Jobs Report to Paint Bleak Picture

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) - Friday, forecasters expect the Labor Department to report the economy added only 65,000 jobs in September -- my estimate is 80,000. Either would be much less than the 130,000 needed for the economy to stay even with adult population growth.

Overall, GDP and employment are growing more slowly than the adult population, and the private sector is much smaller than before the Great Recession -- even with big boosts in federal subsidies for private health care and federal mandates for large health care spending by the states.

Employment grew in the second and third quarters despite very slow GDP growth, because labor productivity fell the first half of 2011. Consequently, real wages, per capita income and living standards are dropping -- all exacerbated by hungry state and local tax collectors who refuse to tighten belts as quickly as households and businesses.
Obama's upcoming jobs speech is to expected to push for a national infrastructure bank providing construction jobs and improving the nation's roads and bridges.

A downsizing private sector, falling productivity per capita GDP and a shrinking share of the adult population employed or even seeking employment are ominous signs of economic decline.

Near term, employment in health care, retail and manufacturing should post modest gains, and construction should exhibit some bounce because it fell to such low levels during the recent recession.

State and local governments will continue to shed jobs, because state payments for Medicaid services are rising too rapidly and a downsized private sector generates too few tax receipts -- together those shrink resources available for other public services. The alternative is for higher state and local taxes to further choke the growth of regional economies.

The economy must add 13.7 million jobs over the next three years -- 381,000 each month -- to bring unemployment down to 6%. Considering layoffs at state and local governments and likely federal spending cuts, private sector jobs must increase at least 405,000 a month to accomplish that goal.

Growth in the range of 4% to 5% is needed to get unemployment down to 6%, and growth in the range of 2% is likely. Hence, either more unemployed adults choose to quit looking for work and leave the labor force altogether or the unemployment rate rises.

Were we to take into account discouraged workers and adults working part-time because full-time positions are not available, the unemployment rate would be 16.2%. Adding in recent college graduates who cannot find suitable positions, underemployed by working at venues like Starbucks, unemployment rises to 20%.

Moreover forecasts for growth at 2% are tenuous -- all the risk is to the downside as a disruption of banking in Europe or a new wave of consumer pessimism in the U.S. could thrust the economy into recession and easily raise unemployment to 15%. No federal initiative would readily hoist the economy out of such a hole, and Great Depression like conditions would spread through large parts of the country.

Trade Deficit

Jobs creation remains weak, because the U.S. economy suffers from inadequate demand for what Americans can make. Temporary tax cuts and stimulus spending, costly health-care mandates and tighter but ineffective business regulations do not address this problem, and indeed exacerbate, the permanent structural problems suppressing demand and holding back economic growth and jobs creation -- dysfunctional energy and trade policies that cause a huge trade deficit.

Oil and trade with China account for nearly the entire $600 billion trade deficit. This deficit is a tax on domestic demand that erases the benefits of tax cuts and stimulus spending. Proposed free trade agreements will create about as many imports and new exports and on a net basis destroy jobs because U.S. imports are more labor intensive than exports.

Simply, dollars sent abroad to purchase oil and consumer goods from China, that do not return to purchase U.S. exports, are lost purchasing power and cannot be spent on U.S.-made goods and services. Consequently, the U.S. economy is expanding at less than 1% a year instead of the 5% pace that is possible after emerging from a deep recession and with such high unemployment.

America is not playing its advantages well. The U.S. has substantial untapped oil and gas resources that will be needed for a least the next decade, until electric vehicles can appreciably dent oil imports.

Strengths in finance, telecom and backbone technologies, pharmaceuticals, aerospace and autos, and other industries are not generating exports as much as those are creating offshore jobs. Excessive government regulations and a more business friendly environment in Asia are attracting jobs that could be located cost effectively in the U.S.

Without prompt efforts to redress the trade imbalance with China, produce more oil and gas, and curtail costly health care and business regulations that are encouraging outsourcing, the U.S. economy cannot grow and create enough jobs.

Weak demand, excessive and ineffective regulation, and the generally apologetic and pessimistic outlook offered by President Obama and Treasury Secretary Geithner depress consumer and business confidence, as does the constant budget wrangling between Republicans and Democrats on Capitol Hill.

Until Washington's policy dysfunction ends, the economy will continue to grow slowly or slip into recession, unemployment will rise, living standards will fall, and American standing in the global economy will decline.

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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.

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