|President Barack Obama walks to the White House residence with Chief of Staff Denis McDonough, after a day of meetings in the West Wing of the White House, Jan. 21, 2014.
Peter Morici: Today
economists expect the Labor Department to report the economy added 181,000 jobs in
January, up from the disappointing 74,000 scored in December. That's about half
the pace needed to bring unemployment down to acceptable levels and motivate the
Federal Reserve to raise targets for short-term interest rates.
The economy did grow at a solid 3.2% in the fourth quarter. Consumer
spending accelerated and growth was more broadly supported by business
investment and improvements in exports. The Federal Reserve has well founded
confidence in the long-term stability of the recovery and is well advised to
continue tapering purchases of longer-term Treasuries and mortgage-backed
securities. Recent turmoil in currency and stock markets notwithstanding, the
fundamentals underneath U.S. equities remain sound.
However, expansion in the housing sectors, autos and manufacturing-the bright
stars of the 18 quarter expansion-showed signs of tiring, and these trends
carried over into January data. For example, contracts for sales of new and
existing homes and the Institute for Supply Management data for manufacturing
have not been encouraging.
The unseasonably cold winter slowed housing sales, which should rebound by
March. Autos and other manufacturing activities are troubled by Japan's efforts
to suppress the value of the yen against the dollar, and accomplish price
competitiveness and exports unjustified by underlying comparative advantages.
The jobs report
may reflect continued restructuring among large retailers-many big names sold
large volumes of goods at very thin margins during the holiday season and remain
over expanded-and uncertainty in health care owing to the rocky roll out of
Economists generally believe consumer spending got out ahead of income gains in
the fourth quarter, and households will consolidate their finances and slow
purchases through the spring. Overall, first quarter growth in the range of 2 to
2.5%-in line with the trend for the recovery since 2009-is expected and jobs growth
in the range of 180,000 for January would support that expectation.
The unemployment rate should stay at about 6.7%, largely because so many
adults remain discouraged or stuck in part-time jobs,
with the latter condition worsening as ObamaCare mandates for full time
employees in 2015 come into more immediate focus.
Going forward, the December termination of federal support for unemployment
benefits administered by the states in excess of the customary 26 weeks will
likely help depress the unemployment rate. The
experience of North Carolina, which ended long-term benefits in July, indicates
many adults will cease actively looking for work and not be counted in federal
That experience does raise serious questions about the need for long-term
assistance among many who have been collecting benefits, especially given that
extended unemployment benefits raise wages demanded, generally, and discourages
hiring on a broad scale.
Factoring in part-time employees who would prefer full-time work and discouraged
adults, the jobless rate is 13.1%.
Getting headline unemployment down to 6%, while employing those folks at
the margins of the labor market, would require about 365,000 jobs each
month for three years.
That would require growth about double the pace accomplished since the economic
recovery began and during the George W. Bush expansion.
It bears noting Presidents Reagan and Clinton accomplished more robust growth
and jobs creation
with lighter regulations, lower taxes, less emphasis on entitlement programs and
fewer efforts to suppress criticism of their administrations' policies.
Both capitalized on the dynamic opportunities offered by new technologies and
private initiative by encouraging robust public debate about appropriate
directions for public policy, as opposed to tolerating efforts to quiet their
voices through law enforcement and muffle dissent through the administration of
the tax laws.
Throughout the world, over and over again, new technology and private initiative
have instigated more growth and created more good paying jobs when
debate is untethered by fears of retribution and unsettling to those in power.
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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