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Dr. Peter Morici: Report to show fewer US jobs added in February; Burden of consumer debt, gas prices and trade deficit
By Professor Peter Morici
Mar 8, 2012 - 7:22 AM
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Dr. Peter Morici:
On Friday, forecasters expect the
Labor Department to report the US economy added 204,000 jobs in February, down
from 243,000 in January. My estimate is 180,000.
Despite anecdotal reports of new hiring and
consumer optimism, weaker jobs gains are likely for the next few months, because
real consumer spending, the largest component of economic growth, was flat
November, December and January. Auto sales are doing well but higher gasoline
prices are crowding out most discretionary purchases.
Unemployment is expected to remain at 8.3% in February, as jobs creation barely
outpaces population growth. Over the past three years, the%age of adults
participating in the labor force—those employed, self employed, or unemployed
but looking for work—declined significantly. If the adult participation rate was
the same today as when Barak Obama became president, unemployment would be 11%.
Adding adults on the sidelines, those who say they would reenter the labor
market if conditions improved and part-time workers who would prefer full-time
positions, the unemployment rate becomes 15.2%. Factoring in college graduates
in low skill positions, like counterwork at Starbucks, and unemployment is
closer to 20%.
Too Little Economic Growth: Fourth quarter economic growth was 3.0%, but
for all 2011 it averaged only 1.7%.
Stronger real consumer spending in September and October, plus a surge in
inventory investment and multi-family home construction, pushed up fourth
quarter growth. However, the increase in household spending outpaced disposable
income, debt piled up, and consumer activity stalled the next three months. In
addition, higher gasoline prices are absorbing too much of the modest advances
in nominal household income.
Sluggish consumer spending indicates businesses will have trouble unloading
unsold goods and slow inventory investments, and together those will lower first
quarter growth. A bit stronger non-residential construction and auto sales will
help, but overall GDP will grow at or below 2% in the first quarter—hardly
enough to inspire businesses to add many more workers.
For the second quarter, things look brighter. Consumers will have assimilated
higher gasoline prices and consolidated their credit positions by April, and
further growth in household income should result in stronger real consumer
outlays beyond the auto sector.
New Policies Needed: The economy must grow 3%—long term—to keep
unemployment steady, because advances in technology permit labor productivity to
increase 2% each year and population growth pushes up the labor force about 1%.
If conditions are mediocre and businesses cautious, productivity can
slip—equipment and computers are kept beyond their economically useful lives.
Then unemployment can be kept steady with 2.5% growth or even 2% but that poses
The economy growing 2 or even 2.5% is like an airplane flying at low altitude.
The plane can keep going, but the slightest unexpected obstacle and the plane
ditches—such difficulties may soon emerge in Europe or China.
The economy must add 13.2m jobs over the next three years—367,000 each month—to
bring unemployment down to 6%. GDP would have to increase at a 4 to 5% pace—that
is possible after a long deep recession but for chronically weak demand for US
made goods and services.
Oil and trade with China account for nearly the entire $550bn trade deficit, and
dollars sent abroad to purchase oil and Chinese goods that do not return to
purchase US exports are lost purchasing power. Consequently, the US economy is
growing at 2% instead of the 4 to 5% pace that is possible after a long and deep
Without prompt efforts to produce more domestic oil and redress the trade
imbalance with China and the rest of Asia, the US economy cannot grow and create
Professor, Robert H. Smith School of Business, University of Maryland,
College Park, MD 20742-1815,
703 549 4338 Phone
703 618 4338 Cell Phone
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