The U.S. Bureau of Labor Statistics will release is August unemployment numbers on Friday and the jobs report will disappoint — and so will many more down the road, said Peter Morici, a professor at the Robert H. Smith School of Business at the University of Maryland and former chief economist at the U.S. International Trade Commission.
The unemployment rate stood at 8.3 percent in July and likely won’t change in August, when the economy should add 125,000 nonfarm payrolls, Morici wrote in his blog.
Unemployment rates measure the portion of the labor force that is out of work. However, to be counted in that group, jobless workers must be actively looking for work. In other words, those who quit sending out resumes out of frustration from fruitless job searches aren’t counted as part of the labor force.
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Add those discouraged workers back in and the real unemployment number comes to around 15 percent, meaning it’s going to take a lot more than 125,000 new jobs created a month to absorb jobless Americans back into the workforce.
That’s not going to happen soon.
“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,” Morici wrote.
“In the second quarter, the economy expanded at an anemic 1.7 percent 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,” Morici added.
“Longer term, the economy must grow 3 percent annually to keep unemployment steady, because advances in technology permit labor productivity to increase 2 percent each year and population growth pushes up the labor force about 1 percent.”
The economy needs to add 13.3 million jobs over the next three years, or about 370,000 jobs each month, to bring unemployment down to 6 percent, levels not seen since before President Barack Obama was elected.
To create such demand for jobs, the country’s gross domestic product would have to expand at annualized rates of around 4 to 5 percent.
Tough trade policies that crack down on China’s policy of keeping its currency artificially weak and energy policies that encourage more domestic drilling could get the country moving in that direction.
“The Congress and 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,” Morici wrote.
“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.”
On a slightly more positive note, fewer Americans filed for initial jobless claims last week.
Jobless claims dropped by 12,000 to 365,000 in the week ended Sept. 1, the Labor Department reported in Washington, outpacing economists’ expectations for a drop to 370,000, according to Bloomberg.
However, the number does not signify a major improvement in the labor market, experts say.
“Clearly, the direction of claims is encouraging,” said Millan Mulraine, a senior U.S. strategist at TD Securities in New York, according to Bloomberg.
The improvement “doesn’t seem to be substantial, but we are moving in the right direction.”
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