Morici: Unemployment Falls As Many Quit Looking for Work
Unemployment fell to 7.7% from 7.9% in January. Despite strong jobs gains, most of the reduction in unemployment resulted from fewer adults looking for work. Although the adult population increased 165,000, the labor force decreased 130,000 as about 295,000 additional adults chose not to look for work.
First-quarter growth appears a bit stronger than expected earlier in the winter. However, the expectations of some businesses continue to lag economists' readings and their hiring remains constrained. Whereas the consensus forecast for 2013 growth is 2.4%. Honeywell (HON) , for example, sees the U.S. economy expanding at a 1.9% pace and continues to trim U.S. jobs through attrition, while expanding headcount abroad.
Most of the reduction in unemployment from its 10% peak in October 2009 has been accomplished through a significant drop in the percentage of adults working or looking for work. Were the participation rate the same as when President Obama took office, it would be about 10.9%. Adding in part-time workers who would prefer full employment but can't find it, the unemployment rate becomes 14.2%.
Prospects for stronger growth remain constrained because the January increases in payroll taxes and rates on wealthier households subtracted $150 billion from disposable income, and sequestration removes another $42 billion from spending through October.
On the supply side, increased business regulations, rising health-care costs and mandates imposed by Obama Care, and much higher tax rates on small businesses, imposed by both the federal government and states like Maryland and California, significantly raise the cost of capital.
The puzzle of reducing federal deficits to sustainable levels and accomplishing stronger growth and jobs creation, because the $500 billion trade deficit on oil and with China continues to drag on demand and a tighter regulatory climate makes businesses cautious about investing in the United States.
Limits on U.S. oil production from offshore resources and in Alaska, the failure of the Administration to address China's undervalued yuan, and to rethink Dodd-Frank and the avalanche of other new business regulations, despite unintended negative fallout, make a genuinely robust recovery far from likely.
The economy would have to add about 13 million jobs over the next three years -- about 361,000 each month -- to bring unemployment down to 6%. That would require GDP growth in the range of 4% to 5%, as past recoveries indicate that pace is attainable.
Presidents Barack Obama and Ronald Reagan faced comparable difficulties -- unemployment peaked for Obama at 10% in his first term and crested for the Gipper at 10.8%. Since recovery took hold in mid-2009, GDP growth has averaged about 2.1%, whereas at the same point in the Reagan recovery, the pace was 5.3%.