Tags: Morici | Employment | jobs | labor

Morici: Employment Outlook Poor, Little Improvement Likely

Wednesday, 01 Aug 2012 12:28 PM

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The government will release its July jobs report on Friday and the outlook for the month — and even the year — is not good, said Peter Morici, an economist at the University of Maryland Smith School of Business.

Expect the economy to have added a net 100,000 jobs, which is not enough to absorb out-of-work jobseekers as well as those who are entering the work force.

The unemployment rate currently stands at 8.2 percent, according to June's jobs report, though many point out the labor market is in much worse shape than that number suggests.

Editor's Note: Economist Warns: 50% Unemployment, 100% Inflation Possible

The Bureau of Labor Statistics calculates the unemployment rate by measuring the percentage of the labor force who is out of work.

The bureau does not count unemployed people who have given up looking for work as part of the labor force, which keeps headline unemployment rates artificially low.

Only those who are out of work but actively looking are counted as unemployed, yet if the government were to factor those "discouraged" workers back into the headline unemployment rate, the number would be much higher.

"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 nearly 15 percent," Morici wrote in a faculty opinion column.

"Many adults have reason to be discouraged — new jobs pay lower wages than did those lost during the recession and job openings remain scarce," Morici added.

Government policies such as the Dodd-Frank financial overhaul law as well as President Barack Obama's healthcare-reform law aren't helping foster job creation either.

"New policies favoring bank consolidation limit access credit for small- and medium-sized businesses, and government health insurance mandates drive up the hiring costs. Together, those significantly discourage jobs creation in manufacturing and many service activities.

In the second quarter of this year, the economy grew 1.5 percent and added an average 75,000 new jobs a month.

To keep unemployment rates steady, the economy needs to pick up the pace of its growth 3 percent annually, Morici wrote.

"The economy must add 13 million jobs over the next three years — 361,000 jobs each month — to bring unemployment down to 6 percent. To accomplish that, GDP would have to increase at a 4 to 5 percent pace."

The Federal has cut interest rates and rolled out unorthodox measures to stimulate the economy and spur job demand, including injecting trillions of dollars into the financial system via bond buybacks from banks, an accommodative-policy tool known as quantitative easing (QE).

Still, until banks begin to lend again and businesses feel like growing and borrowing, all the monetary policy tools in the world will have muted effects going forward.

In fact, the jobless could even rise, one market mover says.

"I think by this time next year we'll see unemployment higher than it is. We'll see production relatively flat," said Bill Gross, founder of Pimco, manager of the world's largest bond fund, according to CNBC.

Headwinds from abroad can slow recovery in the United States as well by continuing to crimp demand.

"This economy and the global economy itself needs credit. And it depends on credit and credit expansion."

Editor's Note: Economist Warns: 50% Unemployment, 100% Inflation Possible

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