It’s NFP week again, fellas, so I thought of getting a head start on finding out how the U.S. labor market is doing. Just in case you missed it, the August employment report printed the most jaw-dropping, eye-popping, and mind-blowing figure: a big fat ZERO. That’s right, the U.S. economy was unable to create any jobs at all during the month, forcing Americans to hold on to their cash and refrain from spending.
It didn’t help that personal income dipped by 0.1% in August, and that doesn’t even account for taxes yet. Adjusted for taxes and inflation, disposable income fell by 0.3% during the month. With less cash to spend, Americans were forced to use part of their savings just to pay the bills. Because of that, they were able to save only 4.5% of their income in August compared to 4.7% in July.
No wonder consumer sentiment has been on a slump lately! The CB consumer confidence index showed contractions for two consecutive months as Americans feared for their jobs and wages. As a result, consumers have been unable to prop up the U.S. economy even though spending comprises 70% of the country’s GDP.
Of course, U.S. companies are aware of this downturn in consumer confidence and spending, which is why they are holding back on their hiring. They simply refuse to expand their operations and add to their workforce unless their sales pick up. That leaves the U.S. economy in a vicious cycle of weak spending and even weaker hiring, unless the government steps up and shoulders the burden.
What exactly can the U.S. government do to improve the situation? You see, governments can boost their country’s jobs market by directly hiring people to help run public facilities such as schools, hospitals, and parks. They can also dole out funds to cash-strapped local governments so they wouldn’t have to scrimp on spending or lay off workers.
Aside from that, the U.S. government can indirectly spur hiring in the private sector by contracting companies to help build and maintain public infrastructure. In particular, they can work with U.S. companies in constructing schools, improving public transportation, or rebuilding roads and bridges.
Yes, all of this would be easy to accomplish in a perfect world. But we all know that this world is anything but ideal; I think the cast of Jersey Shore is enough proof of that!
According to Republicans, the U.S. government isn’t so keen on spending because it can’t afford it. U.S. debt is already at 14.7 trillion USD, and its debt rating isn’t what it used to be. That being the case, many believe that increasing government spending will do the economy more bad than good.
To bump up spending at the risk of increasing debt and future borrowing costs, or to keep its money in its pockets and hope for the best: that is the question for the U.S. It’s clear to see that the policymakers will have to perform a delicate balancing act if they want a shot at saving the labor market.
A good first step in the right direction comes in the form of serious tax reforms that aim to bridge the gap between the wealthy and the not-so-wealthy. Tax those who can afford to pay more, and ease the burden for those with less income. Makes sense right? Such an approach would help fill the government’s coffers while allowing middle-class citizens enough leeway to spend their hard-earned income.
But like I said, we don’t live in an ideal world. Coming to an agreement over fiscal policy is easier said than done. With the elections fast approaching, Republicans and Democrats haven’t exactly been seeing eye to eye, and neither party seems eager to give the other ground.
I think I speak for everyone when I say that U.S. policymakers better start getting along. It’s been a while since we last saw the NFP report print upbeat numbers. Not a single job was added in August, and I think it’s unlikely that September’s stats, due this Friday at 12:30 pm GMT, will print a big upside surprise. The longer it takes for them to find a solution, the harder it could be to revive the labor market.