As John shows below, the unemployment numbers released by the Labor Department today provide strong evidence that the Democrats’ stimulus package has not succeeded thus far in curbing unemployment. Indeed, notwithstanding the Democratic over-promising, it was always difficult to see how the package could curb unemployment in the short term. Whatever potential such a package might have positively to affect the unemployment rate, any such positive impact was never going to kick in for many months. That’s one of the reasons why a cut in the payroll tax would have been preferable.
However, Bob Stein, a senior economist at First Trust Advisors contends that there is evidence the economy is healing, with the labor market serving as a lagging indicator that will enhance corporate profits, thus inducing more hiring down the road. And even the labor market shows a few small promising signs, Stein says. New claims for unemployment benefits are down and there is some evidence that fewer layoffs are being contemplated now than at this time last year.
In addition, labor force participation (the number of those with jobs or actively looking for jobs) has increased by 1.2 million in the past five months, though it dipped in June. Whether this reflects, in part, increased public confidence in the ability to find work or increased desperation, I don’t know. However, Stein points out that without the increase in labor force participation, the unemployment rate would be 8.8 percent, not 9.5 percent. (Of course, it was never likely that there would be no increase in labor force partcipation).