Analysis: Joblessness down, some still downbeat

[March 05, 2011]  WASHINGTON (AP) -- Why so glum?

Unemployment is dropping, but the reaction from both the left and right ends of the political spectrum is surprisingly unenthusiastic.

Conservatives fear the improvement will weaken their argument that the way to bring back jobs is less regulation and more fiscal discipline. Liberals worry that better job numbers will create momentum for spending cuts that will cause the fragile recovery to falter.

The divided reaction illustrates the ideological forces pulling at President Barack Obama as he tries to gain economic and political traction out of the positive jobs report.

"Overall, it's a very solid jobs report," said Austan Goolsbee, the chairman of Obama's Council of Economic Advisers. "And overall there's been increasing optimism that despite having a long way to go, we're clearly headed in the right direction and we're putting some miles behind us and trying to get back to a good situation."

Indeed, a number of economic markers are moving in positive directions. The U.S. economy has been growing for 18 months. Retail sales are picking up. A Federal Reserve survey released this week showed factory activity rising in all Fed districts except St. Louis.

Obama, himself, made the point Friday, trumpeting the unemployment numbers during a visit to a Miami high school.

"That's the 12th straight month of private sector job growth," he said. "So our economy has now added 1.5 million private sector jobs over the last year. And that's progress."

Still, unemployment is usually the last economic signpost to improve after a recession, and the rate remains high at 8.9 percent. The number of unemployed is 13.7 million, almost double since before the recession. And that's enough to provoke some downbeat assessments.

"We have yet to see the leadership we need coming out of the White House to restore sustainable economic growth," declared Republican National Committee Chairman Reince Priebus.

Economist Heidi Shierholz, at the liberal Economic Policy Institute, weighed in with this: "Some of February's growth is simply a positive rebound effect after bad weather last month, and the trend is modest."

Since the November elections that placed Republicans in control of the House and weakened the Democrats' hold on the Senate, Republicans and conservatives have argued that the path to jobs is through deregulation of industries, fiscal restraint and low taxes. Obama has embraced some of the advice, reaching out to business with a pledge to reconsider some government rules and compromising with Republicans by dropping, for now, his demand that the wealthy pay higher taxes.

So, even as the unemployment rate goes down, Republicans insist Obama's past policies were at worst, counterproductive, or at best, ineffective. Jobs will come faster and with more staying power, they argue, if government simply gets out of the way.

Liberals and their Democratic allies have been pressing for more government intervention in the economy. The fragile recovery still needs to be prodded by public spending, they say, and they bristle at attempts to cut current budgets. Obama has embraced some of that advice, too. He has proposed additional taxpayer money toward education, research and technological innovation while negotiating with Republicans on how far to cut into current spending.

"The current jobs numbers underscore the fact that deep cuts in federal spending are extremely premature," Shierholz wrote in an analysis of the new jobs number. "We should instead be having discussions of substantial additional stimulus spending."

Even Goolsbee cautioned that the unemployment numbers themselves might not follow a smooth downward trajectory.

While private employers added 222,000 jobs last month, some analysts noted that when averaged with more meager number of new jobs in January, the increase in payrolls is similar to the monthly pace in the last quarter of 2010.

"On the unemployment rate, for sure there are going to likely to be blips," Goolsbee said in an interview. "Nobody knows, is 8.9 the rate or will it go up? That could happen."

But he added: "The three-month trend, the one-year trends of substantially adding jobs in the private sector and substantial reductions in the unemployment rate are exactly what we want."

The White House is certainly counting on those trends moving in their favor. The economy -- and high unemployment -- were key factors in last November's Republican election wave.

At the time, the unemployment rate had been rising for six straight months. But since the 9.8 percent high of November, it has been dropping. Politically, the trend line could be as important as the unemployment rate itself.

In 1980, Jimmy Carter lost his re-election bid to Ronald Reagan as unemployment climbed from 6 percent in October of 1979 to 7.5 percent in October of 1980. Likewise, George H.W. Bush lost to Bill Clinton in 1992 in the midst of rising unemployment, which went from 6.9 percent September of 1991 to 7.6 percent in September of 1992.

But Reagan managed to get re-elected in 1984 even though unemployment stood at 7.4 percent in October of that year. Unlike Carter and Bush, Reagan's unemployment trend line had been dropping since the spring of 1983.

There are still trouble spots ahead for Obama.

"The main clouds of concern that we monitor are what happens in the Middle East with fuel prices and what happens with the financial system in Europe," Goolsbee said.

In addition, public hiring by local and state governments remains an area of weakness. "State finances tend to lag the aggregate economy by six to 10 months," Goolsbee said. "It's likely to continue to be tough for them."

Those are clouds that can still dampen an economic recovery -- and complicate a president's political prospects.

[Associated Press; By JIM KUHNHENN]

Jim Kuhnhenn covers the White House for The Associated Press.

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