V. Anantha Nageswaran

While the sluggish job creation is to be expected of an economy that has always boasted of more virtues than it actually possessed, blame-game would continue and with greater vigour. This is not good news in an election year.

THE myth of the US dollar bubble of the last two to three weeks is fully exploded.

For the last three months, cheerleaders of the American bubble economy have been anxiously awaiting the monthly employment reports for confirmation that job creation would confirm the economic recovery. They are still waiting.

The non-farm payroll expands by 21,000 in February. Yes, a meagre 21,000 when `whisper' estimates talked of 250,000-plus. Figures for January were revised down to 97,000 from the initial report of 112,000.

Net job creation in the private sector is zero, if one takes out the 21,000 jobs created in the government! Since August 2003, the economy has added only 52,000 jobs per month for the last seven months.

Both the employment-population ratio and the labour force participation rate had declined during the month.

Average hourly earnings rose only 1.6 per cent year-on-year. Not only are jobs not being created in adequate numbers, most jobs that are being created are in low-income categories.

Mean duration of unemployment has gone up from 18.7 weeks in February 2003 to 20.3 weeks in February 2004. The median duration of unemployment has risen from 9.5 weeks to 10.3 weeks during the same period. These two indicators measure the weeks that some one remains unemployed, once laid off.

The aggregate hours worked dropped in February. Coupled with the likely decline in productivity, this means that the outsized and overblown projections of GDP growth in Q1 are going to have to be revised down. It is a two-quarter miracle economy.

The Bush administration tax incentives for capital spending have a large role to play in this. There is a 50 per cent bonus depreciation allowance for capital expenditure. This is about to expire at the end of this year. Coupled with the low cost of capital, there is greater incentive to incur capital expenditure than to hire labour. In my view, this is playing a key role in the tepid job creation in the US economy.

In the financial markets, this would mean a resumption of dollar weakness, bond market strength and stock market weakness. Gold and euro should find their bearings. This is going to be a very difficult year for American stocks, to put it mildly.

America preaches tough economic reforms for developing nations, via the IMF, the World Bank and its Treasury. It never had to administer the medicine to itself. When an opportunity has arisen for it to show that it would walk the talk when needed, it is looking for scapegoats besides cheap money and reckless fiscal spending.

Last few months of data have shown that personal spending had always exceeded personal income. Household savings rate is in terminal decline while federal savings would not return, perhaps, for a decade at the least. The Bush administration talks of making tax cuts for the affluent permanent while the Federal Reserve chairman solemnly intones that future retirees should be prepared for cuts in social security and Medicare. Some New Deal, that is!

While the sluggish job creation is to be expected of an economy that has always boasted of more virtues than it actually possessed, blame-game would continue and with greater vigour. This is election year. Hence, this is not good news for India.

As an economist, yours truly is gratified to see his scepticism vindicated. However, as an Indian, I fear that this would raise the decibel level in the already shrill campaign against outsourcing. Never mind that one is talking of a few hundred thousand jobs at most, against the total employment of around 138 million people.

Indians have to buy a few Boeing planes to offset the likely escalating campaign. Indian companies, operating in the US, can contribute to the campaign war chest of the two candidates. Their employees can equally enrol themselves as election volunteers for both parties.

Somewhat more seriously, Indians living in the US should be vigilant against physical violence that some disgruntled workers who had just lost their jobs could unleash. They should be aware of this danger. They should avoid lonely and secluded spots and equally, crowded and drunken bars where conversations would tend to go out of hand. This is post-9/11 America. Paranoia is the name of the game.

(The author is Director, Global Economics and Asset Allocation in Credit Suisse, Singapore. The views are personal. Address feedback to nageswar@singnet.com.sg)

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