×
Home Companies Industry Politics Money Opinion LoungeMultimedia Science Education Sports TechnologyConsumerSpecialsMint on Sunday
×

What US job losses show

What US job losses show
Comment E-mail Print Share
First Published: Sun, Oct 04 2009. 10 03 PM IST
Updated: Sun, Oct 04 2009. 10 03 PM IST
It is hard to find an economist who believes that the current recovery in the world economy will be a smooth one. The latest employment data released by the US government on Friday underscored the need for very cautious optimism, given the strong headwinds that the financial markets seem to have ignored.
Unemployment in the US is now at a 26-year high, and climbing. It is known that job losses can continue in the early days of a recovery and in that sense, unemployment is a lagging rather than leading indicator of economic activity. But the sheer numbers unable to find jobs in the world’s largest economy is not a good sign, and suggests that a weak recovery—or even a double-dip recession—is very likely there.
Job losses mean that consumers will not have the confidence to spend. Add to this the fact that American families are busy reducing debt and saving for the first time in more than a decade.
These two developments will weigh down private demand and thus complicate policymaking. Further weakness in private demand suggests that the US government will have to continue to spend, or increase its fiscal deficit even as there is talk of credible exit strategies.
A lot will depend on what happens to prices. Resurgent inflation will add pressure on the US government to cut back its deficit and monetization—the exit strategy—though inflation does not seem to be a big threat right now. So, there is perhaps scope for some more stimuli to the economies that can afford them.
But fiscal and monetary policy will involve more complex trade-offs in the months ahead.
Policymakers around the world deserve credit for working together to rescue the world economy from a repeat of the Great Depression with the help of unprecedented stimulus programmes. The severity of the slump allowed them to make all-or-nothing decisions, or corner solutions. But policy choices will get more complicated as the world stumbles ahead.
Is the global economic recovery an illusion? Tell us at views@livemint.com
Comment E-mail Print Share
First Published: Sun, Oct 04 2009. 10 03 PM IST