Jobs Outlook Grim

NEW YORK (TheStreet) -- Friday, forecasters expect the Labor Department to report the economy added 125,000 jobs in August -- a monthly pace far too slow to return the nation to full employment.

Most analysts see the unemployment rate steady at 8.3%, while a few see an increase. The wildcard is the number of adults actually working or seeking jobs -- the measure of the labor force used to calculate the unemployment rate.

Adding adults on the sidelines, who say they would reenter the labor market if conditions improved and part-time workers, who would prefer full-time positions, the unemployment rate becomes 15%.

The increased number of adults who have quit looking for work and left the labor force altogether are responsible for 100% of the reduction in the unemployment rate since October 2009 when it peaked at 10%.

If the adult participation rate were the same today as when President Obama took office unemployment would be 11%.

Many adults have reason to be discouraged -- new jobs pay lower wages than did those lost during the recession and job openings remain scarce.

New policies favoring bank consolidation limit access to credit for small and medium-sized businesses and government health insurance mandates drive up the hiring costs. Together, those significantly discourage jobs creation in manufacturing and many service activities.

In the second quarter, the economy expanded at an anemic 1.7% annual pace and added only 127,000 jobs per month, as pessimism curbed consumer spending and the huge trade deficit continues to pull down demand for U.S. goods and services.

Longer term, the economy must grow 3% annually to keep unemployment steady, because advances in technology permit labor productivity to increase 2% each year and population growth pushes up the labor force about 1%.

The economy must add 13.3 million jobs over the next three years -- 370,000 jobs each month -- to bring unemployment down to 6%. To accomplish that, GDP would have to increase at a 4% to 5% pace. That would be possible after a long deep recession but for chronically weak demand for U.S. made goods and services.

During his first term, Ronald Reagan faced a similarly troubled economy, and unemployment peaked at 10.8% in November 1982. However, when he faced the voters in 1984 the jobless rate had fallen to 7.3%. During his recovery, GDP growth was averaging a brisk 6.3% in contrast to President Obama's 2.2%.

The $600 billion trade deficit gap -- driven almost entirely by imports of oil and consumer goods from China -- is a major drag on demand. Each dollar sent abroad that does not return to purchase U.S. exports is lost demand for U.S.-made goods and lost jobs.

Congress and the president have significantly curtailed production of oil offshore and in Alaska, and refused calls from economists across the ideological spectrum to act more forcefully to effectively pressure China to stop manipulating its currency, curb mercantilist import restrictions and export subsidies. Together, reversing those actions would create at least 5 million jobs.

Cutting the trade deficit in half would increase GDP, including multiplier effects, by some $500 billion and create 5 million jobs. Without fundamental changes in banking, health care, energy and trade policies little progress may be expected.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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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