Guest post by Peter Morici.

Jobs Growth Tanks in March

Peter Morici

Twitter @pmorici1

The Labor Department announced the economy only created 88,000 jobs in March as many more adults quit looking for work than found jobs-for many Americans, good job remain tough to find.


The headline unemployment rate is 7.6 percent, but adding in adults who are discouraged and quit looking for work and part-timers, preferring full-time positions, the jobless rate becomes 13.8 percent. And, for many years, inflation-adjusted wages have been falling and income inequality rising.

Sluggish growth is one culprit-the Bush expansion delivered only 2.1 percent annual GDP growth-that’s about the same as the Obama recovery after 42 months. However, globalization and technological progress have wrought fundamental changes that rapid growth alone can’t fix.

Cheaper natural gas and rising wages in China make the United States more attractive for manufacturing. However, new factories require very few workers-engineers have applied the wizardry of handheld devices to factory automation with amazing results.

Similar progress has reduced many business support positions ranging from secretaries to travel agents. All, slicing demand for workers with a general high-school education.

Over the last decade, the same thing has happened to college graduates occupying middle management and similar professional positions. Consequently, college graduates have been taking jobs once predominantly filled by high school graduates-insurance agents and adjusters, retail managers, to name a few-and the earnings advantage of college graduates over less educated workers has narrowed.

Well paying jobs abound for college graduates in technical areas-accounting, engineering, nursing and the like-but not for those with degrees in liberal arts and general business. Similarly, high school graduates with some additional training, often through a community college, can find good jobs, for example, in the energy, medical, and hospitality sectors.

All this gives rise to widening income inequality between those who have specialized skills and those who don’t, and it imposes particular burdens on the two bookends of the labor force-recent grads and workers above 50.

Recent liberal arts graduates face particular difficulty getting that first decent job-such as in finance or the media-where employer training and entry-level experience combine to impart job-specific skills that permit them to climb the ladder.

Displaced older workers face much longer periods of unemployment, and many never secure positions that pay as well as the jobs lost.  Many are digging into retirement savings well before they are 65, creating an army of near-indigent elderly a decade or two from now.

To combat unemployment, the Federal Reserve has kept mortgage interest rates low, but this penalizes the elderly who rely on CDs and fixed-income investments. They are returning to work, often taking jobs and displacing younger workers.

Stronger growth would help and is possible. Forty-two months into the Reagan recovery, GDP was advancing at a 5.2 percent annual pace-that would bring unemployment down to five percent pretty quickly.

More rapid growth requires importing less and exporting more-dealing with the $500 billion trade deficit on oil, by drilling more offshore and in Alaska, and with China, by addressing its undervalued currency and protectionism.

Faster growth also requires right sizing business regulations to make investing in new jobs less expensive and time consuming. Regulatory enforcement is needed to protect the environment, consumers and financial stability but must be delivered cost effectively and quickly to add genuine value.

However, unless America wants to sell what it makes cheaply, like so many Asian economies, it must have a smarter, savvier, and better trained workforce.

Parents don’t want their offspring on the vocational track. Hence, high schools have become, overwhelmingly, college preparatory institutions, when it is possible to prepare many graduates to directly enter the labor force in technical areas.

College students don’t want the hard slog through nursing or engineering. Art history and economics are easier and less intruding on the social aspect of college. And universities are too much run by professors who prefer to contemplate the shortcomings of their civilization than train young people to build it.

In a nutshell, more and better jobs require pro-growth trade, energy and regulatory policies, and more realistic expectations among parents, students and the high schools and universities that train workers.

Peter Morici is an economist and professor at the Smith School of Business,, University of Maryland, and widely published columnist.


“Convincing millions of Americans they don’t want a job or compelling desperate workers to settle for part time work has been the Obama Administration’s most effective jobs program.”  – Peter Morici

Adding to the deficit to pay for it is yet another issue.

The economy added 146,000 jobs in November, up a bit from 138, 000 in October. The Dept. of Labor reported that Unemployment fell to 7.7 percent, largely because 542,000 additional adults chose not to look for work.

In the weakest recovery since the Great Depression, most of the reduction in unemployment from its 10.0 percent peak in October 2009 has been accomplished through a significant drop in the percentage of adults working or looking for work.

Were adult labor-force participation the same today, the unemployment rate would be 9.7 percent.

Hooray! Not really.
Hooray! Not really This is only a small part of the real unemployment picture.

Adding more than 8 million part time workers who can’t find full time work, and discouraged workers no longer looking for work, the unemployment rate becomes 14.4 percent. It rose above 14 percent in the wake of the financial crisis and remains stuck there.

Underemployment is even more onerous.
Underemployment is even more onerous.

Gallup tracks underemployment monthly as well, and the official Labor Dept. figures  seem to be about three percentage points below those of Gallup.


Graphs courtesy of Policymic

Peter Morici is an economist and professor at the Smith School of Business, University of Maryland School, and a widely published columnist.

Guest Post by Professor Peter Morici.Peter Morici is an economist and professor at the University of Maryland School, and former Chief Economist at the U.S. International Trade Commission. 

The economy is growing too slowly for it to be considered robust- adverse developments in four areas could derail the recovery:

  1. China
  2. Dodd Frank Regulations
  3. EU
  4. U.S. Student Loans
Higher probability of economic disruption than zero...

1. China faces real challenges-falling property values, questionable accounting standards and state banks burdened with bad loans. Foreign investors cannot ignore the size of its market, and firms like GM, Ford and Apple will continue to invest to produce for and distribute products in China. However, rising labor costs and increasing revelations of corruption and intrigue, up to the highest levels of China’s leadership, are causing investors to cast a more jaundiced eye on the Middle Kingdom as a place to invest for serving markets in North America and Europe.

A crisis of confidence in China could disrupt both the Chinese and U.S. economies, and such an event has a much higher probability than zero.

"If I wanted to paralyze the recovery of American economy, I would use Dodd Frank to strangle the flow of cash to small business job creators and potential homeowners to do it." -Miles Free

2. Dodd-Frank regulations are severely handicapping small and moderate sized banks. Writing conventional mortgages has become an increasingly challenging activity, and securitizing commercial loans quite difficult. Despite the fact that these bank woes pose significant barriers to recovery in the housing sector and jobs creation among small and mediums sized businesses, Washington appears disinterested, and smaller banks are selling out to their larger brethren.

Wall Street banks now control more than 60 percent of deposits nationally. The absence of competition in many markets has driven down CD rates, and seniors are losing a lot of purchasing power as interest on their retirement savings shrink. Wall Street banks are less interested in making loans to Main Street businesses than were the regional banks they absorbed.

Not looking so rosy in Eurozone despite the easy credit of the ECB's.

3. The EU is in recession and remains in deep trouble-fixes for Greece, Portugal and Ireland are inadequate and eventually will need to be reworked. Spain is teetering on crisis-a failure of its government to meet budget targets or a further spike in unemployment, already about 23 percent, could set off a contagion beginning with Italy.

European banks are highly stressed. Those have not used the grace afforded by easy credit from the European Central Banks to properly add to capital and rework loan portfolios. Rather, they have often adopted gimmicks to paint up bad loans or move those into offshore vehicles-all reminiscent of tactics employed by U.S. major backs when mortgage backed securities became problematic before the financial crisis.

Average debt per Bachelor's degree holder was ~$18,300 in 2010.

 4. U.S. higher education loans-now more than $1 trillion-are a ticking bomb. Most education loans are not dischargeable through bankruptcy, and big debt coupled with disappointing pay will become an increasing drag on consumer spending.

Undergraduates are borrowing too much against future incomes, and many graduate students are borrowing to obtain degrees that will not markedly improve their circumstances.

In the face of all this, the U.S. private sector is proving remarkably resilient.

Neither policy missteps in Washington nor purposeful incompetence in Europe can keep American capitalism down.

However, the economy would be doing a darn sight better with better leadership on both sides of the pond.

Peter Morici


Robert H. Smith School of Business

University of Maryland



China Real Estate Woes

Dodd Frank

Greek Riots

Student debt

 Guest post  by Peter Morici

Any parent knows, adolescents are inclined to deny facts when told something they want is not possible. Poor Speaker Boehner is frustrated by Capitol Children’s Players.

House Minority Leader Pelosi simply won’t accept that the Bush wars, tax cuts and prescription drug benefit for seniors didn’t cause the deficit. To point: in 2007, with all the aforementioned in play, the deficit was a manageable $161 billion, but since then government spending is up $1.1 trillion, when only $200 billion was needed to accommodate inflation, and federal spending has increased from 19.6 percent of GDP to nearly 26 percent.

The culprits are: additional regulatory costs; more and more expensive Medicare and Medicaid benefits and high prices created by “health care reforms” championed by Leader Pelosi and President Obama; and a population that lives longer while these politicians refuse to entertain further raising the retirement age.

Further, Leader Pelosi and the President cannot accept that more taxes are not the answer. Even if every tax and fee the government collected were raised by fifty percent-something that is not possible because some activities would leave the country and some services would have many fewer customers-the deficit would still exceed $600 billion.

The millionaires tax the Minority Leader and President love to flog would raise only about $80 billion or about 5 percent of the 2011 $1.6 trillion budget gap. Simply, the family budget cannot afford the new cars Leader Pelosi and President Obama bought on credit.

Over on the Republican side, the Tea Party, lead by House Majority Leader Kantor, refuses to understand that the 2010 election victory gave Republicans control of one-half of one of the two political branches of government. Control of one-quarter of the policymaking apparatus may give Republicans a veto over any change or even raising the deficit ceiling, but it does not put them in a position to impose systemic change to national policy.

Generally, political parties must win two national elections in a row to gain enough control to unilaterally impose change. That’s what the Democrats accomplished in 2006 and 2008, and that is how they got their new health care law. Without defeating President Obama in 2012, Republicans will not have the political power they rhetorically claim now, hence they must compromise on new taxes or the government partially shuts down.

Note, I said shuts down-as the Minnesota did recently for a few weeks-and not default.

Boyish Treasury Secretary Geithner is running around telling everyone the United States will be out of money and default on August 2 when it will still have lots of cash and only default if he and the President so decide.

The federal government still will collect taxes and other fees exceeding $180 billion per month; and interest payments on the national debt eat up less than $30 billion. If the Treasury prioritizes expenditures-as did the state of Minnesota during its partial shutdown-it could pay interest on bonds, roll over bonds coming due, and pay Social Security recipients and many other obligations.

Standard and Poor’s could downgrade the United States-but the fact is it is threatening to do that next year no matter what deal is reached now to raise the debt ceiling. Even though the ability to print dollars means the United States will never truly be compelled to default, it applies the same analysis to big countries printing international reserve currencies as it does small ones without reserve currencies.

For example, recently bond rating agencies ludicrously downgraded Japan because of its large debt, when the Japanese owe the money to themselves. The Japanese save too much, the government sells them bonds and spends the money for them. They don’t have the big external debt like the United States, the Bank of Japan controls a reserve currency, and Japan is a net creditor country.

The markets simply did not validate the downgrade. The Japanese are not paying higher interest rates for debt, as prophesized will now happen to the United States.

Simply, there are no good substitutes available to global capital markets in sufficient quantities for the dollar and dollar denominated sovereign debt. After the melodrama of Friday through Sunday, Asian markets were supposed to crash Monday morning but didn’t.

The boys at S&P also told us mortgage backed securities were solid investments. They do economics like my sophomores, and I don’t listen to undergraduates when predicting the future of the U.S. economy or sovereign debt either.

I have much sympathy for Speaker Boehner. He may be the only adult in the room. Surely he has the patience of Judge Hardy listening to Barack, Eric and Nancy-oops I mean Andy Hardy and friends.

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.

 Uncle Sam Broke

Bernanke Is Right Chinese Mercantilism, Not Fed Easy Money, Are Making a Mess
Guest post by Peter Morici
 Ben Bernanke is right. Germany shouldn’t blame easy money in the United States for the world’s woes.
 Currency mercantilism in China and elsewhere is causing a mess-especially in the United States. 

Unemployment in the Midwest is imported in containers like these from China.

Last week, Bernanke fingered China, Taiwan, Singapore, and Thailand for driving down the values of their currencies. Through massive government purchases of U.S. Treasuries securities, those mercantilists accomplish huge trade surpluses and jack up their GDP growth and employment. The flip side is a huge U.S. trade deficit that sentences Americans to slow growth and 10 percent unemployment.
 Sadly, such mercantilism makes free trade an unworkable strategy for the United States.
  Global demand for goods and services has become so distorted by subsidized Asian exports that workers in the United States face terribly high unemployment. Add in those stuck in part-time jobs that would prefer full time work, and the United States is losing the productivity of at least 10 million workers. At about $100,000 per worker, that adds another $1 trillion, bringing total lost productivity to about $1.3 trillion dollars.
 Ben Bernanke estimates U.S. capacity underutilization at about 8 percent-that comes to the same $1.3 trillion. Amazing!
 At the recent IMF meetings, Treasury Secretary Geithner asked European allies for help in persuading China to revalue the yuan. Led by Germany, the United States was told to pound salt and instructed to slash its budget deficit and tighten monetary policy.
 No surprise. Germany enjoys huge trade surpluses with a euro that is undervalued for its economy, because it is lumped into Euroland with weak Portugal, Ireland, Greece, Spain and Italy. Germans live well and impose austerity and unemployment on those neighbors. Berlin doesn’t want any sacred mercantilist cows slayed, lest its own ruse get discovered.
 If the United States cut its budget deficit in half and raised domestic interest rates two percentage points, U.S. consumption and imports would crash, unemployment would rocket to 15 percent, and a global depression would result whose horrors we all thought were long ago buried in history books.
 If China and Germany won’t be reasonable, the United States is really left with no option but to take direct action to balance its trade.
 China’s government purchases to suppress the yuan come to about 35 percent of GDP and provide a subsidy on exports of similar amount. Washington should even things up by imposing a comparable tax on purchases of yuan and euro for the purpose of importing from or investing in China and Germany, until their leaders agree to engineer an orderly revaluation of currencies and trade.
 The Chinese and Germans shouldn’t care-after all, the Americans are nothing but whining spendthrifts whose problems are of no import. They would scream bloody murder anyway. 
Beneath the howls, domestic demand and employment in the United States would fire up, manufacturing would flourish, GDP growth rise to about 5 percent, and unemployment would fall to a similar figure.
 The extra growth would eventually balance the U.S. budget, as it did during the Clinton years.
  Once China, Germany and others agreed to a realignment of exchange rates and the tax ended, all nations would benefit from trading with a more rapidly growing and stable U.S. economy. 
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.

 China Trade Surplus Hits An 18 Month High
The U.S. Customs bureau reported this week that China’s trade surplus hit an 18-month high in July as exports rose and import gains slowed, which added pressure on Chinese officials to allow faster appreciation of the yuan.  According to a survey of 29 economists by Bloomberg News, the trade gap surged 170% from a year earlier to $28.7 billion.  Exports advanced 38.1% to $145.5 billion, while imports increased only 22.7% to $116.8 billion. 
July Chinese Imports into the US Still at High Levels.  Hitting a 14-month high, Chinese steel imports into the US in July grew 21% from June (based on licenses), following June’s 35% increase, continuing to outpace overall imports into the country.

Hey, Any body paying attention to China trade and currency issues?

 The deficit on international trade in goods and services was $41.5 billion in June or 3.4 percent of GDP, According to Peter Morici.The trade deficit is a huge drag on economic recovery and jobs creation.In the second quarter overall, the imports grew so much more rapidly than exports that the growing trade gap subtracted 2.8 percent from growth.
But for the increase in the trade gap, GDP would have grown 5.2 percent instead of 2.4 percent. At that pace, unemployment would fall by 2013 to less than 5 percent, the level accomplished the two years prior to the Great Recession
 The United States is doing too much buying but not enough selling.
Oil and consumer goods from China account for nearly the entire trade deficit, and without a dramatic change in energy and trade policies, the U.S. economy faces unemployment around 10 percent indefinitely.
To keep Chinese products artificially inexpensive on U.S. store shelves and discourage U.S. exports into China, Beijing undervalues the yuan by 40 percent. It accomplishes this by printing yuan and selling those for dollars to augment the private supply of yuan and private demand for dollars. In 2009, those purchases were about $450 billion or 10 percent of China’s GDP, and about 35 percent of its exports of goods and services. 
This year,the trade deficit with China reduces U.S. GDP by more than $400 billion or nearly three percent. Unemployment would be falling and the U.S. economy recovering more rapidly, but for the trade imbalance with China and Beijing’s protectionist policies.
In June, China indicated it will adopt a more flexible exchange rate policy, but it has made clear Americans should not expect a dramatic change in the value of the yuan.

Wake up Washington. Its the China Currency and balance of trade. St*pid.
Comments from Peter Morici, various press reports, and our favorite Steel Analyst, Michelle Applebaum.

 Guest Post by Peter Morici 
No economic policy could better serve Americans than genuine free trade but open trade policies are failing Americans. Free trade is a compelling idea. Let each nation do more of what it does best, and specialization will raise productivity and incomes. Americans are not sharing in those benefits because President Obama, like President Bush, permits China and others to cheat on the rules, unchallenged, to the detriment of the U.S. interests he was elected to champion. 
The World Trade Organization has greatly reduced tariffs, prohibits virtually all export subsidies, and regulates other national policies that could subvert trade, such as health and product safety standards arbitrarily slanted to favor domestic suppliers. 
For these rules to optimize trade, raise productivity and boost incomes, exchange rates must adjust to reasonably reflect production costs. To buy Chinese televisions, Americans must be able to purchase yuan with dollars; however, an artificially strong dollar that overprices U.S. tractors and software in China will unravel the benefits of trade by denying Americans opportunities to export to pay for those televisions. 
Exchange rates are established in currency markets, created by businesses trading through major financial institutions. Unfortunately, China and several other Asian governments blatantly manipulate those markets without a credible U.S. response and with ruinous consequences for American workers. 
The United States annually exports $1.6 trillion in goods and services, and these finance a like amount of imports. This raises U.S. gross domestic product by about $170 billion, because workers are about 10 percent more productive in export industries, such as software, than in import-competing industries, such as apparel.
 Unfortunately, U.S. imports exceed exports by another $400 billion, and workers released from making those products go into non-trade-competing industries, such as retailing, where productivity is at least 50 percent lower. This slashes GDP by about $200 billion, overwhelming the gains from trade, and requires workers displaced by imports to accept lower wages.
Imports exceed exports.

 The trade deficit creates an excess supply of dollars in international currency markets, as Americans offer more dollars to purchase foreign products than foreigners demand to purchase U.S. products.
 Simple supply and demand should drive down the value of the dollar against the yuan and other currencies, make U.S. imports more expensive and exports cheaper, and reduce or eliminate the trade deficit. But the Chinese government subverts this process by habitually printing and selling yuan for dollars in currency markets, keeping its currency and exports artificially cheap.
 Currency manipulation creates a 25 percent subsidy on China’s exports, and other Asian countries are impelled to follow similar policies, lest their exports lose competitiveness to Chinese products.
 Also, huge trade imbalances between Asia and the West, perpetuated by currency mercantilism, create an imbalance in demand-a shortage of demand for the goods and services produced in the United States and Europe, and artificially robust demand for products made in China and elsewhere in Asia.
Who's on top?

 Consequently, to keep the U.S. economy going, Americans must both borrow from foreigners and spend too much, as they did through 2008, or their government must amass huge budget deficits by borrowing from abroad, as it is now does thanks to stimulus spending and the TARP.
 In the bargain, the United States sends manufacturing jobs to Asia in industries that would be competitive, but for rigged exchange rates. The trade deficit slices $400 to $600 billion off GDP, and Americans suffer unemployment above 10 percent.
Effect of policy inaction.
 China grows at nearly 10 percent a year and makes American diplomats look like fools for advocating free markets as a growth policy.
 Campaigning for the Presidency, Barack Obama promised to do something about Chinese currency manipulation. Instead, like a good supplicant, he now thanks Chinese officials for buying U.S. Treasury securities.
 China’s development policies make its leaders look smart but nothing makes them look like geniuses better than an American president who appeases their beggar-thy-neighbor policies.
 It will be impossible for the United States to create the 9 million jobs needed to bring unemployment down to pre-recession levels without taking on China’s currency manipulation and other unfair trade practices. 
For that Americans may need to wait for a better president-one with the courage to stand up to China. 
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.

Currency Photo credit.