WORLD
Obama unemployment goal endangered by state, local budget cuts
Baku, February 7 (AZERTAC). President Barack Obama`s goal of driving the unemployment rate below 9 percent this year is threatened by state and local budget cuts that are likely to intensify as Federal stimulus money runs out, Bloomberg reports.
Austerity measures may add as much as 0.25 percentage point to the unemployment rate this year, according to Mark Zandi, chief economist of Moody`s Analytics Inc.
Reductions in public payrolls will ripple through the economy, slicing revenue at companies that rely on government contracts and depressing spending among those who are thrown out of work, Zandi said. The result could be the loss of 600,000 jobs in the fiscal year that starts July 1, he said.
State and local governments cut 12,000 workers from payrolls last month, a Labor Department report showed today. Total payrolls rose by 36,000, depressed by poor weather, and the unemployment rate dropped to 9 percent from 9.4 percent.
State and local governments fired 260,000 people last year -- more than General Motors Co.`s entire workforce -- even as companies expanded payrolls by 1.37 million. Since state and local government employment peaked in 2008, the 435,000 public- sector pink slips have exceeded General Electric Co.`s payroll.
The monthly pace of state and local-government job cuts will rise to 25,000 to 30,000 in the second half of this year from the 2010 average of 22,000, predicts economist Dean Baker of the Washington-based Center for Economic Policy Research, who warned in 2002 of a national housing bubble.
The cuts make it harder to push the unemployment rate below 9 percent, Baker said. The White House predicted in its July 2010 mid-session budget review that the rate would fall to 8.7 percent by the fourth quarter of 2011.
Unemployment will average 9.3% this year, according to the median forecast of 65 economists surveyed by Bloomberg News. Federal Reserve policy makers` central projections range from 8.9% to 9.1% for 2011.
Sal Guatieri, senior economist at BMO Capital Markets in Toronto, says job cuts along with higher local taxes and spending cuts could add a half point or more to the unemployment rate.