Mayor Michael Nutter of Philadelphia made a comment that prompted nervous laughter early in a forum the Metro Program held with the National League of Cities (NLC) yesterday on the looming local government fiscal crisis. Deadpan, he said: “Hearing a presentation that the recession is over reminds me of a sign I saw one time a couple years ago that said, ‘Mission Accomplished.’”
The man has a point. That GDP does not equal jobs is well understood. Less clear, and worth keeping in mind as some key indicators start turning around, is that the recovery is going to come only over time in three stages. First, GDP and labor productivity will rebound as they are now. Then firms will hopefully start hiring again. And eventually, once the labor market tightens and depending on what sort of jobs the ‘next economy’ creates, wages will start rising too.
The conundrum is this: The U.S. economy is just entering stage one, and progress towards stages two and three is hardly guaranteed. Indeed the situation is still getting worse in parts of the economy. The Mortgage Bankers Association issued a press release yesterday announcing that this quarter’s home loan delinquency rates reached another record high. Percent increases in GDP don’t pay mortgages, quipped their senior economist, wages do. And with the number of unemployed still rising, fewer people receiving a paycheck will equal fewer people making mortgage payments on-time, simple as that.
The local government fiscal mess, too, could hobble the nation’s incipient recovery. Already 67 percent of cities are reducing their workforces, 62 percent are delaying or canceling capital projects, and 33 percent are cutting general services, according to NLC research. Expect these figures to rise through 2010 and 2011 as the delayed impacts of the housing crash deliver a second round of fiscal stress.
In short: The mission of a true, deep-going recovery is far from accomplished. The specter of a jobless recovery looms larger than ever, and with considerable slack now in the labor market wages may not reach pre-crisis levels for years, let alone catch up with productivity increases. In addition, the industrial structure continues to change, with many questions surrounding what type of jobs will replace the ones lost. Mayor Nutter, in this sense, well framed the nagging question occupying the many citizens of Main Street America, in a comment to the Washington Post: “They don't want a macroeconomic answer. They want to know, where do I get a job?"
This month, the White House is rightly shifting gears towards answering that question. We shall see what answers emerge, but policymakers need to take pains to locate and implement smartly interventions that really work.