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Jobs Report to Reflect Economic Headwinds

Residential construction remains quite weak but that is only about one-fourth of the construction sector. If stimulus spending is to making things appreciably better, job losses in the nonresidential construction must moderate.

Fourth-quarter GDP growth was 5.9% percent, but 66% of that was a slower pace in depletion in business inventories. Businesses continued to sell more goods off their shelves than they produced, but depletion of inventories fell from $157 billion in the third quarter to $20 billion in the fourth. The difference, $137 billion, counts as growth in the arcane world of GDP accounting.

Of the 5.9% increase in GDP, consumption, investment, government and net exports contributed a paltry 2.0 percentage points to growth. That statistic is more indicative of the sustainable pace of GDP growth, and would indicate job losses will continue or gains will be too small to keep up with the natural growth of the labor force. Hence, unemployment will remain terribly high.

As consumers are tied down by debt and declining housing prices, businesses won't invest because they lack customers. In addition, the perilous state of regional banks makes capital for most enterprises scarcer than hens' teeth.

State and municipal balance sheets are too weak to appreciably push up government spending. Hence, improvements in the trade deficit, i.e., more exports and fewer imports, are essential to fire up the economy and create growth of 3% to 4%, which is necessary to significantly reduce unemployment.

The president's export initiatives will help a bit, but China, the largest potential growth market, exports about $325 billion annually to the United States while purchasing only about $95 billion from American businesses.

China maintains an undervalued currency that makes its goods artificially cheap -- inexpensive well beyond its labor cost advantage -- and imposes high tariffs and other barriers to U.S. exports.

The imbalance in trade, and particularly the unlevel playing field with Chinese factories, is the most important factor keeping unemployment at 10%.

Without a reduction in the trade deficit -- most importantly, progress redressing the imbalance with China -- it will be tough to get the economy growing rapidly enough to bring down unemployment.
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