Smith Faculty Opinion Article
September 7, 2012
Another Disappointing Jobs Report
The economy added 96,000 jobs in August, down from 141 in July and not nearly
enough to keep pace with population growth.
The unemployment rate fell to 8.1 percent only because 581,000 workers quit
looking for work and are longer counted in the official jobless tally.
In the weakest recovery since the Great Depression, the entire reduction in
unemployment from its 10.0 percent peak in October 2009 has been accomplished
through a significant drop in the percentage of adults participating in the
labor force—either working or looking for work.
The most effective jobs program appears to be to convince working-aged adults
they don’t need a job.
Growth slowed to 1.7 percent in the second quarter, as consumers pulled back
and the trade deficit on oil and with China continued to drag on demand. The
outlook for the second half of the year is not much better. Car sales are
stronger than a year ago, but are not likely to improve much further, and
housing prices have risen in recent months but on weak volumes.
The August jobs report indicates growth remains slow in the third
quarter—likely in the range of 2 percent or less.
Job gains were unevenly spread. Manufacturing and temporary help services
lost 15,000 and 4,900 jobs, respectively, raising concerns that the recovery is
sputtering and a recession is eminent. This will likely spur the Federal Reserve
to take additional measures to lower interest rates but with interest rates at
record lows, such action will have limited positive effects.
Gainers included education, health care, professional services, leisure and
hospitality, retail and wholesale trade, transportation and warehousing,
financial services, and information and communications.
Construction added only 1,000 jobs, and federal, state and local governments
shed 7,000 jobs.
Gains in manufacturing production have not instigated additional improvements
in employment largely, because so much of the growth is focused in high-value
activity. Assembly work, outside the auto patch, remains handicapped by the
exchange rate situation with the Chinese yuan.
Recent moves by China to further weaken its currency and to close its markets
to stimulate its own flagging demand indicate matters will get worse without a
substantive response from Washington.
Also, concerns about health insurance costs, once Obama Care is fully
implemented, are discouraging employers. Mandated services raise costs and
regardless of their merits, make adding employees more expensive at a time of
great stress for most businesses.
The financial crisis in Europe and mounting problems in China’s economy worry
U.S. businesses about a second major recession and discourage new hiring. The
U.S. economy continues to expand at a torturously slow pace, and is quite
vulnerable to shock waves from crises in Europe and Asia.
Factoring in those discouraged adults and others working part time for lack
of full time opportunities, the unemployment rate is 14.7 percent.
Prospects for substantially lowering the headline unemployment rate are slim,
because so many folks who left the labor force would likely return if economic
The economy would have to add about 13.6 million jobs over the next three
years—about 377,000 each month—to bring unemployment down to 6 percent. Growth
in the range of 4 to 5 percent is necessary to accomplish that.
It is simply not true, as President Obama claimed in his Democratic
nomination acceptance speech, that the economy faces changes more daunting than
any time since the Great Depression. Ronald Reagan inherited a similarly
troubled economy, with unemployment peaking at 10.8 percent in November 1982.
President Reagan put in place a very different set of stimulus
measures—emphasizing private sector leadership—and when he faced the voters in
1984 the jobless rate had fallen to 7.3 percent. During his recovery, GDP growth
was averaging a brisk 6.3 percent in contrast to President Obama’s 2.2 percent.
Growth is weak and jobs are in jeopardy, because temporary tax cuts, stimulus
spending, large federal deficits, expensive but ineffective business
regulations, and costly health care mandates do not address structural problems
holding back dynamic growth and jobs creation—the huge trade deficit and
dysfunctional energy policies.
Oil and trade with China account for nearly the entire $600 billion trade
deficit. Dollars sent abroad that do not return to purchase U.S. exports, are
lost purchasing power. Consequently, the U.S. economy is expanding at 2 percent
a year instead of the 5 percent pace that is possible after emerging from a deep
recession and with such high unemployment.
Prompt efforts to produce more domestic oil, redress the trade imbalance with
China, relax burdensome business regulations, and curb health care mandates and
costs, would create 5 to 10 million new jobs, and lower unemployment to about 5
Peter Morici is an economist and professor at the Smith
School of Business, University of Maryland, and widely published columnist.