Economy Needs More Than Modest Jobs Growth Friday: Opinion
NEW YORK (TheStreet) -- On Friday, forecasters expect the Labor Department to report the economy added 201,000 jobs in March, down from 227,000 in February, but in line with the moderate pace of economic recovery.
The economy expanded at a 3% annual pace in the fourth quarter and 1.7% for all of 2011. Recent consumer spending and other data indicate growth slowed a bit in the first quarter, to 2% or 2.5%. If productivity gains are only modest, this pace will support job gains in the range of 200,000 a month through the spring.
Two hundred thousand a month is hardly enough to replace all those jobs lost during the Great Recession and provide opportunities for new graduates looking for work. Unemployment is expected to remain at about 8.3% and could begin creeping up again this summer.
7 Companies That Keep on Growing Over the past three years, the percentage of adults participating in the labor force -- those employed, self employed, or unemployed but looking for work -- declined significantly. If the adult participation rate was the same today as when Barak Obama became president, unemployment would be 10.8%.
Adding adults on the sidelines, who say they would re-enter the labor market if conditions improved, and part-time workers, who would prefer full-time positions, the unemployment rate becomes 14.8%. Factoring in college graduates in low-skill positions, like counterwork at Starbucks, and unemployment is much higher still.
Longer term, the economy must grow 3% annually to keep unemployment steady, because advances in technology permit labor productivity to increase 2% each year and population growth pushes up the labor force about 1%.
If conditions are mediocre and businesses cautious, productivity growth can slip -- equipment and computers are kept beyond their economically useful lives. Then unemployment can be kept steady with 2.5% growth, or even 2%, but that poses risks.
The economy growing 2%, or even 2.5%, is like an airplane flying at low altitude. The plane can keep going, but the slightest unexpected obstacle and the plane ditches -- such difficulties may soon emerge in Europe or China.
9 Stocks That Prove Dividends Make All the Difference The economy must add 12.9 million jobs over the next three years -- 358,000 each month -- to bring unemployment down to 6%. GDP would have to increase at a 4% to 5% pace -- that is possible after a long deep recession, if not for chronically weak demand for U.S. made goods and services.
Oil and trade with China account for nearly the entire $600 billion trade deficit, and dollars sent abroad to purchase oil and Chinese goods that do not return to purchase U.S. exports are lost purchasing power. Consequently, the U.S. economy is growing at about 2.5% instead of the 4% to 5% pace that is possible after a long and deep recession.