|People line the street as President Barack Obama's motorcade makes its way to the State House in Dar es Salaam, Tanzania, July 01, 2013.|
private sector employment increased by 188,000 jobs from May to June,
according to the June ADP National Employment Report. The report is derived from
ADP’s actual payroll data and measures the change in total nonfarm private
employment each month on a seasonally-adjusted basis. May’s job gains
were revised downward to 134,000 from 135,000.
Dr Peter Morici: Friday,
forecasters expect the Labor Department will report the economy added 161,000
jobs in June. This is in line with the pace of recent months but hardly enough
to lower unemployment down to acceptable levels.
In the first quarter, GDP was up only 1.8%, owing to moderate growth in
consumer spending and an inventory bounce. Despite greater optimism as expressed
by consumers and small businesses in sentiment surveys, real consumer spending
was sluggish in second quarter, and growth in industrial production,
manufacturing and inventory investment slowed. Consequently, economists expect
second quarter growth to be below 2%, again, despite the recent euphoria
generated by surging home sales and prices.
Home prices have been juiced by rock bottom mortgage rates that have since
risen, and it is important to remember those asset transfers at higher prices
only impact on GDP and employment to the extent those drive up consumer spending
and new home construction. The former has not happened, and although
homebuilding is up, housing construction is only 3% of GDP.
Bottom line: a more robust economy can drive housing but surging housing prices
are no panacea for what ails the economy and jobs market.
Since turning the corner in mid 2009, GDP growth has averaged 2.1% and
unemployment has fallen from 10.0% to 7.6%. In contrast, high oil
prices and double digit interest rates pushed unemployment to 10.8%
during Ronald Reagan’s first term; then GDP growth averaged 5.0% and
unemployment fell to 7.2%.
The economy must add more than 360 thousand jobs each month for three years to
lower unemployment to 6%. That would require growth in the range of 4 to
5% and is not likely with current policies.
Factors contributing to the slow pace of recovery include the huge trade
deficits on oil and manufactured products from China and elsewhere in Asia—these
slow demand for US goods and services. Absent US policies to effectively
confront Asian governments about their purposefully undervalued currencies, and
to develop more oil offshore and in Alaska, the trade deficit will continue to
The recent surge in natural gas production, and accompanying lower prices, is
substantially improving the competitiveness of energy-using industries like
petrochemicals, fertilizers, plastics, and primary metals—as well as their
consuming industries like industrial machinery and building materials. However,
Department of Energy efforts to boost exports of liquefied gas will reduce the
trade deficit and boost growth much less, and create many fewer jobs, than
keeping the gas in the United States for use by energy-intensive industries.
Dodd-Frank regulations make mortgages, refinancing, and home improvement loans
much more difficult to obtain. The recovery in housing construction, though
welcomed, remains lackluster as compared to past recoveries. In
turn, this slows expansion in building materials, major appliances, furniture
and other durable goods.
The high cost and slow pace of regulatory reviews are a constant complaint among
businesses and dampen investment spending—and Washington shows no signs of
listening. Government needs to subject policies to protect the environment and
other regulatory goals to the same efficacy standards the market applies to
commercial technologies—regulatory assessments and enforcement are needed but
those must be delivered cost effectively and quickly to add genuine value.
Many businesses with overseas opportunities remain tentative about adding
capacity and hiring workers in the United States. Instead, they look to Asia
where government policies are more accommodating and prospects for growth remain
Without better trade, energy and regulatory policies, that is simply not going
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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