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by Peter Morici
College Park, Md. (UPI) Sep 6, 2012
Forecasters expect the U.S. Labor Department to report Friday the U.S. economy added 125,000 jobs in August -- a monthly pace far too slow to return the nation to full employment.
Most analysts see the unemployment rate steady at 8.3 percent, while a few see an increase. The wild card is the number of adults actually working or seeking jobs -- the measure of the labor force used to calculate the unemployment rate.
Adding adults on the sidelines, who say they would re-enter the labor market if conditions improved, and part-time workers, who would prefer full-time positions, the unemployment rate becomes 15 percent.
The increased number of adults who have quit looking for work and left the labor force altogether are responsible for 100 percent of the reduction in the unemployment rate since October 2009 when it peaked at 10 percent.
If the adult participation rate were the same today as when U.S. President Barack Obama took office unemployment would be 11 percent.
Many adults have reason to be discouraged -- new jobs pay lower wages than did those lost during the recession and job openings remain scarce.
New policies favoring bank consolidation limit access to credit for small and medium-sized businesses and government health insurance mandates drive up the hiring costs. Together, those significantly discourage jobs creation in manufacturing and many service activities.
In the second quarter, the economy expanded at an anemic 1.7 percent annual pace and added only 127,000 jobs per month, as pessimism curbed consumer spending and the huge trade deficit continues to pull down demand for U.S. goods and services.
Longer term, the economy must grow 3 percent annually to keep unemployment steady because advances in technology permit labor productivity to increase 2 percent each year and population growth pushes up the labor force about 1 percent.
The economy must add 13.3 million jobs over the next three years -- 370,000 jobs each month -- to bring unemployment down to 6 percent. To accomplish that, gross domestic product would have to increase at a 4-5 percent pace. That would be possible after a long deep recession but for chronically weak demand for U.S. made goods and services.
During his first term, Ronald Reagan faced a similarly troubled economy and unemployment peaked at 10.8 percent in November 1982. However, when he faced the voters in 1984 the jobless rate had fallen to 7.3 percent. During his recovery, GDP growth was averaging a brisk 6.3 percent in contrast to Obama's 2.2 percent.
The $600 billion trade deficit gap -- driven almost entirely by imports of oil and consumer goods from China -- is a major drag on demand. Each dollar sent abroad that does not return to purchase U.S. exports is lost demand for U.S.-made goods and lost jobs.
The Congress and president have significantly curtailed production of oil offshore and in Alaska and refused calls from economists across the ideological spectrum to act more forcefully to effectively pressure China to stop manipulating its currency, curb mercantilist import restrictions and export subsidies. Together, reversing those actions would create at least 5 million jobs.
Cutting the trade deficit in half would increase GDP, including multiplier effects, by some $500 billion and create 5 million jobs. Without fundamental changes in banking, healthcare, energy and trade policies little progress may be expected.
(Peter Morici is an economist and professor at the Smith School of Business, University of Maryland School, and a widely published columnist.)
(United Press International's "Outside View" commentaries are written by outside contributors who specialize in a variety of important issues. The views expressed do not necessarily reflect those of United Press International. In the interests of creating an open forum, original submissions are invited.)
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