Morici: Economy Waffles As Too Few Jobs Added
Professor, Smith School of Business, University of Maryland
The economy added 103,000 jobs in September. Coming off a gain of 57,000 jobs in August, the September performance is more of a dead cat bounce than real progress.
Unemployment was steady at 9.1 percent, as many adults remain on the sidelines and too discouraged to look for work.
Wholesale trade and manufacturing lost jobs, while retailing and construction both posted modest gains. Information technology gained and financial services lost positions in September, but both sectors posted losses for the entire third quarter reflecting broader layoffs in those sectors with more ahead.
Government employment fell by 34,000, and private sector jobs added 137,000
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.
The unemployment rate stayed constant at 9.1 percent in the third quarter, despite the fact that at least 130,000 jobs are needed each month to keep up with growth in the adult population. Many adults are sitting on the sidelines and not looking for work, and are 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 16.5 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 13.4 million jobs over the next three years-373,000 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 400,000 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, and growth in the range of only 2 percent is expected through the end of next year.
Jobs were added in the third quarter and unemployment remained steady only because worker productivity contracted. Falling productivity is an ominous sign of recession , because employers will slash payrolls to maintain profits. Indeed lays offs are scaling up, again, and new unemployment claims remain dangerously above 400K per week.
Growth is weak and jobs are in jeopardy, 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 abroad 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.