Tags: Morici | Jobs | Data | Skewed

Morici: Jobs Data Skewed as Americans Quit Looking for Work

By    |   Friday, 07 December 2012 12:10 PM

Monthly jobs reports appear to be showing notable improvement, but in reality too many unemployed Americans have quit looking for work; as a result, headline unemployment rates make the economy appear stronger than it really is, said Peter Morici, a professor at the Robert H. Smith School of Business at the University of Maryland.

The Bureau of Labor Statistics reported Friday that the U.S. created 146,000 net nonfarm payrolls in November, surpassing market expectations for a gain of about 80,000. Many economists had feared Superstorm Sandy had disrupted hiring and pushed down the number of new jobs created during the month.

Largely because of the shrinking labor force, the unemployment rate fell to 7.7 percent in November, the lowest since December of 2008, from 7.9 percent in October.

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Unemployed Americans who are not actively seeking work aren't counted as part of the labor force, though factor back in those discouraged workers — fed up with fruitless job searches over the years — and the unemployment rate would be much higher.

"It was a nice number, considering the hurricane," Morici told Newsmax.TV in an exclusive interview. "However it's not nearly enough to pull unemployment down to acceptable levels. Unemployment has largely been falling because more and more Americans have quit looking for work, more than half a million this month."

Editor's Note: Make 2013 the Year You Pay Zero Taxes

Sandy may have ravaged the heavily populated eastern U.S. but big cities like New York City went back to work quickly.

Coastal communities remain devastated by the storm but from a jobs picture, the economy continues to recover.

"I think it's a lot do with the nature of this recession. We have had a dramatic fall in the adult participation rate since Mr. Obama took office. If we were at the same level when he took office, unemployment would be well above 10 percent," Morici said.

Despite recovery, the number of unemployed workers sending out resumes and looking for work continues to remain low.

"If we had the same participation rate we had when unemployment peaked at 10 percent, the unemployment rate now would be 9.7 percent," Morici said.

"I don't think that this is a cyclical thing."

Meanwhile, the country will continue to follow the White House and congressional Republicans and their progress to steer the country away from the fiscal cliff, a combination of tax hikes and deep spending cuts due to take effect in January, possibly tipping the country into a recession if a
budget deal isn't reached.

Better-than-expected jobs data will give the Obama administration the upper hand, as Republicans would have pointed to disappointing numbers as evidence the country cannot handle tax hikes on the wealthy, a measure championed by the White House to avoid the cliff.

Still, the economy remains weak no matter what.

"If you look at the underlying data beyond jobs, if you look at business investment, consumer spending and so forth, they are all weakening. Third quarter growth was held up by inventory build and we know that can't continue and a bit on the export side and that can't continue because of what's going on in Europe," Morici said.

"The reality is we are looking at weaker growth during the first half of next year. If the president raises taxes, if he's successful, then we could push ourselves into a recession."

The fiscal cliff involves many factors.

The Bush-era tax cuts are due to expire, though President Obama wants to extend them for all save the top 2 percent of U.S. earners.

Also due to expire are a 2 percent payroll tax holiday and extended unemployment compensation all at a time when automatic spending cuts mandated by the Budget Control Act created in 2011 that raised the debt ceiling take effect.

Estimates peg total damage from $500 billion to over $600 billion being wiped out of the economy next year alone if a deal isn't reached.

Failure to reach a deal could result in a major recession, Morici said.

But a lukewarm deal involving tax hikes on the rich and half-hearted attempts to rein in spending down the road won't lead to lasting recovery either.

"If you wrap it all together you are really looking at something over $600 billion. We are faced with major changes. I expect there is going to be one great, big bill that agrees on some tax increases for the wealthy, some spending cuts so the Republicans can save face and everything else gets renewed," Morici said.

"What is very important to look at in that context is how much of the spending cuts are delayed. Because if the spending cuts are delayed and we merely get $100 billion more in taxes on the wealthy, we might dodge a recession, we might not."

Editor's Note:
Make 2013 the Year You Pay Zero Taxes

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As more Americans quit looking for work, headline unemployment rates make the economy appear stronger than it really is, said University of Maryland business professor Peter Morici.
Friday, 07 December 2012 12:10 PM
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