It should come as no surprise.
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President Obama said he might return to the well if things didn’t get better.
It looks like he’ll be back asking for another stimulus package even sooner that he thought.
Like most seasoned politicians testing sentiment in favor of an idea, the President has started to release trial balloons.
During a speech at a conference in Singapore, Obama economic advisor Laura Tyson said that the economy is a “sicker patient” than originally believed.
Even through she continued to tout the value of the first stimulus program, she acknowledged that it just may not be enough to overcome the continued pace of unemployment.
An Isolated Opinion? Not Likely.
While Tyson stresses that she was speaking for herself only, it’s not likely. Her comments also contrast sharply with Vice President Joe Biden who said only a few days ago that it may be premature to consider crafting another stimulus package because the current measures have yet to take effect.
The truth may be that the persistent climb in joblessness has caught the administration by surprise. Unemployment at the national level has pushed above 9.5 percent. Unless the economic outlook shifts dramatically, most analysts believe joblessness may move into double digits where it will remain until well into 2011.
Because economic recovery is so inextricably tied to an upswing in consumer spending, reversing the negative job market trend has remained a top policy priority for the President.
The President’s greatest fear is that we may be facing a “jobless recovery” similar to the recessions of 1990-91 and 2001.
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Even as the economy begins clawing its way out of the worst recession in 60 years, it appears that recovery may happen without a substantial boost in jobs. In the aftermath of those downturns, many unemployed workers discovered that jobs in their skill category had been eliminated and that employment at the same level of compensation was simply impossible to find.
Instead of simply shrinking operations during this downturn, companies have shut down whole business units or made sweeping structural changes. General Motors Corp. and Chrysler, for example, closed hundreds of dealerships. Citigroup Inc. and Bank of America Corp. cut tens of thousands of positions that are not likely to be re-added after the recession abates.
According to Labor Dept. statistics, on average, workers who survived job cuts are working fewer hours per week than ever before. This means that even when employers start feeling confident enough about the recovery to expand their operations, they will probably begin by giving more hours to their existing employees rather than hiring new ones.
This development creates a troubling conundrum for the President.
Which Path Is More Effective?
If consumer spending is the main driver of the economic recovery, and consumers are not spending because of rising job insecurity, many businesses simply will not have the means or the need to hire employees.
It’s a vicious cycle. The President may be starting to believe that he has little alternative other than to use more federal spending to overcome this pernicious problem.
The real difference between this recession and the ones that happened in 1990-91 or 2001 is the availability of credit. Following those recessions, consumers used their credit to buy houses, cars and other expensive goods. This spending boosted jobs in construction, manufacturing and other related industries.
Because of the credit crunch, consumers do not have the means to restart the economy as they did following these prior recessions. Consequently, the President and his economic advisors are being forced to visit the idea of an additional round of stimulus spending sooner than originally anticipated.
Early critics of additional federal stimulus spending point to the danger of adding to the debt service on a deficit that already may be beyond our national means. These detractors are deeply concerned that the U.S. may have to “inflate” its way out of debt.
On the flip side, supporters of another stimulus package, like Tyson, say that a weaker dollar resulting from a rise in inflation may be just the ticket to jump-start U.S. exports. She argues that although energizing consumer spending is a short term key to recovery, invigorating the manufacturing sector of the economy is the only way to make it sustainable.
Either way, it seems more likely that the President will begin pushing for more federal stimulus before the summer is over.
John Cohn is a senior partner in the Globe West Financial Group, based in West Los Angeles. He may be contacted at www.globewestfinancial.com
