Why Unemployment Could Rise This Year

The number of jobs the economy has added in each of the past four months has been weaker than expected. May unemployment numbers show that only 69,000 jobs were added. The national unemployment rate is 8.2%. Unemployment may well increase in most months over the balance of 2012. Many of the circumstances that helped turn the jobs market around over the past year and a half have vanished. Also, some of the positive trends recently have turned negative.

One trend that has continued to be a drag on the overall national job numbers, and will continue for another year or more, is the drop in the number of public employees. Many states and municipalities have not found solid footing financially. Tax revenue for many of these places has not recovered from the recession. And job cuts could move to the federal level, if the austerity measures debated by Congress and the Administration become a substantial part of the plans to balance the budget.

Another trend undermining employment at what could be called the federal level is the jobless rate among Gulf War veterans. Bureau of Labor Statistics data show that for 2011:

Young male veterans (those ages 18 to 24) who served during Gulf War era II had an unemployment rate of 29.1 percent in 2011, higher than that of young male nonveterans (17.6 percent).

As more and more soldiers return to the United States, this figure is bound to rise.

The most likely culprit for an increase in unemployment is the most obvious one. The American economy has been undermined by the dual effect of a drop in gross domestic product in Europe, which has hurt and will continue to hurt U.S. exports, and a drop in consumer confidence. The export problem will cause a decline in profits for many domestic firms, which often leads to job cuts. Consumer confidence will erode as Americans look around them at the dimming prospects for a recovery and cut their own spending due to fear about their economic futures.

The fate of individual and company tax cuts for next year is uncertain, and it is almost July. Many Americans expect the future of those cuts will remain undetermined until after the election. There is no reason to count on an extension. That means much of the population has begun to prepare for a larger tax bite.

For the first time in ages, the balance of things that should help the employment situation has shifted in a negative direction. That will continue for the foreseeable future.

Douglas A. McIntyre