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More Americans quit looking for work

By PETER MORICI, UPI Outside View Commentator   |   April 6, 2012 at 10:23 AM   |   Comments

COLLEGE PARK, Md., April 6 (UPI) -- The U.S. economy added only 120,000 jobs in March -- not even enough to keep up with normal population growth. Unemployment rate fell to 8.2 percent, simply because many unemployed adults became discouraged and quit looking for work.

Fourth quarter economic growth was exceptionally strong, as the global economy recovered from first half disruptions such as the earthquake in Japan, but first quarter growth has been slower. Construction -- both commercial and single-unit residential have been hard hit -- and now auto sales are slipping.

Manufacturing added 37,000 jobs but that sector's strong recovery should be generating more gains. Elsewhere jobs gains were weak and generally down from February.

Construction shed 7,000 jobs and retailing lost 34,000 employees, as stalwarts like Sears, J.C. Penny's and Best Buy face considerable challenges.

Gains in manufacturing production haven't 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.

And concerns about the durability of the recovery and healthcare costs when Obamacare is fully implemented make employers very cautious about adding to headcount.

Overall, the situation with the yuan is the single largest impediment to more robust growth in manufacturing and its broader multiplier effects for the rest of the economy; the Obama administration indicated it has no intention of challenging China on this issue but presumptive GOP standard-bearer Mitt Romney promises a harder line.

Government employment fell by 1,000 as private sector jobs added 121,000. Lower property values translate into lower assessments and property values with considerable lag in most communities and, in 2012 and 2013, the housing recession will significantly impact local tax receipts and employment. Coupled with federal budget cutbacks, government employment should continue falling.

The private sector, less the heavily subsidized healthcare and social services industries and temporary businesses services, only added 98,000 jobs. In the months ahead, gains in core private sector employment must improve dramatically if the economy is to halt the decline in real wages and provide federal, state and local governments with adequate revenues and that isn't happening fast enough.

The economic crisis in Europe and mounting problems in China's housing sector and banks worries U.S. businesses about a second major recession and discourages new hiring. The U.S. economy continues to expand 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 14.5 percent. Adding college graduates in low-skill positions, like counterwork at Starbucks, and the unemployment rate is likely closer to 18 percent.

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 percent.

Growth in the range of 4-5 percent is needed to get unemployment down to 6 percent over the next several years. In 2011, the economy grew at about 3.0 percent in the fourth quarter but that is expected to slow to 2.5 percent in 2012.

Growth is weak and jobs are in jeopardy because temporary tax cuts, stimulus spending, large federal deficits, expensive and ineffective business regulations and costly healthcare mandates don't 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 $600 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 don't return to purchase U.S. exports are lost purchasing power. Consequently, the U.S. economy is expanding at 2 percent a year instead of the 5 percent pace that is possible after emerging from a deep recession and with such high unemployment.

Industrial policies, like federal bailouts for General Motors won't fix the jobs market -- those just shift employment from more competitive enterprises. Payroll tax holidays are similar Band-Aids -- those buy jobs today at the expense of cutbacks in 2013 and the years that follow.

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 U.S. economy cannot grow and create enough jobs.

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(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.)

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(United Press International's "Outside View" commentaries are written by outside contributors who specialize in a variety of important issues. The views expressed do not necessarily reflect those of United Press International. In the interests of creating an open forum, original submissions are invited.)

© 2012 United Press International, Inc. All Rights Reserved. Any reproduction, republication, redistribution and/or modification of any UPI content is expressly prohibited without UPI's prior written consent.
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