Policy: Economy

Few signs that feared sequester has hurt job growth

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Barack Obama,Jobs,Labor,Federal Budget,PennAve,Joseph Lawler,Economy,Sequester

The "meat cleaver" spending cuts required by the so-called sequestration will "hurt our economy," President Obama warned just before the across-the-board budget cuts went into effect on March 1.

"They will add hundreds of thousands of Americans to the unemployment rolls," the president said. "This is not an abstraction  people will lose their jobs. The unemployment rate might tick up again."

Three months in, however, the sequester largely remains an abstraction. The effects of the broad-based cuts  proposed by a 2011 debt ceiling deal and allowed to kick-in after Congress failed to to strike a deal to avoid them last year  are hard to discern in the employment numbers.

Since the $80 billion cuts to defense and domestic programs took effect a little over four months ago, the economy has added an average of 183,000 jobs a month. That number is well below what would be expected after the recession officially ended in June of 2009, but it's slightly higher than the 181,000 average monthly job gains since the labor market began improving in October of 2010. Job growth has also been stronger during the four post-sequester months than it was over the previous 12 months, when it averaged 174,000 gains a month.

In one possible sign of sequestration's effects, the federal government is still shedding jobs. The New York Times' Catherine Rampell pointed out that federal employment has dropped by 40,000 jobs over the past four months, including 5,000 in June, the most recent month for which the Bureau of Labor Statistics has provided data.

Furthermore, Rampell notes, federal workers affected by sequestration are more likely to be furloughed than fired outright. The number of federal employees working part-time for economic reasons jumped to 148,000 in June, from 58,000 the year before, a likely affect of the sequester. Rampell also provided evidence that the industries most dependent on defense spending are lagging behind all others in term of job gains.

There is almost no sign, however, that the sequester's toll on the federal bureaucracy has extended to the private sector, as Obama warned it would.

Private sector employment grew an average of nearly 188,000 jobs over the four months following the sequester's implementation, just 1,000 fewer than its 2012 average. The most recent two months have seen private sector gain more than 200,000 jobs.

The Congressional Budget Office Projected in February that sequestration would mean 750,000 fewer jobs through the fourth quarter of this year. The International Monetary Fund also estimated as recently as June that the cuts would slash 2013 growth in half. Yet monthly jobs gains have persisted at almost exactly the same low but steady rate during sequestration as they have throughout the recovery in the labor market that began in late 2010.

That fact has many people changing their tune about the automatic budget cuts' impact.

Mark Zandi, chief economist for Moody's Analytics and a frequent market commentator, told The Hill in May that the "the impact will be noticeable this summer." Following Friday's release of the June jobs report, however, Zandi told CNBC, "I think it's way too premature for the sequester [to be] having an impact," and suggested that the president's 2010 health care reforms, now being implemented, might be to blame for the weaker job growth.

The administration had warned of a number of specific ugly consequences of the automatic spending reductions, including everything from one-hour waits in airport security lines to 600,000 women and children losing food aid. The Washington Post, in a piece detailing the ways in which White House's dire scenarios failed to materialize, reported that the White House was now walking back some of those claims.

"Congress took action that changed a number of things," an administration official told the Post in explaining why the cuts didn't cause the promised disaster.

Some are predicting that the automatic cuts will begin to bite into economic growth later this summer. According to Sen. Jack Reed, D-R.I., "that flexibility diminishes with next year." Reed told Politico that "the ability to manage through this thing becomes almost impossible, and then you see real significant deterioration across the board, defense programs and domestic programs."

There are anecdotal reports of program cuts that could affect the future health of the economy. Stories of Head Start centers lowering enrollment and scientists dropping half-done cancer research suggest that economic growth in months or even years ahead could suffer because of the spending reductions.

So far, they haven't caused visible damage to the broader economy. Government agencies found extra funds in their budgets to cover the automatic cuts. Or, as in the case of the Federal Aviation Administration, Congress passed a law allowing officials the flexibility to avoid furloughs for air traffic controllers. Overall, the sequester turned out to be less of a blunt instrument for cutting spending than was predicted.

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