Forecasters expect the Labor Department Friday to report the economy shed 70,000 jobs in July and unemployment rose to 9.6%.
Economists expect the private sector created about 100,000 jobs but government employment fell 170,000 as more temporary census jobs disappeared.
Thirteen months into recovery from a deep recession, this is disappointing. The economy must add 13 million private sector jobs by the end of 2013 to bring unemployment down to 6%. President Obama's policies are not creating conditions for businesses to hire those 320,000 workers each month, net of layoffs.
Net of inventory adjustments, the economy demand for goods and services is growing at only 1.3% a year.
In the second quarter, consumer spending, investment in new structures, equipment and software, and government purchases added 4.1% to demand. But as imports grew much more rapidly than exports, the trade deficit tapped off 2.8%. The difference -- 1.3 % -- is annual growth in demand for U.S.-made goods and services. That has been the pace since recovery began in July 2009.
Businesses can accommodate up to 2% growth in demand by improving productivity and not adding workers. Unless the rapid growth in imports can be curbed, the U.S. economy is headed for very slow growth and rising unemployment.
Washington isn't helping.
The massive permanent expansion in federal spending and regulatory oversight built into the president's budget is discouraging private hiring by raising fears of higher taxes and regulation. Simply, higher taxes discourage purchases of non-essentials and high-line durable goods, like better appliances, more appointed automobiles and higher-quality homes, while higher taxes and tougher regulation increase incentives to offshore production to locations where those burdens are less.
Prior to the crisis in 2007, President Bush spent 19.6% of gross domestic product and the deficit was $161 billion in 2007; two years into the economic recovery in 2011, Obama's budget projects outlays at 25.1% of GDP and a $1.3 trillion deficit in 2011.
All that spending will require higher taxes, and raising taxes on families earning $250,000 simply won't be enough finance it. Higher rates for those families will raise taxes on half the income earned by proprietorships -- those small- and medium-sized businesses will invest less to create jobs.
Much of the $787 billion stimulus money was squandered on pet projects that created few jobs. For example, grants to build green buildings displace other planned construction and didn't increase the amount of commercial space rented or built over the next several years.
The biggest banks received more than $2 trillion in assistance from the Troubled Assets Relief Program and the
to clean up their balance sheets and recapitalize securities trading, while the 8,000 regional banks got little assistance and remain burdened by toxic real estate loans. Consequently, more than 230 regional banks have failed, and small- and medium-sized businesses cannot get credit to expand.
In addition to credit, businesses need more customers to create jobs, and the trade deficit -- in particular, imports of oil and the imbalance with China -- cut a huge hole in demand for U.S. goods and services. Without addressing oil and China, other efforts to create jobs are futile.
The president's moratorium on deepwater drilling, though popular with environmental fundamentalists, kills jobs two ways: directly, by laying off workers in the oil and gas industry; and indirectly, by sending too many consumer dollars abroad that could be spent here.
Detroit has the technology to build much more efficient gasoline-powered vehicles now, and a shift in national policy to rapidly build these would reduce oil imports and create many jobs.
China's undervalued currency makes its products artificially cheap and deceivingly competitive on U.S. store shelves, but its promise of new flexibility on the yuan hasn' translated into meaningful revaluation.
If President Obama wants to fix the federal deficit and create jobs, perhaps he should dust off George Bush's 2007 budget and spend a lot less, get serious about better using and developing more conventional fossil fuels, and finally fixing trade with China.
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Professor Peter Morici, of the Robert H. Smith School of Business at the University of Maryland, is a recognized expert on economic policy and international economics. Prior to joining the university, he served as director of the Office of Economics at the U.S. International Trade Commission. He is the author of 18 books and monographs and has published widely in leading public policy and business journals, including the Harvard Business Review and Foreign Policy. Morici has lectured and offered executive programs at more than 100 institutions, including Columbia University, the Harvard Business School and Oxford University. His views are frequently featured on CNN, CBS, BBC, FOX, ABC, CNBC, NPR, NPB and national broadcast networks around the world.