Why Friday's jobs report is so critical

If the US economy created fewer than 165,000 jobs in March, it is in danger of falling into a second recession.

By TheStreet Staff Mar 31, 2011 3:00PM

By Peter Morici, TheStreet

 

Economists expect the Labor Department to report on Friday that the economy added 200,000 jobs in March. After adding 192,000 jobs in February, this would indicate the economy is finally gaining some flying speed; but if the jobs figure falls significantly short of 200,000, the economic recovery is in a lot of trouble.

 

Since July 2009, GDP has been growing at a bit less than 3% a year -- just enough to keep pace with productivity growth at 2% and population growth at about 1%.

 

After adding fewer than 100,000 jobs per month over 13 months ending in January, the private sector is finally starting to create jobs in significant numbers that are not temporary or in the government subsidized health care and social services sector.

 

If the March jobs figure comes in at fewer than 165,000, that would indicate the higher oil prices and political conditions in Africa and the Middle East, renewed weakness in the housing market, uncertainty about the federal deficit and sovereign debt crises in Europe and supply-chain disruptions from the Japanese crisis are slowing growth to 2.5%, perhaps less.

Growth in the range of 2.5% is hardly sustainable; any hiccup would then cause a negative cycle of renewed layoffs, consumer pessimism, falling retail sales, more layoffs -- and ultimately, recession.

 

Weekly jobless claims seem to be stabilizing at around 390,000. While that is better than in 2010, it is hardly a healthy level for an expanding economy -- something less than 350,000.

 

If the economy created fewer than 165,000 jobs in March, it is at peril of a second recession.

 

Much stronger growth is needed to get unemployment down to an acceptable level. The economy must add 13 million private-sector jobs over the next three years -- 360,000 each month -- to bring unemployment down to 6%. Core private-sector jobs must increase at least 300,000 a month to accomplish that goal.

 

Growth in the range of 4% to 5% is needed and possible to get unemployment down to 6% over the next several years, but significant structural barriers remain.

 

At 3.3% of GDP, the $500 billion trade deficit is a drag on domestic demand and taxes U.S. growth. Oil and trade with China account for nearly the entire U.S. trade deficit.

 

President Obama's announcement on energy policy adds little new. He is banking on electric cars and alternative technologies, such as wind and solar, to replace imported oil, but those won't pull down gasoline consumption enough to significantly reduce the oil import bill for at least a decade. Failure to produce more domestic oil and gas, by sending dollars abroad that do not sufficiently return to purchase U.S. exports, is a jobs killer, and the Administration remains unrelenting on its excessive regulatory crackdown on offshore drilling.

 

China maintains an undervalued currency by spending 10% of GDP to purchase dollars. This reduces domestic Chinese consumption and subsidizes Chinese exports by about 35%. Failure to act to offset Chinese currency subsidies, for example, by taxing dollar-yuan conversions, is the single most significant flaw in Administration policy to create an adequate numbers of jobs.

 

More broadly, major trading partners in Europe and Asia rely on value-added taxes to finance government and health care, whereas Americans pay higher corporate taxes and directly for health care. Under WTO rules, VATs are rebateable on exports from Europe and Asia and are applied on imports from the United States into those markets, creating huge pricing disadvantages -- American products are essentially taxed twice. A neutral change in U.S. tax policy toward a VAT -- swapping a VAT for reductions in corporate and personal income taxes -- would help remove a major competitive disadvantage on U.S. exporting and import-competing industries.

Finally, the 2010 health care law is pushing up health care costs, rather than reducing them, as promised, making insurance unaffordable for many small- and medium-sized businesses. Although manufacturing has enjoyed a stronger recovery than the rest of the economy, it has been significantly focused on activities that use very little labor, illustrating the burden that health care imposes on U.S. employers.

 

Without fixing energy policies, addressing Chinese currency subsidies, modifying the tax structure, and truly reforming health care, high unemployment will be a permanent feature on the U.S. economy and real wages will decline. Neither the Obama administration nor Republican leadership in the Congress appears inclined to do what needs to be done.

 

Peter Morici is a professor at the Smith School of Business, University of Maryland School, and former Chief Economist at the U.S. International Trade Commission.

 

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39Comments
Mar 31, 2011 5:41PM
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OK, really, a second recession? Who said we were out of the first? And let's call a spade a spade, it's a depression, and it's deepening due to poor decisions that absolutely MIRROR those made prior to the Great Depression. When you just PRINT $800 Billion in new bills and stick them in the economy, what do you think is going to happen? Sure, there are less people on unemployment -- I was out of work 6 months after my unemployment expired -- and I was one of millions. What count did I/we fall under? Oh, that's right, we didn't get counted at all, which automatically labeled us as "working"... They don't count the workers, only the unemployed, and that's directly related to the number of extensions the qualify for.

They can skew the numbers to make them say anything they want, they're not fooling us. When my bank account registers what it did when we were watching Hillary run the country while her hubby was getting some with interns, THEN you can tell me the recession is over. While it's still under $10 leftover at the end of each pay period, please stop lying to us.
Mar 31, 2011 5:37PM
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I have been unemployed for 2 years and although I have training, knowledge, and experience in many areas within manufacturing, have not been able to get a job. However, due to the fact that I've exhausted my unemployment benefits, I am no longer "counted" among the unemployed. According to surveys, there are about 250,000 others in this same situation.....as we are not counted as unemployed, this in itself makes these #'s to be very misleading. I see the same job openings getting posted over and over even though I apply and know that I feel all of the requirements listed. Bogus #'s by the government to keep everyone off their backs.

 

Mar 31, 2011 4:52PM
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There are almost 50 million Chinese employed to build products for American consumers and for American companies to sell globally.  If these jobs were still here we would not have an unemployment crisis.
Mar 31, 2011 5:41PM
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There are many more people this year out of work than last year. It's difficult to believe that these figures are correct and include the people who have been told their ineligible, the people who have given up, the people who are working at temp jobs with no benefits and no security, (no insurance), or their jobs shipped overseas or outsourced or even insourced.

 

Doesn't anyone get that if people are stressed it affects the cost of healthcare???

 

I miss the good ole days...

Mar 31, 2011 6:01PM
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Things have only gotten better for corporate executives and big investors.  The outlook for working class Americans is a dismal one.  High oil prices will act as a massive income drain for the middle class.  GOP cuts will elimate more 'living wage" jobs.  Two thirds of GDP growth comes from consumer spending which will decline in the months ahead.  Stand by for more economic pain as the corporate aristocracy and their GOP allies continue to hammer the working class.
Mar 31, 2011 7:26PM
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Yes-keeping looking for more wars like Libya and increase pending. I do not know what "cuts it" anymore when it comes to getting jobs. Wall Street keeps zooming and Main Street keeps failing. We have got to elect a President in 2012 who really understands the intricacies of business on Main Street and not fattening the pockets of Wall Street CEO's who do not need to be fattened up anymore. The focus has to be getting people back to work not helping other countries. Yes, I feel bad for the Japanese but I also feel bad for the guy who is losing his home, his car and his marriage going to hell because he cannot take care of his family. There is too much work to be done in America and there are too many people w not only brains but the common sense to really turn this country into the solid productive nation that it once was. If we do not care for our brothers and sisters in America-who are we supposed to care for?
Mar 31, 2011 4:49PM
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Stop drinking the Kool-aid

Hiring is not improving and there are fewer job postings.

The job postings you see are just refreshed because companies can wait for the perfect candidate.

The economy is not improving, if anything it is getting worst due to our leaders in the states as well as the federal level being unwilling to make the tough decisions that are needed to be made to improve our situation.

Mar 31, 2011 5:16PM
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Can somebody please tell me where these jobs are? I have been unemployed for over a year. Moved, and willing to take anything. I have lost my car because I could not afford insurance. The few vacancies I have seen, you need a car to get there. Is there any hope for some of us to ever get out of this mess? I am willing to try ANYTHING!
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I finally got a JOB! thank you GOD, literally. :)
More jobs have been in the paper the last month or so.  Feels good to earn my keep again

Mar 31, 2011 5:06PM
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Oh, there has been hiring. Jobs like 25 hr week sales, 30 hr week collector, and 30 hr week fast food. Nothing with benefits, nothing you can support a family on and most in the temp industry. This is good?
Mar 31, 2011 10:53PM
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still, NO ONE IS COUNTING US, the UNEMPLOYED WITHOUT BENEFITS~~~we are the ones who will be filing bankruptcy, losing homes, etc., but once our u/e benefits ran out we became invisible to the bean counters.....no jobs for us yet..
Mar 31, 2011 5:14PM
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When I see the folks we know get back to work, and a job that pays a living wage, I will believe these fake reports. Wall Street had to wait until the market closed today to see how high they need to fudge the numbers and still look legit.
Mar 31, 2011 8:26PM
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I don't pay attention to all this figures of %'s and such, they are all lies, we are still in a recession. I'm an IT Professional, I been unemployed for over two years now. I hate the fact that I'm not counted as unemployed anymore. My student loan is kicking in and I can't pay them and my unemployment ran out. I have apply to every job there is out there, yes EVERYTHING...still nothing, not even a call for an interview. I see the same jobs posted again and again. The government needs to do something about all these companies who hire employees in foreign countries but they sell their goods here. I would like to move to another city where maybe the econoomy is a little better but I don't have any money to do that either. I live in Florida by the way...good luck and god bless you all...
Mar 31, 2011 3:34PM
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Why the Fed CONSTANTLY lying to us is so "critical"...this should be the title of this article...
Mar 31, 2011 8:18PM
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It doesn't matter if the number is good or bad, the market will continue to rally.  Free fed money, oil companies making huge profits, commodities higher,  and wall street wealth.  All of those factors are what drive the markets higher.  Wall Street is so disconnected with Main Street it makes me sick.
Mar 31, 2011 8:27PM
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Why worry about job numbers, the government and these government owned newspapers will doctor the numbers. Remember election time is coming up and the people in charge will do whatever it takes to make our Marxist president look good.
Mar 31, 2011 6:56PM
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People have to become more flexible and move to where the jobs are, like India or Mexico...

Mar 31, 2011 5:18PM
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Tongue outFridays job report is as good as last months job report. They are finding excuse to inflate the inflated super balloons?Nerd
Mar 31, 2011 5:33PM
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WORTH THE TIME TO POST A SECOND TIME........and ya'll hated bush......dubya is turning out to be correct about what history tells us!!Nerd

 

"It's time to break up the unethical romance between government and big business. For too long, corporate elites have lobbied to profit from the ...

by FreedomWorksAction | 2 months ago | 4,155 views

Mar 31, 2011 11:06PM
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If the US economy created fewer than 165,000 jobs in March, it is in danger of falling into a second recession.

If the last 6 months or so are any indication, my guesstimate is that we created 172,000 jobs in March - not a sign of a robust recovery, but just enough to get by for another month.  The data since Q3 of 2010 has been vague and inconclusive - it hasn't pointed to a consistent trend up OR down.  More than likely, we are in for another month of limbo, or purgatory, depending on how you wanna look at it.

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