In the midst of the euphoria, politicians and market analysts concluded the effects of sequester were greatly overstated. Furthermore, despite the draconian cuts to many social programs, the economy would move along just fine. However, Friday’s jobs report was a sobering reality check.
In every respect the Labor Department’s report was a bad outcome. The market expected 190,000 new jobs to be created, following last month’s creation of 268,000 jobs. Instead, only 95,000 jobs were added, and less than that (88,000) when one subtracts away 7000 jobs that were cut by the government sector.
The retail trade sector lost 24,000 jobs, a clear sign that consumers are cutting back on spending significantly. Furthermore, the fact that the unemployment rate declined from 7.7% to 7.6% was irrelevant, because the decline was caused by shrinkage of the labor market; that is 496,000 fewer workers were in the labor market over the last month.
More telling, the household survey indicated there were 206,000 fewer employed workers in March. So in essence, the decline in the unemployment was caused by a smaller number of unemployed workers being counted in the survey.
Perhaps the sobering employment news will lead those in Congress who were celebrating the success of sequester the sit down and deal with the effects it is having on the economy in a more realistic manner.
The economy, which was once braced for significant growth is now crawling along at a snail’s pace. It may very well enter into a new recession if it continues to lose momentum.
One of the fundamental lessons of economics is “there is no such thing as a free lunch”. Those who thought the pain of sequester was drastically overstated must now face reality.
The sequester means pain across many segments of the economy, but most especially among working-class and low income individuals whose dollars retailers count on for selling products and maintaining jobs.