EYE ON AMERICA The 'haves' and 'have nots' economy By Peter Morici
The US Labor Department has reported that the economy added 75,000 jobs in May.
The consensus forecast was 167,000. The revised figure for April was 126,000.
The disappointing jobs growth in April and May indicate the economy is slowing
more than Wall Street analysts and Federal Reserve Bank policymakers had
anticipated.
The slowdown in the housing market and higher gas prices have dampened
automobile and other retail sales, and the jobs data indicate the economy is
headed for much slower growth and
perhaps a downturn. Wages were up less than 0.1% in May after rising 0.6% in
April.
These wage and jobs data indicate significant easing in labor markets. Coupled
with strong productivity growth, higher wages are not likely to push up the key
measures of core inflation that are closely watched by the Fed.
Overall, conditions in labor markets remain mixed. Shortages have emerged for
workers with key technical skills. For example, construction, business and
information technology services and health care remain strong for workers with
these technical specialties.
Meanwhile, workers with only high school education or a couple of years of
college, having few specialized skills, faced mounting challenges securing
positions offering good pay and health benefits. In the Midwest, the weight of
troubles at General Motors, Ford and their suppliers are felt, and in parts of
the southeast, the continuing woes of the textile and furniture sectors weigh
down wages.
It is clearly a "haves" and "have nots" labor market, and these conditions go a
long way toward explaining why President George W Bush cannot convince
Americans that the economy is on solid ground, even as it demonstrates robust
gross domestic product (GDP) and productivity growth.
Manufacturing shed 14,000 jobs in May, after adding jobs in April. In recent
months, manufacturing has been showing more bounce, but the May jobs data
indicate a slowing economy.
Overall, manufacturing has lost 3 million jobs since 2000, and the patterns of
past expansions indicate it should have regained about 2 million by now. The
huge trade deficit and overvalued dollar against the Chinese yuan play key
roles, destroying jobs in manufacturing and knowledge-driven service industries
that pay above average wages. In turn, these conditions suppress wages in
communities dependent on manufacturing and other more established industries
and are an important factor creating a "haves" and "have nots" economy.
Unemployment fell to 4.6% largely because more adults chose to not participate
in the job market. The adult labor force participation rate remains
significantly lower than when Bush took over stewardship of the economy. If
adults were participating in the job market at 2000 levels, 2.7 million more
people would be looking for work, and unemployment would exceed 6%.
Peter Morici is a professor at the University of Maryland
School of Business and former Chief Economist at the US International Trade
Commission. He serves on the Bloomberg and Reuters macroeconomic forecasting
panels.
(Copyright 2006 Peter Morici. Used with permission.)
