U.S. Economy Adds Zero Jobs: The Bigger Picture

The U.S. economy added no jobs in August, the Labor Department said Friday -- even though the Bloomberg consensus estimate had predicted a 60,000 job gain.

Almost as bad, job gains for the previous two months were revised lower: July numbers were revised to 85,000 from 117,000, while June was revised to 20,000 from 46,000.

Meanwhile, the nation's unemployment rate remained the same: at an eyesore level of 9.1 percent.

The very poor jobs report will increase concern that the U.S. economy is growing at a stall speed and not creating anywhere near enough jobs to meet the needs of all Americans looking for work. President Barack Obama is scheduled to deliver a major jobs speech to Congress on Thursday.

Economy Must Create 100,000-125,000 Jobs Per Month

The U.S. economy has to create about 100,000 to 125,000 net new jobs per month, just to keep the unemployment rate from rising. Further, to substantially lower the unemployment rate, the economy has to create about 200,000 to 225,000 new jobs per month.

The August jobs report also creates a more-complicated monetary decision for Fed Chairman Ben Bernanke: he's already ended the second stage of the Fed's quantitative easing program, or QE2, although the Fed continues to reinvest the proceeds from that program. A lack of momentum in the economy may give doves on the Fed ammunition to recommend additional unconventional monetary tactics to stimulate the economy, possibly in the form of a third phase of quantitative easing, or QE3.

However, hawks on the committee, fearing a rise in inflation, will probably oppose them.

The only bright spot in the August jobs report? The health care sector, which created 30,000 jobs, and professional/business services added 8,000. However, the information sector lost 48,000 jobs, government cut 17,000 jobs, and manufacturing lost 3,000; elsewhere in the private sector, employment in construction, trade, transportation, utilities, financial activities, and leisure and hospitality were little changed last month.

The number of long-term unemployed people -- those unemployed for 27 weeks or longer -- increased to 42.9%.

In addition, average hourly earnings decreased by 3 cents to $23.09 per hour. The average workweek for all employees declined 0.1 hour to 34.2 hours. A 0.1-hour increase in the workweek adds about 100,000 jobs to the economy.

U.S.: Huge 'Jobs Deficit'

The nation is the midst of its greatest job deficit since the Great Depression in the 1930s. The Economic Policy Institute, a liberal Washington-based think tank says the U.S. is short a staggering seven million jobs.

In other words, the U.S. economy has to add seven million jobs, just to return the workforce to a level at the start of the recession, in December 2007.

What's more, to keep up with population growth, the economy would have to add 11.1 million new jobs to restore the nation to the prerecession unemployment level of five percent in December 2007.

To put that in perspective, if the U.S. economy added 300,000 new jobs per month, it would take roughly 37 months to return the nation to that five percent unemployment rate. During this fragile recovery, the economy has created fewer than 200,000 new jobs per month.

Finally, the two-year tepid U.S. recovery -- if the sub-par job growth trend persists -- will extract a political price on President Obama's re-election chances in 2012. That's because historically, even though the president doesn't control the economy, the American people give him the credit for a strong economy at election time, and the blame him if the economy isn't performing well. And historically, the unemployment rate has been a key barometer for voters.

In short, the U.S . has to find a way to create many more jobs -- for the good of all involved -- investors, job seekers, and the president.

Job Market/Economic Analysis: Simply, the August jobs report was abysmal. Net employment flat-lined, and the view from here argues that will likely prompt the Federal Reserve to implement the third phase of quantitative easing and/or deploy other monetary stimulus this autumn, perhaps as soon as later this month.

More than two years in to the recovery, the U.S. economy is displaying a familiar pattern following a financial crisis: GDP growth that's too low -- policy makers must implement tactics to rev-up GDP growth to create the millions of jobs the nation needs.