'Bumps on the Road'

• JUNE 6, 2011

The choice is more jobs reports like Friday's or a growth agenda.

You've got to hand it to President Obama and his White House economic team. Faced with yesterday's dreary May jobs report, they did their best and rolled out the old "bump in the road" analogy for comfort. As chief White House economist Austan Goolsbee put it, "there are always bumps on the road to recovery, but the overall trajectory of the economy has improved dramatically over the past two years."
Nice try, but there's no way to spin news that the economy in May created only 54,000 new jobs, which is about one-third the number necessary to keep up with the growth in the labor force. The jobless rate rose for the second straight month to 9.1%, which is especially depressing nearly two years after the end of a very deep recession.

At this stage in the Reagan expansion, after a comparably deep 1981-82 recession, the economy was growing by 7% a year and the jobless rate was plunging. This time the economy is growing by less than 2%, and we still have 6.8 million fewer jobs than when the recession began in late 2007.
In other bad news, the average duration of those out of work jumped by 1.4 weeks to 39.7 in May, and the percentage of those jobless for at least six months climbed by 1.7% to 45.1%. The overall labor participation rate stayed the same at 64.2%, but as the nearby chart shows that rate has now fallen to its lowest rate since the mid-1980s.
This is an important economic measure because it reflects the opportunities that Americans perceive in the marketplace. In the long boom from the Reagan years through 2000 or so, the labor participation rate took a historic leap upward as women, immigrants and others entered the job market. The rate dipped after the 2001-2002 downturn, and we recall the media giving much attention to a Federal Reserve study raising alarms even as the rate began to climb again in mid-decade. It has now fallen off a cliff, and we doubt this is what Mr. Goolsbee means when he hails the "trajectory of the economy."
Chances are that job creation will improve in future months after the effects of Japan's earthquake and Midwest tornadoes and if oil prices level off or fall. But the longer the jobs slowdown continues, the greater the danger that the U.S. settles into a new normal of high "structural" unemployment, with employers reluctant to hire workers until they absolutely must. This is a symptom of Eurosclerosis.
The same economists and pundits who promoted the economic policies of the last four years are now lamenting the jobs bust and demanding that Washington double down: More stimulus spending, more Federal Reserve easing, more temporary tax rebates. They can't explain why these policies have failed to date, but we are supposed to rinse and repeat.

The real "bumps on the road" to recovery are these policies and the larger climate of hostility toward job creators that still prevails in Washington. A National Labor Relations Board that wants to stop businesses from moving plants; a $20 billion political raid on banks over foreclosures; hundreds of major new regulations from ObamaCare, Dodd-Frank and the EPA's war on carbon energy; federal deficits that Mr. Obama says require higher taxes; near-zero interest rates for 30 months that have sent commodity prices soaring, and so much more.
The economy doesn't need more of this. It needs a return to the growth agenda that created the long post-1982 boom.