Monday, February 6, 2012

Unemployment and Jobs Reports Bad News Long Term

Obama received some good news on the economy last week. To give the President some credit where credit is due, the jobs front seems to have at least finally bottomed out. The unemployment rate is now 8.3% and there were 240,000 jobs created in January. However, even as these numbers show an improvement, not all is good in the economy.

Unemployment and the jobs reports are always lagging indicators. Increases on the job front only bottom out and begin to increase after the economy as a whole has rebounded. With only a 2.8% increase in GDP last quarter, and a 1.7 % increase in GDP over the last full year, the lagging indicators do not bode well for further strengthening. Even if the unemployment and jobs numbers are entirely accurate (which I doubt), this recovery will be short lived. With numbers like 240,000 jobs and a high 8.3% unemployment rate just coming to life how much longer do we have before the next downturn in the business cycle?

Not all the news in the unemployment and jobs reports was good either. The little noticed 1.2 million people that dropped out of the workforce last month is significant. We now have the lowest labor participation rate in 25 years. Many are retiring early which will be a drain on our economy and further cause stresses on our safety net and entitlement programs. Others are frustrated with the jobs front and have given up the search for jobs as indicated by record numbers of people on food stamps.

Bottom line is Obama is the recipient of good news as far as creating a few jobs and a reduction of the unemployment rate. The bad news is we may already be headed in the wrong direction as the leading indicators of the economy are not the pretty. Much of the gain in the GDP last quarter was in inventory not in sales. We have not addressed the structural problems in the economy as Obama’s policies are directed at the cyclical factors. Just as we turn the corner in the lagging indicators, we may be in for another cyclical downturn. We need to fix the structural problems with the economy and fix them soon. We need to balance the budget. We need an energy policy of “all of the above” including “drill here, drill now”. We need to fix the housing industry and stop the gimmicks. We need the FED to stop the quantitative easing so inflation doesn’t get out of control. We need to fix our unsustainable entitlement programs. We need to fix our structural problems or we will continue to see an economy that never quite reaches the last high water mark before it declines again.

No comments: