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TheStreet Open House

'Fiscal Cliff' Deal Will Weigh on Jobs

NEW YORK ( TheStreet) -- Friday, forecasters expect the Labor Department to report the economy added 155,000 jobs in December -- substantially less than is needed to pull unemployment down to acceptable levels.

The tax and spending package passed by the Senate and House provides little prospect of improvement, as the U.S. economy continues to suffer from insufficient demand and will continue growing at a subpar 2% a year.

Factors contributing to weak demand and slow jobs creation are the huge trade deficits with China and other Asian exporters and on oil. However, on the supply side, increased business regulations, rising health care costs and mandates imposed by Obama Care, and now higher taxes on small businesses discourage investments that raise productivity, competitiveness and create jobs.

Higher social security payroll taxes were already rolled into growth projections for the New Year. The budget deal raises about $40 billion to $50 billion annually from higher rates on family incomes above $450,000 but also extends other spending programs that were set to expire -- for example, long-term unemployment benefits; therefore, the new net impact on aggregate demand is not large.

On the supply side, higher taxes on small businesses will reduce returns on investment -- this will slow capital spending, new hiring and even more next year.

Small businesses now have more certainty -- the assurance of more burdensome regulations, health care costs and taxes and this will burden growth.

The economy must add more than 356,000 jobs each month for three years to lower unemployment to 6% and that is not likely with current policies. That would require growth in the range of 4% to 5%. Without better trade, energy and regulatory policies and lower health care costs and taxes on small businesses, that is simply not going to happen.

Most analysts see the unemployment rate inching up to 7.8%, while a few see it remaining steady. The wild card is the number of adults actually working or seeking jobs -- the measure of the labor force used to calculate the unemployment rate.

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