Morici: Despite 203,000 New Jobs, Problems in the Economy Remain

NEW YORK (TheStreet) -- The Labor Department reported the economy added 203,000 jobs in November, continuing the progress of recent months. Overall, the economy should be stronger in 2014, permitting the Federal Reserve to ease back on monthly bond purchases and let longer-term interest rates rise modestly.

The unemployment rate fell to 7%, mostly because furloughed government workers returned to their jobs.

With third-quarter GDP growth at 3.6%, businesses should be adding more jobs but much of that growth was from additions to business inventories as consumers remain tightfisted and goods stay on the shelves. Overall consumer demand contributed about one percentage point to growth, whereas inventories accounted for 1.7%.

Major apparel retailers report huge stocks of unsold goods entering the final weeks of holiday shopping. More broadly, Black Friday weekend disappointed  expectations for stronger sales than last year. These indicate much slower fourth-quarter growth as businesses slow purchases and retailers trim headcount more than usual in January.

Auto sales and rising home values remain a bright spot. With the uncertainty of new U.S. military activity in the Middle East and another government shutdown receding, consumers' confidence should strengthen through December and into the New Year.

Overall growth will be between 1% and 2% in the fourth quarter and then strengthen to 2.5% to 3% in 2014. However, hiring will likely continue at its present pace or improve only moderately. Good paying full-time jobs will continue to be scarce.

Overall, jobs creation is well short of the 365,000 needed each month to reduce unemployment to 6% over a period of two or three years, but that would require GDP growth in the range of 4% to 5%. Over the last four years, the pace has been a paltry 2.3%.

Obamacare health insurance mandates are increasing benefits costs for full-time employees. Along with anticipated penalties for not covering all employees working more than 30 hours per week in 2015, these will cause employers to either reconfigure toward more part-time workers or to only cautiously add workers.

Strident anti-business campaigns targeting McDonald's (MCD), Wal-Mart (WMT) and other employers of lower-skilled workers add to pressures to substitute machines for workers or move to a more part-time economy in hospitality, retailing and other activities where wages are already subpar and job security nonexistent. Along with lax immigration enforcement, these exacerbate income inequality.

The situation remains particularly tough for recent college graduates and older Americans, and many working age adults have quit looking for work. Adding part-timers who want full-time employment and discouraged adults, the unemployment rate becomes 13.2%.

Stronger growth is indeed possible. Four years into the Reagan recovery, following a recession that pushed up unemployment to higher levels than President Obama faced, the economy was growing at a 4.9 % pace and creating jobs at a breakneck pace.

Still in this environment, Federal Reserve low interest rate policies and quantitative easing (monthly purchases of $85 billion of Treasury and government-agency securities) have done about as much good as can be expected. With a bit stronger growth beginning in 2014, look for the Fed to begin easing back on bond purchases.

The trade deficits on oil and manufacturing with China subtract substantially from demand for U.S. goods, services and workers. Even with the recent surge in domestic production, petroleum imports exceed exports by more than six million barrels a day, and will require lifting bans on offshore drilling to eliminate. Currency manipulation and other forms of protectionism remain problems with China, Japan and Germany -- America's principal competitors.

Addressing those problems could add nearly more than four million jobs directly and seven million jobs with the usual secondary effects, all but eliminating unemployment and substantially reducing inequality.

This article was written 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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