It’s Housing, Stupid

The Grand Old Party is having a Grand Old Time blasting the Democrats for June’s uptick in unemployment.

Rep. Eric Cantor (R-Va.) said the newest figures are indication that Democratic leaders should have heeded Republicans earlier this year and dedicated much more of their $787 billion stimulus bill to tax cuts. Sen. John Cornyn (R-Texas) told The Washington Post this week that the new jobless numbers foreshadow “significant problems” for the Democrats in next year’s midterm elections. And conservative columnist Michael Gerson combines those two messages today in The Washington Post, arguing that the jobs report “opened a long gash beneath the waterline of President Obama’s legislative agenda.” He was comparing the stimulus bill to the sinking of the Titanic.

But there are several things the critics are ignoring. First of all, economists for many months have been warning that the overall number of jobless Americans would continue to rise straight through the end of 2009, even as the monthly rate of unemployment gets smaller and smaller until we’re back into positive, job-creation territory. Indeed, the 467,000 jobs shed in June are a jump from the 345,000 lost in May, but they mark quite an improvement from the 697,000 jobs shed in February, when Obama signed the stimulus bill into law.

The jobless trend is hardly unique to the current recession, nor is it a consequence of the Democrats’ rescue efforts. It’s just an economic reality. The employment rate, experts say, is among the last metrics to rebound from a downturn. What employer, after all, wants to take a chance on hiring new workers when it remains unclear that the worst is behind us? Just pay some overtime and do your hiring later.

(It’s too early to know if June’s jump is just a blip in the curve back to healthy job creation or an indication that monthly jobless rates are poised to rise again. But about 85 percent of the stimulus money has yet to be spent, so it’s difficult to imagine unemployment going up too much more with roughly $676 billion set to go out the door in the next 18 months.)

And second, stimulus critics (and many supporters, it should be mentioned) have also ignored this little inconvenience: That all the tax cuts (or spending) in the world aren’t going to nurse the economy back to health until the housing market stabilizes. After all, it was the bursting of the housing bubble that caused the economic turmoil to begin with. And, despite financial enticements adopted by the White House to get the nation’s lenders to alter the terms of mortgage loans to help prevent foreclosures, only 13,000 modifications had been made under a program projected to help up to 2 million, according to reports.

Meanwhile, foreclosure filings were made on more than 10,000 properties per day in May, according to RealtyTrac, an online foreclosure database. And because foreclosures lead to falling housing prices, which in turn lead to more foreclosures, which in turn weaken the same banks that are being asked to increase lending — well, it’ll be a tough path to increased job creation in the middle of that economic maelstrom.

Cramdown, anyone?