Expect Modest Jobs Growth to Continue
By Peter Morici
Friday, forecasters expect the Labor Department will report the economy added 193,000 jobs in March. This is in line with the pace of recent months but hardly enough to lower unemployment down to acceptable levels.
In the fourth quarter, GDP was up only 0.6 percent, slowed by a drop in inventory build and smaller Pentagon purchases. Those factors are not likely to repeat, and first quarter growth should register in the range of 2.5 percent.
Consumer spending is picking up as rising home and stock prices restore household wealth. However, the pace of the recovery and jobs growth remains disappointing by historical standards and the need to create millions of new jobs to lower unemployment.
Since turning the corner in mid 2009, GDP growth has averaged 2.1 percent and unemployment has fallen from 10.0 percent to 7.7 percent. In contrast, high oil prices and double digit interest rates pushed unemployment to 10.8 percent during Ronald Reagan's first term; then GDP growth averaged 5.2 percent for the next three and half years, and unemployment fell to 7.3 percent.
The economy must add more than 360 thousand jobs each month for three years to lower unemployment to 6 percent. That would require growth in the range of 4 to 5 percent 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 drain demand for U.S. goods and services. Absent U.S. policies to confront Asian governments about their purposefully undervalued currencies, and to develop more oil offshore and in Alaska, the trade deficit will continue to tax growth.
The recent surge in natural gas production, and accompanying lower prices, is substantially improving the international competitiveness of industries like petrochemicals, fertilizers, plastics, and primary metals, as well as consuming industries like industrial machinery and building materials. However, the Department of Energy is considering proposals to boost exports of liquefied gas. That would 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, those slow 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. 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 stronger.
Without better trade, energy and regulatory policies, that is simply not going to happen.
Peter Morici is an economist and professor at the Smith School of Business, University of Maryland School, and a widely published columnist.
