The data on new jobs are not reassuring.
According to the Bureau of Labor Statistics, the employment level in the country fell by 4,000 in August. In an economy which employs 146 million people, this may not seem to be an alarming number, and in fact the BLS noted that the August level was essentially unchanged from that of the previous month. Yet, the data have generated deep disquiet among analysts.
Why?
In recent months, the economy has added new jobs. In March-May, more than 100,000 jobs were created each month. The rate has slowed since then -- a middling 69,000 and 68,000 jobs were added in June and July respectively.
So signs of an economic slowdown were already evident, and the August numbers have served to confirm suspicions that the U.S. economy is running out of steam. Although the unemployment rate stands at a very low 4.6 percent (it has stayed below 5 percent for the last 21 months), the payroll employment figures suggest that firms are increasingly unwilling to hire new workers.
The economic performance of the past, even the recent past, may not be of much help. In the second quarter, gross domestic product (the value of goods and services produced in the economy), grew 4 percent, but that period (April-June) seems so long ago. Things have changed since then.
The summer of 2007 has been an eventful one, with the housing industry drawing most of the attention. First it was the subprime market -- the mortgages taken out by borrowers with insufficient income. Banks were complicit in this, of course -- the housing boom was too lucrative to pass up and they offered increasingly risky loans to customers.
The housing market has now collapsed. The pain from the subprime debacle has spread to other financial markets, and banks have become averse to risk once again. They are reluctant to make new loans. Interest rates have soared.
So what started off as a hiccup in one corner of the mortgage industry has metamorphosed into a credit crunch, a vastly more sinister development in which even reasonably strong borrowers find it difficult to raise funds. Construction has slowed sharply. Consumers, suddenly more wary, have cut back on spending. Firms show a reluctance to add to their payrolls.
It is not a pretty picture. The slowdown appears to be entrenched. Is a recession inevitable?
PERHAPS NOT. There are some encouraging signs. The Federal Reserve has cut interest rates to spur economic activity. The dollar has fallen sharply, so while a trip to France is an expensive proposition, American exporters are quite happy with the weaker dollar -- they can sell more stuff abroad.
Exports are also being abetted by a growing global economy. China and India continue to expand by more than 9 percent per year. The European Union and Japan, somewhat less spectacularly, are expected to grow at more than 2 percent. Every bit helps.