Debt Battle Leads To Layoffs In Aviation And Beyond

Jul 31, 2011
Originally published on August 1, 2011 10:01 am

Many factors have been holding down job creation this summer — everything from the extremely hot weather in many regions to the weak housing market in just about every city. Another factor dampening job growth has been the political battle over the nation's debt.

One example of how the Washington debate is hurting workers involves aviation. Amid the bickering over the debt ceiling earlier in July, Congress failed to pass a short-term extension of the Federal Aviation Administration's budget.

As a result, on July 23, the FAA's budget authorization expired and the agency had to lay off some 4,000 workers. Now the disruption is rippling out to contractors at airports around the country. For example, in Las Vegas, construction of a new air traffic control tower at McCarran International Airport is on hold for lack of FAA funding. That disruption has caused a cascade of construction layoffs.

Across the country, roughly 70,000 workers are expected to be idled by this FAA budget mess.

Many economists fear that when the Labor Department releases its monthly unemployment report on Friday, it will offer new signs that the U.S. economy is sliding back toward recession.

IHS Global Insight, a forecasting firm, is predicting employers added only about 50,000 jobs during July, up from June's scant 18,000 new jobs. But even 50,000 jobs would be far below a level that would significantly improve the jobs outlook. About 14 million people are currently seeking jobs, so the economy needs to be adding hundreds of thousands of jobs a month to make a significant dent in the problem.

"We don't expect such a weak report as in June, [but] we look for another month of sluggish private employment growth and declining government employment," says IHS Global Insight's chief U.S. economist, Nigel Gault.

Even after the budget debates have settled out, government spending likely will be contracting at both the federal and state levels. That may mean fewer paychecks for all sorts of public-sector employees, from teachers to astronauts.

The debt-related uncertainty in financial markets is also indirectly hindering job growth by creating jitters among employers. Many of them are sitting on large amounts of cash, but are reluctant to plow it into expansions until they know financial markets will be operating smoothly in coming months and years.

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LINDA WERTHEIMER, host: This is WEEKEND EDITION from NPR News. I'm Linda Wertheimer.

For weeks, we have been hearing about the debt-ceiling controversy. The acrimonious arguing in Congress has created enough uncertainty to rattle financial markets. And last week brought more bad economic news with the Commerce Department report on growth. The economy has slowed to a crawl, with a growth rate of only 1.3 percent in the second quarter of the year.

Add to that news revised government figures that show the recent recession was deeper, and the recovery weaker, than previously estimated. And that makes the economic landscape looks bleak.

Here to talk about the impact of all of this on jobs is NPR senior business editor Marilyn Geewax. Marilyn, welcome.

MARILYN GEEWAX: Hi, Linda.

WERTHEIMER: So, obviously this back-and-forth about whether the Treasury can write its checks and pay its debts has been unnerving for investors, what about employers?

GEEWAX: Well, we're going to find out a little more on Friday when we get the latest jobs report. That'll cover July. Economists are going to be watching that one very closely because there's this great fear out there right now that we're starting to fall back into another recession.

We've already had one very disappointing jobs report this summer. In June, the unemployment rate went back up to 9. 2 percent, and now we could have another lackluster jobs report - may be 50,000 new jobs created in July. And that's pretty darned weak. A lot of reasons for that, everything from the ridiculously hot weather to a horrible housing market.

But another factor has been this huge battle over the nation's debt.

WERTHEIMER: Why would the political fight, why would the Congress tussling and carrying on affect employers?

GEEWAX: Well, you would like to keep Washington contained to itself. But it does spill over. This turmoil has had both a direct and an indirect impact on the job market. Here's just one example of a direct hit: Amid all of this bickering that we've heard in the past month, Congress failed to pass a short-term extension of the Federal Aviation Administration's budget. So on July 23rd, the FAA's budget authorization expired and the agency had to lay off some 4,000 workers.

Now, of course, that's a small number nationwide. But the disruption has started to ripple out. It's affecting contractors. So just one example, in Las Vegas, they've had to stop construction on a new air traffic control tower because they just ran out of FAA funding. And that started to throw subcontractors out of work. Across the country, there are about 70,000 people who are expected to be idled just by the FAA budget alone.

Even if you get past this immediate crisis with the debt ceiling and you settle this all out, it's pretty clear that going forward government spending is going to shrink. So we'll see fewer employees, everything from teachers to astronauts.

WERTHEIMER: Now, you mentioned indirect impact?

GEEWAX: Well, yes. You know, when you remember that financial crisis - when it hit three years ago, a lot of business owners just couldn't borrow money from their bankers. So they panicked. They didn't have enough money. And now they don't spend money on expansions. They are not hiring workers. And when they see this kind of uncertainty involving Treasury, it only makes them more nervous and more eager to hoard to cash. So indirectly that keeps them from hiring people.

WERTHEIMER: So it sounds like when the Congress ties itself in knots over the debt ceiling, that's something that the job market did not need.

GEEWAX: Exactly. This has really been a perfect prescription for making the labor market sicker. This job market is being hurt by rising gas prices, the falling consumer confidence. So the timing of this political battle has been particularly tough. And that was made even clearer on Friday when the government said the gross domestic product expanded just 1. 3 percent in the second quarter. That's horrible.

WERTHEIMER: Marilyn, the American people tell pollsters over and over again that the number one issue is jobs. What would the economy have to do to make these companies start hiring?

GEEWAX: We need a growth rate that's probably about three times what we've got going right now. So even if the economy gets no worse this summer, we just are not gaining the momentum we need to pull the job market up and out of this.

WERTHEIMER: Thanks very much, Marilyn.

GEEWAX: You're welcome, Linda.

WERTHEIMER: Maryland Geewax is NPR's senior business editor. Transcript provided by NPR, Copyright NPR.