Smith Faculty Opinion Article	October 9, 2006
By Dr. Peter Morici, Professor of International Business E-MAIL WEB SITE

Economy Added 51,000 Jobs in September
Jobs Growth Remains Slow As Economy Heads for a Soft Landing

Today, the Labor Department reported the economy added 51,000 payroll jobs in September. The consensus forecast was 120,000, and my forecast published by Reuters was 125,000.

The revised figure for August jobs growth was 188,000, up from 128,000. This indicates much of the shortfall in September was caused by bunching in August.

In the third quarter, the economy added 129,000 payroll jobs per month. This is below the number needed to accommodate labor force growth and keep unemployment from rising.

This pace of jobs growth is consistent with a soft land for the economy with second half growth in the range of 3 percent.

The unemployment rate fell to 4.6 percent from 4.7 percent in August, because more adults left the labor force than entered it. The adult labor force participation rate remains well below its first quarter 2000 level. Were the same percentage of adults seeking employment today as in 2000, unemployment would be well above six percent.

In September, wages were up only 0.2 percent or a 2.5 percent annual pace.

Outlook for Fed Policies and Stock Market
Sub par jobs and wages growth indicates the economy is slowing significantly, and underperforming its potential. In the months ahead, loosening labor market conditions will put a lid on wages and help contain inflation.

Along with lower gasoline and natural gas prices, modest wage pressures will keep prices in check and the Federal Reserve will have no cause to raise interest rates. With fourth quarter growth benefiting from lower energy prices, the Federal Reserve is not likely to lower interests until 2007.

Modest growth, constrained wages, steady interest rates, and falling energy prices will be good for corporate profits and stock prices. The stock market rally should continue, and recent Big Cap stock gains should spread into the broader market.

A Fractured Labor Market and November Elections
Conditions in labor markets remain mixed. Workers with key technical skills, for example in
construction, finance, information technology, and health care, continue to find good opportunities, and their incomes easily outpace inflation. However, workers with only high school or a few years of college, without key technical skills, face mounting challenges finding jobs offering good pay and health benefits.

Conditions in manufacturing remain poor. In September, manufacturing lost 19,000 jobs, after shedding 7,000 jobs in August, and manufacturing has lost more than three million jobs since 2000.

Had the current economic expansion followed the pattern of past recoveries, two million manufacturing jobs would have been regained. The trade deficit and overvalued dollar against the Chinese yuan and other Asian currencies significantly contribute to employment woes in manufacturing, as do other industrial policies that subsidize Asian exports and throw up barriers to U.S. sales into the region.

Construction added 8 thousand jobs reflecting improving conditions in the commercial construction sector. Looking forward, improvements in commercial construction should offset the slowdown in the housing sector.

The two-tiered labor market continues. The top quartile has it great, but for everyone else, the future is uncertain. For many workers, wages lagging inflation and falling home prices will drive down living standards.

A fractured labor market, with too few haves and too many haves not, is becoming a permanent feature of the American landscape. Competition from imports and immigration are dragging down wages for workers with only a high school education and no specialized training. For front-line workers, globalization and rising health care costs are making middle class comforts and security much less attainable.

The skewed distribution of opportunities explains why President Bush cannot convince most Americans the economy is on solid ground. Much of the stress in the jobs market falls in contested Congressional districts in western Pennsylvania, New York, and the lower Midwest. This combination of economics and geography explains why Republicans are in danger of losing control of the House of Representatives.

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