Morici: Modest Jobs Creation Amid Sluggish Growth
In the first quarter, GDP was up only 1.8%, owing to moderate growth in consumer spending and an inventory bounce. Despite greater optimism as expressed by consumers and small businesses in sentiment surveys, real consumer spending was sluggish in second quarter, and growth in industrial production, manufacturing and inventory investment slowed. Consequently, economists expect second quarter growth to be below 2%, again, despite the recent euphoria generated by surging home sales and prices.
Home prices have been juiced by rock bottom mortgage rates that have since risen, and it is important to remember those asset transfers at higher prices only impact on GDP and employment to the extent those drive up consumer spending and new home construction. The former has not happened, and although homebuilding is up, housing construction is only 3% of GDP.
Bottom line: a more robust economy can drive housing but surging housing prices are no panacea for what ails the economy and jobs market.
Since turning the corner in mid-2009, GDP growth has averaged 2.1% and unemployment has fallen from 10% to 7.6%. In contrast, high oil prices and double digit interest rates pushed unemployment to 10.8% during Ronald Reagan's first term; then GDP growth averaged 5.0% and unemployment fell to 7.2%.
The economy must add more than 360,000 jobs each month for three years to lower unemployment to 6%. That would require growth in the range of 4% to 5% and is not likely with current policies.
Factors contributing to the slow pace of recovery include the huge trade deficits on oil and manufactured products from China and elsewhere in Asia -- these slow demand for U.S. goods and services. Absent U.S. policies to effectively confront Asian governments about their purposefully undervalued currencies, and to develop more oil offshore and in Alaska, the trade deficit will continue to tax growth.