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TheStreet Open House

Discouraging Jobs Forecast for June

Stocks in this article: GMTMF

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK ( TheStreet) -- Forecasters expect the Labor Department will report on Friday that the economy gained only 110,000 jobs in June, after adding a lackluster 54,000 in May.

Though an improvement, the level of job creation is hardly stellar, because GDP growth slowed in the first half of 2011 to about 2 percent.

Unemployment is expected to remain steady at 9.1 percent. It would be higher except that many adults have quit looking for work, discouraged by poorly paying and unsatisfying opportunities in an economy that creates too few professional positions for the growing supply of college graduates.

Middle-aged workers with savings and lesser earning spouses in two income families have quit the labor force altogether rather than put a BA in English, MS in Social Work or an MBA in finance behind the counter at Barnes and Noble, Staples or Starbucks.

To bring unemployment down to 6 percent over three years, the economy must add 365,000 jobs a month and grow at 4 to 5 percent a year. Together, dependence on foreign oil, the lack of exports to pay for imports of consumer goods, and rocketing health care costs are frustrating the recovery.

Growth and Jobs

The economy must grow at about 3 percent just to keep unemployment constant at 9.1 percent, because business productivity improves 2 percent a year and the labor force -- through population growth and immigration -- increases at about 1 percent.

The economy grew only 1.9 percent in the first quarter, and recent retail sales, new unemployment claims, and consumer pullback from purchases of cars, appliances and other big ticket items indicate continued weak growth into the second quarter.

Now a second recession is a clear and present danger, because many businesses can meet such modest growth in demand by improving productivity and laying off workers to improve profits. Layoffs slice household income, triggering a negative cycle of reduced spending.

Indeed, the four-week moving average for new unemployment claims is 426,750, up from 390,000 for the week of April 2. A rate below 350,000 is consistent with a strong economy and above 400,000 is perilously close to recession levels.

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