Job growth swims against the tide of budget cuts

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Last Friday, the Bureau of Labor Statistics report on February job growth provided a sliver of hope for the economy. Can that thin bit of hope survive sequestration ?

A trend toward stronger employment could put some real momentum behind the economic recovery. That would be good news for a wide range of people, including those looking for work, employees wishing for better wage growth, and savers who've been living with microscopic interest rates on savings accounts and other deposits. However, there have been false hopes before, and this time the economy will have to overcome the obstacle of Federal budget cuts.

Strong job growth

Total non-farm employment grew by an estimated 236,000 jobs in February. That's nearly double January's number, and one of the best job growth figures in the past seven years. Of the past 84 monthly jobs reports, only six have shown stronger employment growth .

That sporadic job growth is part of the problem, though. The employment market got off to an even stronger start last year, but soon faded. This year, the job market will have to sustain its momentum against the tide of sequestration.

Behind the grandstanding of sequestration

There is a certain amount of hype associated with sequestration. The automatic budget cuts that went into effect on March 1 will cause belt-tightening across a range of government departments, and the people in charge of those departments have a vested interest in making sure the public feels their pain.

At the high end, there's the Obama Administration's persistent publicity campaign, including calling a halt to White House tours, in an attempt to avert sequestration in favor of a negotiated package of less immediate budget cuts and tax increases.

This effort is then echoed by a series of individual departments, each trying to make it clear to the public that the country simply cannot live with cuts to their budgets. After all, while an efficient administrator could simply look for ways to make do with less, the fact is these departments are fighting to preserve their budgets, and have no interest in implying that any expense is unnecessary.

The resulting PR blitz may be designed to hype the impact of sequestration, but behind the grandstanding there are a couple of realities that genuinely could slow the economy. The first is that all the publicity about sequestration could have a negative psychological effect on the private sector. Stories about the dire effects of budget cutting don't exactly make individuals spend optimistically, or encourage businesses to get aggressive about hiring.

Beyond the psychology, there is the reality that the deficit will have to be addressed. Whether it's spending cuts, tax increases, or both, some kind of drag on the economy is inevitable.

In short, February's employment growth was good news for job-seekers, and possibly good news for interest rates on savings accounts and other deposits . Whether it can survive both the hype and the reality of the budget mess remains to be seen.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Personal Finance , Banking and Loans

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