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Amid dismal jobs report, Obama withdraws clean air rules

The stalled economy's growing political cost to President Obama came into sharp relief as new employment figures raised fears of another recession and he abruptly withdrew proposed stiffer clean-air rules that Republicans and the business community have insisted would kill jobs.

The Labor Department's August jobs report, the first to show zero growth in about a year, intensified pressure on Obama as he prepares to address a joint session of Congress next Thursday night about the nation's stagnant employment picture.

The report also raises the stakes for congressional Republicans, who remain adamantly opposed to new stimulus measures, and for the Federal Reserve, which has been squeezing every monetary tool at its disposal to spur business activity.

But by far the greatest political risk is at Obama's door, as evidenced by his unexpected announcement on the smog rules, which would have compelled states and communities to reduce local air pollution or face federal penalties.

Obama explained the move in part by stating that "reducing regulatory burdens and regulatory uncertainty" was important for economic recovery, essentially echoing the argument of his GOP adversaries.

The move infuriated environmentalists, a core Democratic constituency, who have already complained about Obama's failure to deliver on campaign promises to pass legislation to reduce global warming and promote renewable energy.

The shift reflected the president's inability to jump-start a weak economy. The evidence landed on his desk Friday morning in a government report showing that employers cut back hiring and trimmed work hours of existing employees last month.

"The stagnation in U.S. payroll employment is an ominous sign," said Paul Ashworth, an economist at Capital Economics. "The broad message is that even if the U.S. economy doesn't start to contract again, any expansion is going to be very, very modest and fall well short of what would be needed to drive the still-elevated unemployment rate lower."

Making matters worse, the Labor Department's report revised job-growth figures for July, to 85,000 from the 117,000 previously reported. It said employers added just 20,000 net new jobs in June, not 46,000.

In all, Americans gained about 35,000 jobs a month in the last three months, a relatively low number. The nation added an average of nearly 180,000 jobs a month early this year, raising hope that the labor market was recovering.

Unemployment stayed flat at 9.1% in August as more people reported finding part-time work, many of them saying that was all that was available.

When he unveils his jobs package next week, Obama is expected to propose continuing federally funded extended unemployment benefits that are set to expire this year. The president also is likely to announce a job-training plan and other initiatives.

Analysts think Obama's jobs plan also will include infrastructure investment, continued Social Security payroll tax cuts, and some help for struggling homeowners.

But given the likely push-back from GOP deficit hawks, many worry that Obama's proposal won't be big enough to turn the economic tide or will become mired in another political brawl in Congress.

The situation left Obama looking for moves he could make unilaterally that might improve the climate for business, and by extension hiring. One result was the decision to withdraw the ozone standard.

The agency has worked with environmental and public health groups for the last two years to develop rules to curtail ozone, the main ingredient in smog and a considerable irritant for millions of people with respiratory ailments.

Opponents claimed the proposed regulations were costly to industry, and lobbied to postpone or cancel them. Obama said he asked EPA Administrator Lisa P. Jackson to withdraw the draft standards until 2013, after the next election, when he said they would be reconsidered.

California will not be affected by the ozone delay because it has its own stringent state standards, said a spokesman for the California Air Resources Board.

On his 2008 campaign website, Obama promised to "fight for continued reductions in smog and soot, and continue his leadership in combating toxins that contribute to air pollution."

The administration launched a review in 2009 to develop new ozone standards after the Bush administration set a standard that industry favored. The Obama EPA has delayed issuing the rules at least four times since then before the president ordered them to drop the process entirely.

Some business leaders praised the about-face, and quickly called on Obama to curtail other environmental regulations.

"He recognized that the precarious condition of the U.S. economy made expensive new clean-air rules very dangerous to the well-being of the American people," said energy lobbyist Scott Segal of Bracewell & Giuliani.

Environmentalists and health officials slammed the decision as a surrender to industry demands in order to mute their criticisms before next year's election.

"The Obama administration is caving to big polluters at the expense of protecting the air we breathe," said Gene Karpinski, president of the League of Conservation Voters. "This is a huge win for corporate polluters and huge loss for public health."

The EPA's 2009 decision to develop new ozone rules convinced a group of environmentalists and public health advocates to drop a lawsuit against the agency. The American Lung Assn., the main plaintiff in the suspended lawsuit, said it now planned to revive the litigation.

Speaker John A. Boehner's office suggested that Obama was responding to Republican demands, and pushed for more concessions.

"We're glad that the White House responded to the speaker's letter and recognized the job-killing impact of this particular regulation," said spokesman Michael Steel. "But it is only the tip of the iceberg when it comes to stopping Washington Democrats' agenda of tax hikes, more government 'stimulus' spending and increased regulations."

In a telephone news conference, the White House repeatedly denied that politics played a role in the decision.

"This is not a product of industry pressure but a judgment of the merits of the rule," said one senior administration official, who spoke on condition of anonymity. "It has nothing to do with politics, nothing at all."

But the political impact may be substantial for Obama.

"Despite all the president has done, the decision will raise concerns in certain quarters about whether this is someone in the White House fighting for them," said Chris Lehane, a Democratic strategist and former spokesman for Vice President Al Gore, speaking of the Democratic base.

"This is a backing down," said Lisa Heinzerling, a former top EPA official under Obama and professor of law at Georgetown University. "If the statute and the Supreme Court itself have said not to allow consideration of costs and if the administration will not fight for the standard under that, then what will they defend? It's not a good sign for other regulations."

The ozone decision comes after the State Department last week removed a key barrier to construction of the controversial Keystone XL oil pipeline from Canada to Texas. Over the last two weeks, hundreds of people have been arrested for protesting the pipeline in front of the White House, including several former Obama organizers.

don.lee@latimes.com

neela.banerjee@latimes.com

Peter Nicholas in the Washington bureau contributed to this report.

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