The economy added 227,000 jobs in February, down from 284,000 in January and the nation's unemployment rate remained 8.3 percent. Going forward unemployment is not likely to fall much further and may rise again.
Fourth quarter growth was exceptionally strong as the global economy recovered from first half disruptions such as the earthquake in Japan, but going forward economists expect growth to slow to about 2 percent.
Higher gas prices have halted the growth in consumer spending since November, and continued outsourcing from China and elsewhere in Asia is limiting jobs gains from resurgent manufacturing.
Job growth in the range of 140,000 a month should be expected in the second quarter, to accommodate labor force growth but not much lower the unemployment rate. That is hardly a pace that will restore economic health, or validate President Obama’s heavy intervention in the economy and industrial policies in the upcoming presidential campaign.
The unemployment rate would be higher but for the fact many adults have simply quit looking for work, and don’t count in the jobless tally. Also, many displaced workers have established home-based businesses that really don’t provide full time employment but also take workers off the unemployment rolls.
Generally, gains were broad based, with significant increases notched in wholesale trade, transportation and warehousing, financial services, business services, education and health services, and leisure and hospitality services.
However, retail sales help was trimmed, indicating consumer spending—other than for autos and higher priced gas—continues to stagnate.
Manufacturing added 31,000 jobs, while construction lost 13,000. The later raises questions about whether, as economists expect, the building sector will add much to first quarter growth.
Gains in manufacturing production have not been accompanied by stronger improvements in employment largely because so much of the growth is focused in high-value activity. Assembly work, outside the auto patch, remains handicapped by the exchange rate situation with the Chinese yuan. Even in autos, firms greatly assisted by the federal government are outsourcing to China to take advantage of its undervalued currency.
The situation with the yuan is the single largest impediment to more robust growth in manufacturing and its broader multiplier effects for the rest of the economy; the Obama administration indicated over the holidays it has no intention of challenging China on this issue, and it enjoys the unlikely support of Speaker John Boehner.
Government employment was down 6,000 as private sector jobs added 233,000. Lower property values translate into lower assessments and property values with considerable lag in most communities, and in 2012, the housing recession will significantly reduce local tax receipts and employment. Coupled with federal budget cutbacks, government employment should fall by about 10,000 a month through the end of the year.
Factoring in discouraged adults and others working part time for lack of full time opportunities, the unemployment rate is about 14.9 percent. Adding college graduates in low skill positions, like counterwork at Starbucks, and the unemployment rate is closer to 18 percent.
Prospects for lowering those dreadful statistics remain slim. The economy must add 12.9 million jobs over the next three years—358 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 about 370 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 but economic growth is expected to stay depress in the range of 2 percent through the end of 2013.
Growth is weak and jobs are in jeopardy, because temporary tax cuts, stimulus spending, large federal deficits, expensive and ineffective business regulations, and costly health care mandates 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 $550 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 2 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 served as Chief Economist at the U.S. International Trade Commission from 1993 to 1995. He is an economist and professor at the Smith School of Business, University of Maryland, and a widely published columnist. He is the five time winner of the MarketWatch best forecaster award. Follow him on Twitter @PMorici1.