The US jobs market is tanking

With thousands of young college graduates moving in with parents and returning Iraq-war veterans facing long-term unemployment, President Obama is scrambling for cover. Irresponsible spending, largesse for big banks and subsidies for a broken health care system have busted the budget and failed to create jobs.

Economists expect the Labor Department to report this Friday the economy lost another 80,000 jobs in August after shedding 131,000 in July.

Completion of the Census accounts for most of the loss, but the report will demonstrate that rewarding Democratic Party academics with new high paying regulatory jobs and general hostility toward business is causing America's largest enterprises to head for China and small businesses to wither and die.

The unemployment rate will likely creep up a bit closer to 10 per cent, as more and more Americans drain their retirement accounts and endure the frustration of slammed doors in Barack Obama's jobs market.

In July alone, 381 thousand adults chose to quit looking for work altogether and that trend will continue in President Obama's land of dashed dreams and squandered opportunities.

Economists expect the private sector added about 100 thousand jobs in August but that is an abysmal performance 14 months into a recovery from a deep recession.

The economy must add 13 million private sector jobs by the end of 2013 to bring unemployment down to 6 per cent. President Obama's policies are not creating conditions for businesses to hire those 320,000 workers each month, net of lay-offs.

Net of inventory adjustments, the economy's demand for goods and services is growing at only about 1 per cent a year. The real potential is about 5 per cent but with economic policies so ill conceived and with a President so ambivalent about private enterprises –other than those run by Wall Street barons, Hollywood producers and union bosses – that simply is not possible.

In the second quarter, consumer spending; investment in new structures, equipment and software; and government purchases added 4.4 per cent to demand – but as imports grew much more rapidly than exports, the trade deficit tapped off 3.4 per cent. The difference, 1 per cent, is annual growth in demand for US-made goods and services. That has been the pace since the recovery began in July 2009.

Businesses can accommodate up to 2 per cent growth in demand just by improving productivity and not adding workers. Unless the rapid growth in imports can be curbed, the US economy is headed for very slow growth and rising unemployment.

The president's economic policies—more spending, taxes and regulation for Americans and appeasing foreign mercantilists like China—is simply not working.

The massive permanent expansion in federal spending and regulatory oversight built into President Obama's budget is discouraging private hiring by raising fears of even higher taxes and yet more intrusive regulation.

Simply, higher taxes discourage purchases of non-essentials and high-line durable goods, like better appliances, more appointed automobiles and higher-quality homes, and higher taxes and tougher regulation increase incentives to offshore production to China and other locations where those burdens are less and entrepreneurship is more welcome.

Prior to the 2008 crisis, President Bush spent 19.6 per cent of GDP and the deficit was $161 billion; whereas two years into the economic recovery in 2011, President Obama's budget projects outlays at 25.1 per cent of GDP and a $1.3 trillion deficit in 2011. The latter figures are like to be closer to 27 per cent and close to $2 trillion if the president does not accomplish the 4 per cent growth his budgets assume in stark contrast to the real world the rest of us struggle.

Too much spending will require new taxes, and not just pushing rates marginally above 50 per cent on families earning $250,000. And, higher rates for those families will raise taxes on half the income earned by proprietorships – those small and medium sized businesses the President is urging to create jobs.

Much of the $787 million in stimulus money was squandered on political hobby horses that create few jobs. For example, grants to build green buildings displace other, more cost-effective private construction and don't increase the amount of commercial space rented or built over the next several years. By delaying projects, those grants have slowed construction spending and killed jobs.

The biggest banks received more than $2 trillion in TARP and Federal Reserve assistance to clean up their balance sheets and recapitalise securities trading, while the 8000 regional banks got little assistance and remain burdened by toxic real estate loans. Consequently, nearly 250 regional banks have failed, and small and medium sized businesses cannot get credit to expand.

In addition to credit, businesses need more customers to create jobs, and the trade deficit – in particular, imports of oil and the imbalance with China – cut a huge hole in demand for US goods and services. Without addressing oil and China, other efforts to create jobs are futile.

The president's moratorium on deep water drilling, though popular with environmental fundamentalists, kills jobs by laying off workers in the oil, gas and supporting industries and by sending too many consumer dollars abroad that could be spent here.

Detroit has the technology to build much more efficient gasoline-powered vehicles now, and a shift in national policy to rapidly build these would reduce oil imports and create many jobs. Instead, the President proposes to replace stickers on cars that report gas mileage intelligent folks can understand with grade school letters – A, B, C...

If we could only have those letter grades for the President's economic appointees, we might be better off.

Peter Morici is a professor at the University of Maryland School of Business and former chief economist at the US International Trade Commission.