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Unemployment falls to 7.7 percent as many adults quit looking for work

By PETER MORICI, UPI Outside View Commentator   |   March 8, 2013 at 10:59 AM   |   Comments

COLLEGE PARK, Md., March 8 (UPI) -- The U.S. Labor Department reported stronger gains for February, 236,000 jobs -- the January figure was only 119,000. Employees were added in significant numbers in most sectors, with construction adding a quite impressive 48,000 jobs.

Unemployment fell to 7.7 percent from 7.9 percent in January. Despite strong jobs gains, most of the reduction in unemployment resulted from fewer adults looking for work. Although the adult population increased 165,000, the labor force decreased 130,000 as about 295,000 additional adults chose not to look for work.

First quarter growth appears a bit stronger than expected earlier in the winter.

However, expectations of some businesses continue to lag economists' readings and their hiring remains constrained. Whereas the consensus forecast for 2013 growth is 2.4 percent, Honeywell, for example, sees the U.S. economy expanding at a 1.9 percent pace and continues to trim U.S. jobs through attrition, while expanding headcount abroad.

Most of the reduction in unemployment from its 10.0 percent peak in October 2009 has been accomplished through a significant drop in the percentage of adults working or looking for work. Were the participation rate the same as when U.S. President Barack Obama took office, it would be about 10.9 percent. Adding in part-time workers who would prefer full employment but can't find it, the unemployment rate becomes 14.2 percent.

Prospects for stronger growth remain constrained because the January increases in payroll taxes and rates on wealthier households subtracted $150 billion from disposable income and sequestration removes another $42 billion from spending through October.

On the supply side, increased business regulations, rising healthcare costs and mandates imposed by Obamacare and much higher tax rates on small businesses, imposed by both the federal government and states like Maryland and California, significantly raise the cost of capital.

The puzzle of reducing federal deficits to sustainable levels and accomplishing stronger growth and jobs creation because the $500 billion trade deficit on oil and with China continues to drag on demand and a tighter regulatory climate makes businesses cautious about investing in the United States.

Limits on U.S. oil production from offshore resources and in Alaska, the failure of the Obama administration to address China's undervalued yuan and to rethink Dodd-Frank and the avalanche of other new business regulations, despite unintended negative fallout, make a genuinely robust recovery far from likely.

The economy would have to add about 13 million jobs over the next three years -- about 361,000 each month -- to bring unemployment down to 6 percent. That would require gross domestic product growth in the range of 4-5 percent -- as past recoveries indicate that pace is attainable.

Obama and Ronald Reagan faced comparable difficulties -- unemployment peaked for Obama at 10 percent in his first term and crested for Reagan at 10.8 percent. Since recovery took hold in mid 2009, GDP growth has averaged about 2.1 percent, whereas at the same point in the Reagan recovery, the pace was 5.3 percent.

Without better tax, regulatory and trade policies, it is simply not possible to accelerate growth, create enough jobs and bring down federal deficits -- all at the same time.

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(Peter Morici is an economist and professor at the Smith School of Business, University of Maryland School, and a widely published columnist. Follow him on Twitter: @pmorici1)

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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.)

© 2013 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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