President Obama has been touting an improving economy, even as he pleads for more “emergency” jobless benefits. The December jobs report will help indicate whether things are really getting better, or the president should fess up—after five years his economic policies are not doing enough to fire up growth and create jobs.
Recent data indicate the economy has neither been improving nor is there any new emergency. During the three months ending in November, the Labor Department estimates the economy added 193,000 jobs each month, whereas during the first three months of 2013, the monthly count was 207,000.
The economy did expand at a strong 4.1 percent pace in the third quarter, but some 40 percent of that growth was stock building—retailers and others filling shelves and warehouses with goods customers did not buy but scored by GDP accountants as “inventory investment.” Hence, most economists expect businesses to adjust purchases and for growth to slow to something in the range of 2.5 percent—only marginally better than the pace set since the recovery began in 2009.
Industry surveys indicate retail sales did pick up in December, but retailers cleared out inventories by slashing prices. Hence, Chinese and Korean exporters made lots of money sending clothes and electronics to American holiday shoppers, but U.S. businesses did not profit much marking up those goods for sale to consumers. That generates little reason for optimism about future hiring.
On the plus side, housing remains strong, but much has been driven by investors from abroad seeking a politically secure parking place for wealth by purchasing real estate in Manhattan, the more elegant sections of other cities and warm weather properties in Florida and southern California. Importantly, young families, who compose the vast majority of first time home buyers and domestic additions to demand and price push have remained on the sidelines, bedeviled by a sour job market for recent college graduates.
Forecasters expect the Labor Department to report the economy created about 200,000 in December—not much improvement or much decline from the record of recent months.
The unemployment rate should stay at about 7 percent, largely because so many adults remain discouraged or stuck in part-time jobs. Factoring in those folks, the jobless rate becomes 13.2 percent. Getting unemployment down to 6 percent, while employing those folks at the margins of the labor market, would require about 365,000 jobs each month for three years.
What continued mediocre jobs growth shows is that Obama’s redistributionist policies—such as some of the highest taxes on businesses in the industrialized world and dysfunctional subsidies for middle class health insurance—and statism—such as business regulations more burdensome than necessary to accomplish reasonable safety and environmental objectives, endless lawsuits brought on banks, free trade agreements with government run Asian economies, and prohibitions on U.S. energy production—don’t create growth or nearly enough decent jobs.
More importantly, mediocre jobs growth indicates Obama’s policies, by suppressing the demand for workers and wages, are adding to income inequality rather than addressing it constructively.
America can do better—it can be a more prosperous and fairer society. However, the country needs for the president to radically change his policies, or wait for a radically different president.
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.