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Morici: Economy Stalls, No Jobs Added in August

Friday, 2 Sep 2011 | 9:25 AM ET

The economy added no jobs in July. Unemployment stayed constant at 9.1 percent only because so many adults are too discouraged to look for work.

Retail, manufacturing, information services, and construction all lost jobs indicating the fragile recovery is faltering. Finance posted small gains.

Government employment fell by 17,000, and private sector jobs added 17,000.

The economy is growing so slowly that employment should have fallen but worker productivity is dropping precipitously-an ominous sign of future nominal as well as real wage declines.

Government subsidized private employment in social services and health care gained 36,000 jobs; otherwise, the private sector contracted.

Jobs creation will remain inadequate to keep unemployment from falling in the months ahead, especially considering the mass layoffs recently announced in banking and pharmaceuticals that will be effected in the months ahead.

Andersen Ross | Stockbyte | Getty Images

The unemployment rate stayed constant at 9.1 percent, despite the fact that at least 130,000 jobs are needed each to keep up with growth in the adult population. Many adults quit looking for work and were not counted among the unemployed.

Factoring in those discouraged adults and others working part time for lack of full time opportunities, the unemployment rate is about 16 percent. Adding college graduates in low skill positions, like counterwork at Starbucks, and the unemployment rate is closer to 20 percent.

The economy must add 13.7 million jobs over the next three years-381,000 each month-to bring unemployment down to 6 percent. Considering continuing layoffs at state and local governments and federal spending cuts, private sector jobs must increase at least 405,000 a month to accomplish that goal.

Growth in the range of 4 to 5 percent is needed to get unemployment down to 6 percent over the next several years. Recent GDP data put first half growth at less than 1 percent.

Jobs creation remains weak, because temporary tax cuts, stimulus spending, large federal deficits, expensive and ineffective business regulations, and increased health care mandates and costs do not address structural problems holding back dynamic growth and jobs creation-the huge trade deficit and dysfunctional energy policies.

Oil and trade with China account for nearly the entire $600 billion trade deficit. This deficit is a tax on domestic demand that erases the benefits of tax cuts and stimulus spending.

Simply, dollars sent aboard to purchase oil and consumer goods from China, that do not return to purchase U.S. exports, are lost purchasing power. Consequently, the U.S. economy is expanding at less than 1 percent a year instead of the 5 percent pace that is possible after emerging from a deep recession and with such high unemployment.

Without prompt efforts to produce more domestic oil, redress the trade imbalance with China, relax burdensome business regulations, and curb health care mandates and costs, the U.S. economy cannot grow and create enough jobs.


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.

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