What to expect from Friday’s jobs report
— Peter Morici is a Professor at the Smith School of Business, University of Maryland, and former Chief Economist at the United States International Trade Commission. The views expressed are his own. –
On Friday, the Labor Department will report employment data for May. In April, the economy lost 539,000 jobs, and the consensus forecast is for another 550,000 jobs lost in May. My forecast is for a 561,000 loss.
In Friday’s jobs report the key variables to watch are:
Jobs Creation. May 8 the Labor Department reported the economy lost 539,000 payroll jobs in April, down from 699,000 in March. However, a significant part of this improvement was a surge in temporary Census Bureau positions. The private sector still lost more than 600,000 jobs. In recent weeks, new unemployment claims have remained stubbornly above 600 thousand, and my forecast is 561,000 jobs lost in April.
Even if the economic contraction slows in the second and third quarters, job losses above 400,000 appear likely for the next several months. Job losses will top 7 or 8 million before the hemorrhaging ends.
The economy continued to contract at a 5.7 percent annual pace in the first quarter. The numbers would have been much worse but for a January surge in consumer spending.
Weak data for consumer spending and retail sales in February, March and April, notwithstanding, some analysts expect consumer spending to rebound soon.
Through April, the retail sector continued to bleed jobs, but if consumer spending is indeed strengthening, May retail jobs figures should show some leveling and point to recovery.
Unemployment. In April, the unemployment rate, as computed by the Labor Department, was 8.9 percent, and is expected to rise to at least 9.2 percent for May. According to my forecast, unemployment will reach 9.9 percent by the end of 2009.
Since President Bush took office, more adults have chosen not to seek employment owing to worsening labor market conditions. If labor force participation today were at the same level as when President Bush took the helm, the unemployment rate would be about 11 percent. The difference is discouraged workers that have quit looking for work that the Labor Department does not count when computing the unemployment rate. Add in part-time workers who would prefer full-time employment, and the hidden unemployment rate is above 16 percent.
Business vs. Government Payrolls. In April, government employment rose 72,000, as overall payroll jobs contracted 539,000. This indicates the private business economy shed 611,000 jobs.
Construction. In April construction lost 110,000 jobs. Since construction employment peaked in September 2006, the sector has lost 1.4 million jobs.
Those losses indicate the housing recession, credit crisis, high oil prices, and China trade deficit are infecting the long-term growth prospects of the entire U.S. economy. American businesses are simply not hiring or building for the future in the United States, and this bodes poorly for the level of GDP growth in the second half of 2009 and beyond.
Productive assets not put in place during the recession will not be available to produce goods and services after the slump ends. The U.S. economy will be on a permanently lower growth path thanks to mismanagement of the credit crisis, energy policy and trade with China and other Asian developing countries pursuing mercantilism strategies.
Retailing. Retail trade has shed 766,000 jobs since November 2007, and lost 64,000 jobs in March and 47,000 jobs in April. Again look for a jump in retail employment if the recession is ending.
Finance and Insurance. During the economic expansion finance and insurance, along with technology sectors offered some of the best new job opportunities, outside of health care and technology-related activities. Since December 2007, finance and insurance has shed 277,000 jobs, and 25,000 in April alone.
Manufacturing. Over the last 109 months manufacturing has lost 5.2 million jobs. The dollar remains overvalued against the Chinese yuan and other Asian currencies, and the large trade deficit with China and other Asian exporters is a key factor pushing down U.S. manufacturing employment.
To keep the value of the yuan low against the dollar policy, the Chinese government intervenes in currency markets, selling yuan for dollars and other western currencies at a discount from a market determined price. The yuan is at least 40 percent undervalued, and provides a like amount subsidy on Chinese exports into the United States and on Chinese products competing with U.S. exports in China and other markets around the world.
Many U.S. manufacturers find it easier to locate production in China and elsewhere in Asia than to add jobs in the United States to produce goods. U.S. made goods must scale considerable trade barriers and compete against subsidies provided by undervalued currencies in China, India and elsewhere in Asia and regulated fuel prices.
Were the trade deficit cut in half, manufacturing would recoup at least 2 million of the 5.0 million jobs lost since 2000. U.S. GDP growth would be in the range of 3.5 to 4.0 percent a year instead of 2.5 to 3 percent expected as the economy resumes growth in 2010. Real wages would rise briskly.
At his confirmation hearing Treasury Secretary Geithner acknowledged China is manipulating its currency and promised to work toward a realignment of currency values; however, the administration has backed off this position.
President Obama must get behind a policy to reverse the trade imbalance with China, or preside over the wholesale destruction of many more U.S. manufacturing jobs. These losses have little to do with free trade based on comparative advantage. Instead, they derive primarily from currency practices that make Chinese products artificially cheap in U.S. and other markets and Chinese restrictions on imports. These Chinese policies deprive Americans of jobs in industries where they are truly internationally competitive.
In the end, without assertive steps to fix trade with China, as well as fix the banks and curtail oil imports, the Bush years will seem like a walk through the park compared to job and real income losses Americans will suffer during the Obama years.