Unemployment rate steady at 9.6 percent: Is Obama's plan working?

President Obama says government aid to states kept the unemployment rate from rising. Republicans say government spending is undercutting an economic recovery.

The last monthly jobs report before fall elections showed a loss of 95,000 jobs in the US economy, a disappointing number for American workers and also for Democrats hoping to hang onto their majority in Congress.

The September job losses were concentrated in state and local governments, as well as in the phase-out of temporary positions at the US Census Bureau.

Private sector employers added jobs, but at a tepid pace of 64,000 jobs for the month. The US unemployment rate held steady at 9.6 percent.

"We've now seen nine straight months of private sector job growth," President Obama said. Pointing to the loss of public-sector jobs, he said those losses would have been even worse without federal aid to cash-strapped states, which Democrats supported and many Republicans opposed.

"The Republican position doesn't make much sense," he argued, saying that a decline in paychecks from government jobs currently creates "a drag on the private sector as well."

The idea is that federal spending that prevents public-sector jobs cuts will support the whole economy by buoying consumer demand. The president also complained that a package of tax cuts and lending incentives for small business, which he signed into law last week, had been held up by Republicans for months.

The Republican counterargument, as the November vote draws near, is that Mr. Obama's spending policies and his desire to let the Bush tax cuts expire for high earners are preventing a rebound in private sector confidence, spending, and hiring. They say the Bush tax cuts should remain in place for all Americans, not just households earning less than $250,000 as Obama proposes.

To spend or not to spend

Some economists side with Obama on the benefits of government spending during a still-fragile recovery. Others warn of the dangers posed by high federal deficits and possible tax increases as early as next year.

"Small businesses continue to show massive weakness, in part due to the drag from the government’s crushing tax-and-spend policies," David Malpass of Encima Capital said in a commentary on the Friday Labor Department news.

Even with federal assistance, state and local governments are feeling pressure to cut spending, because tax revenues have fallen sharply during the recession and its aftermath. Federal, state, and local governments employed employed 22.2 million Americans as of September, down from 22.6 million at the beginning of 2009.

The country's big job losses have come in the private sector, however, where 108 million people are employed – essentially where employment stood in at the start of 1999.

Governor Christie's big decision

New Jersey became a flash point in the debate over jobs policy this week, as Gov. Chris Christie (R) decided to oppose building a rail tunnel to New York City. The planned project would support thousands of jobs during construction and was conceived as a long-term investment by government to support the state's economy.

But Governor Christie cited soaring cost estimates in saying: "I simply cannot put the taxpayers of the State of New Jersey on what would be a never-ending hook." Christie has also battled public-sector labor unions in a bid to control the rising costs of state government.

Although the September labor numbers were weak – with little change in private-sector jobs, hours worked, or wages – many economists expect the economy to continue growing. But they say the pace must pick up before unemployment will decline.

Since the start of the year, the private sector has been adding nearly 100,000 jobs a month, but that hasn't kept pace with the entry of new people into the labor force. In addition to nearly 15 million officially unemployed, some nine million Americans are working part time because they haven't found full-time work.