Morici: Job Gains Not Strong Enough to Push Unemployment Down

Friday, 05 Jul 2013 03:32 PM

By David Nelson and Dan Weil

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While the 195,000 gain in June non-farm payrolls announced Friday was impressive, it's not enough to make a dent in the unemployment rate, said Peter Morici, professor of international business at the University of Maryland.

That was literally true last month, when unemployment was unchanged at 7.6 percent.

"Certainly we got a bigger [payroll] number, [but] they're not what we need to get unemployment down," he told Newsmax TV in an exclusive interview.

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On the plus side, "not many people left the labor force this month, which means we're starting to get fewer discouraged people," Morici said.

But on the minus side, "we have a big jump in the number of part-time workers, reflecting the healthcare law." And that will increase, he says. The number of part-time workers jumped 4 percent to 8.2 million last month.

The leisure and hospitality industry accounted for 75,000 of the new jobs in June. That's not a good thing, Morici says. "Like a lot of declining economies we're becoming largely a resort country," he said.

"But for the fact that we print the dollar, we would be in a lot of trouble." The soaring trade deficit and sluggish GDP are evidence of that, Morici said. GDP expanded only 1.8 percent in the first quarter, and many economists expect no improvement for the second quarter.

"Where it [the economy] is growing tends to be in things like retail sales and hospitality and the auto sector," Morici said. "When you jump $60 billion on General Motors, they're going to be able to make somebody some cars they want to buy."

As for the rise of interest rates, that will probably start to drag on the economy this summer, as young people find it more difficult to buy homes, he said.

Home prices, of course, have risen too, meaning that monthly mortgage payments are now larger than they would have been three or four months ago for a new home, Morici said. "That will likely affect new home construction."

To be sure, new home construction accounts for only 3 percent of the economy and thus "doesn't necessarily translate into a lot of . . . employment," Morici said. "It's just something we like to watch because it's the one investment most of us have."

The employment report doesn't put more pressure on the Federal Reserve to taper its quantitative easing soon, Morici said.

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But, "if it's up to [Fed Chairman Ben] Bernanke, they will, because he doesn't want to leave this program as a legacy," Morici said. "He wants to clean up his own mess. This does create a lot of distortions in the economy."

Bernanke said last month that if the economy grows as Fed officials expect, the central bank will likely start curbing QE later this year and end it in the middle of 2014.

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