How Uncertainty is Linked to Fewer Jobs

Fewer jobs were created in August than expected. The economy created 96,000 jobs while economists expected 120,000 to 140,000. This occurred because corporations are waiting until after the elections to make major investment decisions.

Furthermore small businesses, which create most of the new jobs, are linked to corporate investment decisions through supply chain contracts. Therefore, if corporations do not invest, small businesses will have less work and therefore hire fewer workers.

Capital investments are decisions that are typically made over a 15 year life cycles, but major issues are causing too much uncertainty for those decisions to be made at the present. The uncertainties include who will be President come November, how will Congress deal with the “Fiscal Cliff” (i.e. the expiration of economic stimulus programs at the end of the year), how will Europe deal with its debt crisis, and what type of compromise will Congress make regarding the US debt issue.

The unemployment rate declined from 8.1% in July to 8.3% in August, but the decline was caused by workers dropping out of the labor market. In fact there were 386,000 fewer persons in the labor market in August in comparison to July. When workers drop out of the labor market, they are no longer counted among the unemployed.

Listen to Gazelle Index CEO Danny Boston discuss these issues in a live interview with CNN’s Suzanne Malveaux.CNN’s Malveaux interviews Gazelle Index CEO Boston