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Outside View: Jobs drought continues with little relief in sight

By PETER MORICI, UPI Outside View Commentator

COLLEGE PARK, Md., Feb. 3 (UPI) -- Friday, economists expect the U.S. Labor Department to report the economy added 150,000 jobs in January, barely enough to hold unemployment steady at about 9.4 percent and far less than should be expected 19 months into an economic recovery.

Additional tax cuts effective in January are giving the economy some lift but being temporary, their effect is limited. And, tax cuts, no matter how popular, don't address structural problems holding back jobs creation -- principal among those are the huge trade deficit, rising healthcare costs and persistent shortages of venture capital and bank lending for small businesses.

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In the fourth quarter, consumer spending increased at a 4.4 percent annual rate and contributed importantly to the 3.2 percent growth in gross domestic product. Spending was especially strong in December, as consumers shrugged off higher gas and food prices. Holiday shoppers were value conscious but they still spent robustly.

In 2011, the temporary payroll tax cut will further boost consumer enthusiasm; however, over the last several months consumer spending gains have outpaced incomes and some moderation should be expected. Real consumer spending will likely grow in the range of 3 percent to 3.5 percent and contribute more modestly to GDP growth the first half of 2011. It could slow even further the second half.

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The trade balance contributed positively to economic growth in the fourth quarter, with real exports increasing and imports decreasing. Petroleum imports were lower in the fourth quarter but U.S. production likely will decline again in the Persian Gulf and elsewhere and imports will rebound in 2011.

No longer can Detroit be blamed. Ford and the others are aggressively offering high- quality, more fuel-efficient choices across the board but federal energy policy impedes, artificially and in a self-defeating manner, safe domestic oil and natural gas production. That taxes growth -- directly by destroying high paying jobs in the energy sector and indirectly by pushing up pump prices and the trade deficit.

In the fourth quarter, non-petroleum import growth moderated too and exports surged, improving the real trade balance and boosting GDP growth. However, these trends will be tempered in 2011 by slower growth and sovereign debt problems in both Europe and Japan, and caution inspired by political conditions in northern Africa. Coupled with an overvalued dollar against the Chinese yuan and other Asian currencies, these factors will drive the trade deficit higher and create a substantial barrier to jobs creation through 2012.

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Every dollar that goes abroad to purchase oil or goods from China and elsewhere and doesn't return to purchase U.S. exports reduces demand for U.S. goods and services and taxes jobs creation.

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At 3.3 percent of GDP, the $500 billion trade deficit is a tax on domestic demand that offsets the benefits of tax cuts. Consequently, the U.S. economy is expanding at a 3.2 percent annual pace instead of the 5 percent that is possible after emerging from such a deep recession and with so many Americans unemployed.

Growth in the range of 3 percent to 3.5 percent isn't enough to dent unemployment, unless hundreds of thousands of adults quit looking for work as they did in December. Counting discouraged workers and those working part time who would prefer full-time jobs the unemployment rate is closer to 17 percent.

Since December 2009 the private sector has added 112,000 jobs per month but most of those have been in government subsidized healthcare and social services and temporary business services. Netting those out, core private sector jobs creation has been a paltry 58,000 per month -- that comes to 18 per county as compared to more than 5,000 job seekers per county.

Coming out of a recession, temporary jobs appear first but 19 months into the expansion the pace of permanent, non-government subsidized jobs creation should be accelerating. Instead, core private sector jobs increased only 60,000 in December and core jobs growth has fluctuated around that level for the last nine months.

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By the end of 2013, about 13 million private sector jobs must be added to bring unemployment down to 6 percent and current policies aren't creating conditions for businesses to hire 360,000 workers each month.

Without fixing the trade deficit, in particular the decline in U.S. petroleum production and commerce with China, high unemployment will be a permanent feature on the U.S. economy. Neither the Obama administration nor Republican leadership in the Congress appears prepared to do what needs to be done.

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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.)

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