy and could even lead to a more damaging government shutdown in October.
Corporate and academic economists say that Washington’s fiscal fights have produced budget policies that amount to a self-inflicted drag on the economy’s recovery.
Joseph J. Minarik, director of research at the corporate-supported Committee for Economic Development and a former government economist, said he could not remember in postwar times when fiscal policy was so at odds with the needs of the economy.
“The macroeconomic situation is highly unusual,” he said, adding: “We have to be concerned about our debt getting totally out of hand, so we are concerned about the federal budget. But the concern has got to be tempered by the fact that we have got to get some economic growth going as well.”
The effects of the cuts could be found in the details of Friday’s jobs report. Although federal government employment did not decline in July as it had in previous months this year, the number of people who were working part time because they could not get their employers to give them full-time hours rose significantly. This probably reflects decisions by many government agencies to achieve their required budget cuts by forcing employees to take unpaid leave.
At the Department of Defense, for example, 650,000 civilians must take off 11 days without pay — generally once a week — through September, when the current fiscal year ends. The Internal Revenue Service likewise scheduled one furlough day a month from May through August.
On her first day at the Office of Management and Budget, Mr. Obama’s new budget director, Sylvia Mathews Burwell, sought to meet employees and found many desks empty because it was a furlough day. And the new trade representative, Michael Froman, has struggled during his office’s budget cuts to assign government lawyers to various negotiations abroad.
In the private sector, employment at government contractors also appears to be falling as companies that do government research, provide custodial services and retrofit federal properties to be more energy-efficient, among other things, are informed of contract cancellations or delays in bids for new contracts — partly because the federal workers arranging the bidding are being furloughed.
“The disjunction between textbook economics and the choices being made in Washington is larger than any I’ve seen in my lifetime,” said Justin Wolfers, an economics professor at the Gerald R. Ford School of Public Policy at the University of Michigan. “At a time of mass unemployment, it’s clear, the economics textbooks tell us, that this is not the right time for fiscal retrenchment.”
Given that rough consensus in an otherwise quarrelsome profession, he added, “To watch it be ignored like this is exasperating, horrifying, disheartening.”
After the release of the jobs report, the first thought of many business forecasters was of the Federal Reserve, and what the data might suggest for its next move in September, when analysts believe it probably will begin tapering its stimulus measures known as quantitative easing. As the Fed chairman, Ben S. Bernanke, has made clear — including repeatedly to Congress — the Fed has continued its stimulus policies in part to offset the drag from fiscal policy.
Jackie Calmes reported from Washington, and Catherine Rampell from New York.
Article source: http://www.nytimes.com/2013/08/03/business/economy/us-cuts-take-increasing-toll-on-job-growth.html?partner=rss&emc=rss