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Economy Adds 97,000 Jobs in February

Prof. Peter Morici - 3/12/2007

Friday, the Labor Department reported the economy added 97,000 payroll jobs in February, after adding 146,000 the previous month. The January figure was revised upward from 110,000, indicating employment growth remains steady.

Separately, the Commerce Department reported the deficit on international trade in goods and services fell to $59.1 billion in January from $61.4 billion the previous month.

The oil import bill rose to $21.8 billion in January from $20.8 in December, as volume of imported petroleum products surged and crude prices eased. Oil prices headed up again in February, and the petroleum deficit should deepen over the next two months.

The trade deficit with China jumped to $21.1 billion in January from $19.0 billion in December.
The overvalued dollar continues to clobber manufacturing competing with imports, which accounts for most of the deficit with China and about three quarters of the overall U.S. trade deficit.

Unemployment

The household survey, which includes the self employed, shows the unemployment rate at 4.5 percent in February, down from 4.6 percent in January. The drop in unemployment rate was caused by a jump in the number of adults not seeking employment, because the Labor Department does not count these people when computing the unemployment rate. Another 374,000 adults chose not to seek employment in February, and the labor force declined by 190,000.

Despite the Bush Administration’s exhortations, this unemployment rate is hardly remarkable by historical standards. In November 2000, when George W. Bush won the presidency, unemployment was 3.9 percent, and the number and proportion of adults choosing to participate in the workforce is lower today than in 2000. Today, were the adult labor force participation rate at 2000 levels, the unemployment rate would be about 6.1 percent.

Manufacturing, Construction and the Quality of Jobs

The economy is adding lots of jobs for college graduates, especially those with technical specialties in finance, health care, education, and engineering. However, for high school graduates without specialized skills or training, jobs offering good pay and benefits remain tough to find.

Historically, manufacturing and construction offered workers with only a high school education the best pay, benefits and opportunities for skill attainment and advancement. Troubles in these industries push ordinary workers into retailing, hospitality and other industries where pay often lags. In February, manufacturing employment fell 14,000, while construction employment decreased by 62,000.

Durable goods manufacturing outside the automotive industry remains strong but competition from Asian imports, benefiting from undervalued currencies and other subsidies, limits employment. Over the last 83 months, manufacturing has shed 3.2 million jobs. Were the trade deficit cut in half, manufacturing would recoup about 2 million of those jobs.

In 2006, the dollar weakened but mostly against the euro, where exchange rate movements have minimal effects on exports and imports. Against the important Chinese yuan, the dollar remains too high, and the yuan sets the pattern for other Asian currencies, which are critical to reducing the non-oil trade deficit and instigating a recovery in manufacturing employment.

Unless Secretary Paulson finds a way to succeed in talks with China, in a way his predecessor John Snow could not, Americans can expect slow growth, and the continuing loss of manufacturing jobs.

In construction, housing starts likely will remain weak through late spring, as builders work off inventories. Most of the new job opportunities will be in government infrastructure and commercial projects, where tightening industrial capacity should instigate some new projects.

Outlook for GDP Growth and the Stock Market

In 2007, growth is expected to be in the range of 2.5 percent, without tangible steps to reduce the trade deficit or lower interest rates. At that pace, the unemployment rate will creep up or not change much.

Slow growth results not from the fundamental physics of the economy but from conscious policy choices at Treasury and the Federal Reserve. Treasury’s inability to manage the international value of the dollar, as China does its yuan and Federal Reserve hesitancy about inflation and rate cuts will be responsible for growth below the 3.5 to 4 percent that could easily be attained.

Nevertheless, moderate growth should help the stock market regain momentum. Increasingly, many larger U.S. companies earn significant shares of their profits abroad. Despite jitters in Asian stock markets, China, India and other developing countries will continue to grow robustly, and U.S. multinationals should continue to enjoy growing profits, even as they jettison workers from good paying jobs at home. Corporate profits will be better than expected, growing in the high single digits, and the stock market should regain lost ground and move higher.