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January jobs report: Will 'OK' jobs market make politicians complacent?


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That outlook banks on a continuing steady rise in activity within the private sector (which accounts for about 84 percent of all jobs) outweighing the braking effects of tighter fiscal policy.

Moreover, some economic analysts argue that the sequester, cutting federal spending by about $100 billion a year, doesn’t pose a risk to the job market. The conservative editorial board at The Wall Street Journal, for example, opined Thursday that the spending cuts “will help business and investor confidence by finally showing that government can restrain itself – at least a little and however crudely.”

Many Republican lawmakers appear ready to allow the spending cuts to go forward, in part based on similar reasoning that the economy would benefit more from government restraint.

Even some conservative economists, however, warn that spending cuts could hurt GDP in the short run. “Congress and the president need to avoid excessive austerity with respect to changes in fiscal policy this year,” John Makin of the American Enterprise Institute argued in a recent report.

The sequester could result in job cuts on both federal and private-sector payrolls, as the government would cut back on procurement from defense contractors such as Lockheed Martin.

That doesn’t mean long-run deficits should be ignored. Mr. Makin and many other economists argue for taking steps now to reform entitlement programs, in a bid to head off a dangerous rise in national debt.

All this leaves policymakers with a bit of a tightrope to walk.

If Congress does too little to address the debt risk, and there is too much partisan gridlock, credit rating agencies could downgrade the quality of US Treasury debt. But the 2013 spending cuts, if they happen, could dampen job growth that's not exactly robust.


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