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Originally published Friday, June 1, 2012 at 5:10 PM

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Jobs report shows economy teetering near recession

U.S. recovery is threatened by global economic headwinds.

Special to The Seattle Times

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An economist commenting on Friday's report that only 69,000 jobs were created in May said this "is what a jobless recovery looks like."

No, this is what an economy tipped on the edge of a new recession looks like.

Growth is slowing in China, which was counted on to lead the world out of recession. India's economy is facing downdrafts, too.

Both countries are feeling the recession gripping much of the eurozone. A real-estate bubble collapse, government borrowing to bail out banks, bluntly applied austerity and lack of leadership have all brought the continent to the brink.

Spain, the eurozone's fourth-largest economy, is facing a bank run. Investors across Europe are fleeing to the safety of U.S. Treasurys and German bonds.

Now, as the May unemployment report made clear, the U.S. economy is rapidly decelerating, too. Job growth was half of what's needed just to keep up with the natural growth of the labor force, much less find new work for 12.7 million unemployed.

Worse, all the new jobs came from part-time positions. With the decline in labor-force participation, the unemployment rate underestimates joblessness.

The U-6 index, which includes discouraged workers and part timers seeking full-time work, rose to 14.8 percent compared with 14.5 percent in April.

Average hours and weekly wages fell. The share of people unemployed for longer than six months grew.

Another report, from the Institute for Supply Management, indicated a small but troubling stumble in the manufacturing sector, which has been among the economy's leaders.

No wonder, then, that the Dow Jones industrial average suffered its worst fall of the year, down 274 points. The gains of 2012 are gone.

The Federal Reserve has consigned itself to the sidelines. Unlike the Reagan administration, which expanded federal jobs amid the 1981 recession and after, the Obama White House has been cutting them.

The lack of demand mostly behind the jobs crisis was never adequately addressed in 2009. Now no new stimulus will be forthcoming from a gridlocked, election-year D.C.

Unless things get really scary. And they just might.

This has been unlike any recovery since the end of World War II and in all bad ways.

The Great Depression, which went on for a decade, was marked by small expansions and recessions, including a big swoon in 1937 when FDR backed off on New Deal stimulus. Our situation is not as severe, but the history offers some unsettling similarities.

Both Herbert Hoover and John Maynard Keynes agreed that the severe contraction begun in the United States was turned into a depression by events in Europe. Then it was high debt and the constraint of the outmoded gold standard. Now it's high debt and the constraint of an idealistic but perhaps unworkable currency union.

Austerity isn't working. German Chancellor Angela Merkel refuses even to allow an emergency stabilization fund to inject euros into ailing banks. And that alone would just kick the can down the road.

What's most unfortunate is Merkel's unwillingness to think creatively and comprehensively on a solution that would stop the constant resetting of sovereign debt and allow a fresh start.

The chancellor's is an easy position to take when you preside over Europe's strongest economy and your exporters get an advantage from a relatively weak euro.

During the good times, German companies and banks made huge profits from the single currency, including flooding countries such as Greece, Italy and Spain with imports and investment.

But now, Germany must lead, not just smugly lecture and protect its banks and exporters. Otherwise, the eurozone is headed for a breakup that will make Lehman Brothers look like a community bank failure.

If China is feeling the effects of European paralysis, Seattle's recovery is in danger. Don't expect the Puget Sound region to remain a fortunate outlier with a slowing Asia and a U.S. economy hitting stall.

As with the 2007 crash, it just may take awhile for the full power of next blow to arrive here.

You may reach Jon Talton at jtalton@seattletimes.com.

On Twitter @jontalton.

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