What's Holding Back Job Creation
The economy added only 80,000 jobs in October, disappointing forecasters who expected 95,000 to be added. The economy appears to be too stuck in low gear to make a real dent in the nearly 14 million unemployed.
Unemployment was down to 9.0 percent from 9.1 percent the previous month. A change that was not significant given that many adults remain on the sidelines and too discouraged to look for work.
Wholesale and retail trade, health care and social services, manufacturing, and leisure and hospitality added jobs, whereas telecommunications, banking and securities posted losses. Information technology gained and financial services lost positions in September, but both sectors posted losses for the entire third quarter reflecting broader layoffs in those sectors with more ahead.
Government employment fell by 24,000 and private sector jobs added 104,000.
Jobs creation will remain inadequate to keep unemployment from falling in the months ahead, especially considering the mass layoffs recently announced, cost cutting by many large multinationals. More hospitable exchange rate and regulatory environments abroad continue to encourage outsourcing.
Such weak jobs growth is inadequate to appreciably dent unemployment—at least 130,000 jobs are needed each month to keep up with growth in the adult population. Many adults are sitting on the sidelines and not looking for work, and are not counted among the unemployed.
Factoring in those discouraged adults and others working part time for lack of full time opportunities, the unemployment rate is about 16.2 percent. Adding college graduates in low skill positions, like counterwork at Starbucks, and underemployment is even higher.
The economy must add 13.3 million jobs over the next three years—368,000 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 400,000 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. In 2011, the economy has been growing at about 2 percent, and that pace is expected to continue through next year.
Jobs were added in recent months and unemployment remained steady only because businesses have been foregoing opportunities to increase productivity. Inadequate investment in labor saving technology, though keeping the headline unemployment number from rising too much, is an ominous sign of recession. Ultimately, employers will slash payrolls to maintain profits, and new layoffs appear in the offing. New unemployment claims continue to hover around 400K per week.
Growth is weak and jobs are in jeopardy, because temporary tax cuts, stimulus spending, large federal deficits, expensive and ineffective business regulations, and increased health care mandates and costs 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 less than 1 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 is a professor at the Smith School of Business, University of Maryland School, and former chief economist at the U.S. International Trade Commission.Follow him on Twitter @pmorici1.