WASHINGTON – The number of federal workers forced to work shorter hours soared this summer — to 199,000 in July, from 55,000 a year earlier — in a sign of the problems that federal budget policy is causing for the economy.
The Labor Department reported Friday that the economy continued to add jobs in July and that the unemployment rate fell to 7.4 percent, from 7.6 percent. But the pace of job growth slowed somewhat from the first half of the year and remains modest enough that the economy is years away from a full recovery.
Contributing to the hangover from the worst financial crisis in decades is a wave of cuts in domestic and military spending, known collectively as the sequester, which is causing government furloughs as well as job losses and curtailed hours among federal contractors.
Although the sequester became law March 1, some of the effects, like the forced leaves, have begun to ramp up only recently. More job losses, rather than shorter workweeks, are predicted if the cuts remain in place into next year.
Congress left Friday for a summer recess of more than a month, after a week in which Republicans’ divisions with one another and with President Obama suggested a new budget showdown may be coming in the fall. The disagreements leave no clear way to end the spending cuts that continue to slow the economy and could even lead to a more damaging government shutdown in October.
In Minnesota, after a gain of more than 10,000 jobs in May, the state added just 400 new positions in June, the latest month for which figures are available. Unemployment ticked down to 5.2 percent, a five-year low, but that was partly because more people gave up on the job hunt.
Still, Labor Market Office Director Steve Hine noted that Minnesota has now recovered nearly all of the jobs it lost during the recession.
Nationwide, corporate and academic economists say Washington’s fiscal fights have produced budget policies that amount to a self-inflicted drag on the economy’s recovery.
Joseph J. Minarik, director of research at the corporate-supported Committee for Economic Development and a former government economist, said he could not remember in postwar times when fiscal policy was so at odds with the needs of the economy. He said, “We have to be concerned about our debt getting totally out of hand, so we are concerned about the federal budget. But the concern has got to be tempered by the fact that we have got to get some economic growth going as well.”
The effects of the cuts could be found in the details of Friday’s jobs report. Although federal government employment did not decline in July as it had in previous months this year, the number of people who were working part time because they could not get their employers to give them full-time hours rose significantly. This probably reflects decisions by many government agencies to achieve their required budget cuts by forcing employees to take unpaid leave.
“The disjunction between textbook economics and the choices being made in Washington is larger than any I’ve seen in my lifetime,” said Justin Wolfers, an economics professor at the Gerald R. Ford School of Public Policy at the University of Michigan. “At a time of mass unemployment, it’s clear, the economics textbooks tell us, that this is not the right time for fiscal retrenchment.”
After the release of the jobs report, the first thought of many business forecasters was of the Federal Reserve, and what the data might suggest for its next move in September, when analysts believe it probably will begin tapering its monetary stimulus measures. Economists are watching, too, what Congress and the White House will do this fall as they once again confront two looming deadlines. First is Oct. 1, when government operations would shut down unless the two sides agree on spending levels for the fiscal year that starts that day. Perhaps in that same month, the Treasury will run out of ways to buy more time and Congress will have to raise the nation’s borrowing limit, or else risk financial crisis.
Congress’ annual budget appropriations process was in chaos by the time lawmakers left town Friday. And Congress is scheduled to be in session just nine days in September before the Oct. 1 deadline.
Staff writer Dee DePass contributed to this report.