Smith Faculty Opinion Article	April 5, 2007
By Dr. Peter Morici, Professor of International Business                                                                       E-MAIL       WEB SITE

Economy Added 190,000 Jobs in March

Today, the Labor Department reported the economy added 180,000 payroll jobs in March, up from 113,000 in February. The March figure considerably exceeded the consensus forecast, which was 135,000.

Strong employment growth indicates the economy continues to expand, despite the drop in new housing construction, slower productivity growth and tepid retail sales. The consensus forecast for first quarter GDP growth is 2.3 percent, and today’s employment numbers are consistent with that estimate.

Wages increased six cents or 0.3 percent. Moderate growth should help keep wage inflation in check, and that should boost the stock market.

Separately, the household survey, which includes the self employed, shows the unemployment rate at 4.4 percent in March, down from 4.5 percent in February.

Despite the Bush Administration’s exhortations, this unemployment rate is hardly remarkable by historical standards. In November 2000, when George W. Bush won the presidency, unemployment was 3.9 percent, and the proportion of adults working or seeking employment was much higher than today. Were the same percentage of adults participating in the workforce today as in 2000, the unemployment rate would be about 5.8 percent

Manufacturing, Construction and the Quality of Jobs

The economy is adding lots of jobs for college graduates, especially those with technical specialties in finance, health care, education, and engineering. However, for high school graduates without specialized skills or training, jobs offering good pay and benefits remain tough to find.

Historically, manufacturing and construction offered workers with only a high school education the best pay, benefits and opportunities for skill attainment and advancement. Troubles in these industries push ordinary workers into retailing, hospitality and other industries where pay often lags.

Although the construction sector added a robust 56,000 jobs in March, it was merely playing catch up. It shed 61,000 jobs in February

Durable goods manufacturing outside the automotive industry remains robust but competition from Asian imports, benefiting from undervalued currencies and other subsidies, limits employment.

In March, manufacturing lost 16,000 jobs, and over the last 84 months, manufacturing has shed 3.2 million jobs. The growing trade deficit is a major factor, compounding and exceeding the effects of productivity growth. Were the trade deficit cut in half, manufacturing would recoup about 2 million of those jobs.

Over the past year, the dollar has weakened against the euro, where exchange rate movements have only small effects on exports and imports. Against the important Chinese yuan, the dollar remains too high, and the yuan sets the pattern for other Asian currencies, which are critical to reducing the non-oil trade deficit and instigating a recovery in manufacturing employment.

Unless Treasury Secretary Paulson finds a way to succeed in talks with China, in a way his predecessor John Snow could not, Americans can expect slow growth, and the continuing loss of manufacturing jobs.

Outlook for GDP Growth and the Stock Market

In 2007, growth is expected to be in the range of 2.5 percent, without tangible steps to reduce the trade deficit or lower interest rates. At that pace, the unemployment rate will creep up or not change much.

Slow growth results not from economic fundamentals but from conscious policy choices at Treasury and the Federal Reserve. Treasury’s inability to manage the international value of the dollar, as China does its yuan, both slows U.S. productivity growth and drives up global oil and other commodity prices. This leaves the Federal Reserve correctly concerned about inflation and unwilling to cut interest rate cuts. Ultimately, Treasury’s mismanagement of the dollar exchange rate is responsible for GDP growth below 3.0 to 3.5 percent, which could easily be attained.

Nevertheless, moderate growth will support the stock market. Many larger U.S. companies earn significant shares of their profits abroad, even as they jettison workers from good paying jobs at home. Corporate profits will be better than expected, growing in the high single digits, and the stock market should continue to move higher.

Peter Morici is a professor at the University of Maryland School of Business and former Chief Economist at the U.S. International Trade Commission.