Morici: Halting Recovery Keeps Unemployment High
The economy added 431 thousand jobs in May but 411 thousandwere temporary census jobs. The private sector needs much more supportive government policies to accelerate the economic recovery and jobs creation.
The Labor Department also reported unemployment fell to 9.7 percent from 9.9 in April, and the average hourly wage was up 7 cents or 0.3 percent. Forecasters had expected 540 thousand new jobs, unemployment to fall to 9.8 percent and hourly wages to rise 0.1 percent.
The big challenge is to keep GDP growing at least 3 percent to pull down unemployment.
Much recent growth has been inventory adjustments, and sustainable growth, reflected in real consumer and business investment demand, has been only about 2 percent. As stimulus spending tails off, new sources of demand will be needed.
If the economy keeps growing at 3 percent the balance of 2010, demand for new capacity—improved rental housing, better located new homes, and commercial construction for retail and factory improvements—should accelerate in 2011.
Auto sales, currently a bit above 11 million a year, should move up to 12 million plus with noticeable multiplier effects in the Mid West and Upland South.
Fiscal problems in Greece, Spain and elsewhere in Europe and dallying by European leaders in addressing fiscal imbalances and problems at banks pose genuine threats to global recovery. Obama Administration and Federal Reserve support of the International Monetary Fund contribution and dollar currency swaps were sound responses.
European leaders resisting genuine bank stress tests and transparency about bank capital requirements, and blaming short selling and Anglo-Saxon capitalism for problems created by their own hands, reinforce the growing judgment of financial markets that European leaders are incapable of accomplishing adequate systemic reforms to rehabilitate their economies.
Europe seems forever mired in adolescent denial and alibis—a malignant European character flaw.
On this side of the pond, greater realism is needed about U.S. budget challenges as the recovery continues, or America will join Europe down the proverbial drain of financial self abuse. Near term, demand must be fired up to significantly dent unemployment.
The economy must add more than 13 million mostly private sector jobs to bring unemployment down to 6 percent by the end of 2013.
Businesses need customers and capital to invest in new facilities and jobs, and private demand growing at less than 2 percent and troubles at regional banks remain huge problems.
The trade deficit—in particular, huge imports of oil and the imbalance with China—cuts a wide hole in demand for U.S. goods and services. Without addressing oil and China, creating enough new jobs is daunting.
Detroit has the technology to produce much more efficient vehicles now, and a shift in national policy to rapidly build these would push out imported oil and create many new jobs.
China maintains an undervalued currency that makes its products artificially cheap and deceivingly competitive on U.S. store shelves, and it practices virulent protectionism against U.S. exports.
China will not respond to diplomacy and reason.
President Obama and Secretary Geithner should quit the hand wringing and implement comprehensive policies to counter Chinese abuse of free trade. That would begin with a tax on dollar-yuan conversions that would raise the price of Chinese imports to their true cost to the U.S. economy.
Regional banks, which serve small and medium sized businesses, remain burdened by failing commercial real estate loans and mortgage-backed securities. The TARP was intended to remove many of those loans from their books but has often been abused by policymakers to aid political constituents on Wall Street and Detroit.
A Savings and Loan Crisis era Resolution Trust could relieve regional banks of troubled loans, earn a profit for the government, and give small and medium sized businesses adequate bank credit again.
Peter Morici is a professor at the Smith School of Business, University of Maryland, and former Chief Economist at the U.S. International Trade Commission.