Only Modest Jobs Growth Expected
Initial estimates indicate the economy expanded at a 2.2% annual pace in the first quarter, down from 3.0% the prior period, but a good deal of recent growth was momentum in consumer spending as households took on more long-term debt to finance autos and higher education, and in business inventory investments, as many firms miscalculated sales and overstocked.
Consumers cannot continue to increase debt in the manner of the boom years of the 2000s, and inventory purchases will moderate -- auto purchases have likely peaked or reached a plateau, and don't look for universities to recruit any more reluctant students taking shelter from a tough jobs market. The word is out -- borrowing for graduate education often does not pay out!
Consumers and investors are more cautious as the crisis in Greece threatens a prolonged recession in Europe, and the Chinese economy faces new challenges. Retail sales in April inched up only 0.1%, and forecasters are expecting only modest 0.3% increase for May. Investors are crowding into Treasuries and consumer staples, which pay modest dividends but tend to lose less value in a recession.
Second-quarter economic growth is likely to be less than 2%, and fewer than 200,000 jobs should be added each month. New jobs created will hardly be enough to replace all those lost during the Great Recession and provide opportunities for new graduates looking for work.
Shifting Into Idle
During the recent recovery, the most effective jobs program has been to convince adults they don't want or need a job. Virtually, the entire reduction in the unemployment rate from 10% to 8.1% has been from adults quitting the labor force.
The percentage of adults participating in the labor force -- those employed, self-employed, or unemployed but looking for work -- has declined significantly. If the adult participation rate was the same today as when Barack Obama became president, unemployment would be 11%.
Adding adults on the sidelines who say they would reenter the labor market if conditions improved, and part-time workers who would prefer full-time positions, the unemployment rate becomes 14.5%. Factoring in college graduates in low skill positions, like counterwork at Starbucks, and unemployment is much higher still.