The United States economy added
only 69,000 jobs in May - only about half of what
is needed to keep up with natural population
growth. The unemployment rate rose to 8.2%.
In the weakest recovery since the Great
Depression, nearly the entire reduction in
unemployment since October 2009 has been
accomplished through a significant drop in the
percentage of
adults working or looking for
work. Some of these folks returned to the labor
market in May; consequently, unemployment ticked
up a tenth of a percentage point.
Growth
slowed to 1.9% in the first quarter from 3% the
previous period, and was largely sustained by
consumers taking on more car and student loans,
business investments in equipment and software,
and some inventory build. The housing market is
improving and that should lift second-quarter
residential construction a bit but overall, the
economy and jobs growth should remain too slower
to genuinely dent unemployment.
The May
jobs report indicates growth could be even slower
in the second quarter, and the economy is
dangerously close to stalling and falling into
recession.
Manufacturing added 13,000
jobs. Other big gainers were health care,
wholesale trade, and transportation and
warehousing.
Construction lost about
28,000 jobs, and other big losers were leisure and
hospitality and state and local governments.
In other sectors, jobs gains were weak or
small numbers of jobs were lost.
Gains in
manufacturing production have not instigated
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.
Recent moves by China to further weaken
its currency and to close its markets to stimulate
its own flagging demand indicate matters will get
worse without a substantive response from
Washington. Also, concerns about health insurance
costs, once Obama Care is fully implemented, are
discouraging employers.
The economic
crisis in Europe and mounting problems in China's
housing and banking sectors continue to instigate
worries among US businesses about a second major
recession, and these discourage new hiring. The US
economy continues to expand albeit moderately but
is quite vulnerable to shock waves from crises in
European and Asia.
Factoring in those
discouraged adults and others working part time
for lack of full time opportunities, the
unemployment rate is about 14.8%. Adding college
graduates in low skill positions, like counterwork
at Starbucks, and the unemployment rate is likely
closer to 18%.
Prospects for lowering
those dreadful statistics remain slim. The economy
must add 13 million jobs over the next three years
- 362,000 each month - to bring unemployment down
to 6%.
Growth in the range of 4-5% is
needed to get unemployment down to 6% over the
next several years. In 2011, the economy grew at
about 1.7% and is expected to expand to 2.5% in
2012.
Growth is weak and jobs are in
jeopardy because temporary tax cuts, stimulus
spending, large federal deficits, expensive but
ineffective business regulations, and costly
healthcare 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
US$600 billion trade deficit. Dollars sent abroad
that do not return to purchase US exports are lost
purchasing power. Consequently, the US economy is
expanding at 2% a year instead of the 5% 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
healthcare mandates and costs, the US economy
cannot grow and create enough jobs.
Peter Morici is an economist and
professor at the Smith School of Business,
University of Maryland School, and a widely
published columnist
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