Morici: Unemployment a Nagging Problem
NEW YORK (TheStreet) -- On Friday, the Labor Department is expected to report that the economy added 153,000 jobs in April -- up from 88,000 in March -- and unemployment is expected to remain steady at 7.6%. This gain may prove short-lived, and this pace is well below what is needed to get unemployment to acceptable levels.
New hiring lags broader economic growth. In the fourth quarter, GDP was up only 0.4%. With businesses continually improving productivity, the economy was lucky to have created any jobs at all this past winter. Businesses remain cautious about future demand and reluctant to invest in new machinery, computers and software that would improve worker efficiency.
In the second quarter, GDP growth rebounded to 2.5%, but about 40% of that growth came from businesses piling up inventory -- not from the final sales. Underlying demand remains weak -- January tax increases limit household spending, trade deficits on China and oil continue to leak consumer dollars abroad, and sequester spending cuts reduce government purchases.
Generally, economists expect second-quarter growth at 2% or less -- about the same or less than potential improvements in worker productivity; hence, jobs creation should slow through the spring. The unemployment rate would rise except for so many additional folks choosing not to work -- 663,000 in April.Should economic growth pick up, many adults may be expected to rejoin the hunt, and the economy would have to add more than 360,000 jobs each month for three years to lower unemployment to 6%. That would require growth in the range of 4% to 5% -- this is possible but not likely with current policies. Since turning the corner in mid 2009, GDP growth has averaged 2.1%, and unemployment has fallen from 10% to 7.6%. In contrast, high oil prices and double- digit interest rates pushed unemployment to 10.8% during Ronald Reagan's first term, then GDP growth averaged 5.3% for the next 3 1/2 years, and unemployment fell to 7.3%. Factors contributing to the slow pace of recovery include the huge trade deficits on oil and manufactured products from China and elsewhere in Asia -- those drain demand for U.S. goods and services. Absent U.S. policies to confront Asian governments about their purposefully undervalued currencies, and to develop more oil offshore and in Alaska, the trade deficit will continue to tax growth.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV