Jobs jump in November but outlook remains guarded
By Dr. Peter Morici
The economy added 321,000 jobs in November—a dramatic jump from October. Overall the economy is creating many more jobs, but the outlook remains guarded.
Unemployment stayed constant at 5.8 percent because the jobs count is based on the survey of employers, whereas unemployment is based on a direct household survey. The latter indicated many fewer jobs gains and the adult participation rate—those employed and looking for work as a share of the total adult population—stayed depressed.
Gains were widespread. Construction, manufacturing, retail trade, business and professional services, finance, health care, leisure and hospitality, information technology, and government all added jobs.
Hourly earnings rose 0.4 percent—a much stronger pace than in recent months.
Job gains for October were revised upward to 243,000 and the overall stronger pace reflects the pickup in economic growth in the second and third quarters, which averaged 4.2 percent.
Still forecasters expect the pace of GDP advance to moderate to between 2.5 and 3 percent going forward, indicating the surge in jobs growth could be short lived.
Consumer spending, which accounts for nearly 70 percent of GDP, continues to grow at only a moderate pace. Household balance sheets have improved since the great recession—housing and stock prices are up and many families have worked off credit card debt—but those tough times have inspired a new caution among consumers.
The official jobless rate is down from its recession peak of 10 percent, because so many adults have quit looking for work. If the same percentage of adults were employed or looking for work today as when Presidents Obama or George W. Bush took office, the jobless rate would be nearly 10 and 12 percent, respectively.
Nearly 1 in 6 men between ages 25 and 54—too old for college and too young to retire—are jobless. Many are simply sitting on America's new virtual park bench—at home watching ESPN and relying on friends and relatives for support.
Immigration and the expansion of income support programs that make it easier for adults to not work have at once pushed down wages for less skilled workers and made opting out of the labor force somewhat easier. However, the most significant problem has been the general slowdown in economic growth.
Technological progress that should support growth remains strong—witness all the new companies in hardware and software that have emerged since the 1990s. However, U.S. businesses have become much more inclined to invent it here but make it in China.
China's undervalued currency makes its inexpensive labor even more attractive, and high Chinese tariffs and administrative barriers to importing motivate American companies to locate manufacturing in the Middle Kingdom.
Government regulations often have insane consequences for growth and the environment. For example, regulatory barriers to building new pipelines force oil producers in North Dakota to ship east to refineries by rail. This substantially raises the cost of getting that oil to market, slows the pace of oil field development, increases oil imports, and slows economic growth and jobs creation. Meanwhile, rail shipments pose more environmental hazards than pipeline shipments.
The $500 billion trade deficit on trade with China and on oil reduce U.S. GDP by about 5 percent. That would translate into 4 million jobs directly and another 3 million after the earnings of businesses and workers recycle throughout the economy.
Economists across the ideological spectrum have recommended policies to redress the effects of China's undervalued currency, and a wholesale reevaluation of U.S. trade policy toward China and the other major economic powers, Japan and Germany, is in order.
The modern economic theory of comparative advantage is based on exporting to pay for imports. That instigates specialization among countries, boosting productivity while continuing to fully employ each nation's labor force. With the three largest economies after the United States pursuing currency and trade policies aimed at achieving trade surpluses, it is difficult for the United States not to have big trade deficits and high levels of unemployment.
Free trade has become a mugs game for America, and it is no surprise that real household incomes have fallen from $56,900 in 1999 to about $52,100 today.
Peter Morici is an economist and business professor at the University of Maryland, national columnist. He tweets @pmorici1