The really good news from April’s employment report is that all the pessimistic, end-of-the-world, spring-swoon forecasters were wrong. It wasn’t a fabulous report. But it handily beat Wall Street expectations. Stock markets soared on the news.
The bad news, however, is that the U.S. continues to fall further behind its own long-term trends for jobs and economic growth. And lately, hours worked — a key labor measure — have begun to fall.
First the good: Nonfarm payrolls rose by 165,000 last month, with private payrolls up 176,000. And the prior two months were revised higher by a net 114,000. The unemployment rate fell slightly from 7.6 to 7.5 percent.
And with all the hysteria over the economic evils of the spending-cut sequester, government jobs have fallen only by an average 5,000 over the past three months — dwarfed by private job gains. Keynesians should weep. So might President Obama. The sequester doom and gloom has not come to pass. In fact, 4 percent real growth in the private economy in the first quarter far outstrips the slippage in government spending.
The ten-year, $1 trillion spending cut launched in 2011 and the ten-year, $1 trillion sequester spending cut that began this year are bright spots in economic policy. As a share of GDP, federal spending is now less than 23 percent, down from a peak of 25 percent. That helps take the government’s boot off the neck of the free-enterprise economy. It leaves more resources in the private sector, letting business — the real hero behind the modest growth we have — breathe a little easier.
But as good as it is that more Americans are working, they may be working fewer hours. Not a good trend.
Total private hours worked are declining. They fell 0.4 percent in April, with manufacturing hours dropping 0.2 percent. And aggregate hours worked for all employees fell four-tenths of 1 percent. These are worrisome trends for the future. This may be a harbinger of the ill effects of the job-killing Obamacare program, where rising tax, mandate, and regulatory costs penalize the fiftieth worker hired and the thirtieth hour worked in small business.
Fearing Obamacare, profitable business is reluctant to invest in the kind of capital projects that create jobs. This is one reason job growth is falling short by at least 100,000 per month.
Nonfarm payrolls remain 2.6 million short of the prior peak reached in January 2008. What’s more, roughly 22 million people are effectively unemployed because they’re actually not working, underemployed, or forced to work only part time.
And partly because people are dropping out of the labor force, or collecting government benefits instead of working, the employment-to-population ratio, which peaked at 64.6 percent in April 2000, has dropped to 56.8 percent in the latest month. That translates to a loss of roughly 10 million jobs from the long-term trend line. It’s a huge waste of human capital and talent, as well as economic growth.
What’s more, the anemic 2.1 percent real GDP recovery of the last 15 quarters (compare that with the 4.4 percent post-WWII average) has thus far created an output gap of roughly $3 trillion, according to RDQ economist John Ryding. This country will need to grow at more than 5 percent yearly for more than a decade if that economic gap is to be closed.
Or think of this: From 1950 through 2007, the long-term historical U.S. economic growth rate was 3.25 percent yearly after inflation. Today we are a staggering 20 percent below that trend.
But a 5 percent growth target would at least get us back on the right directional track. Growth solves a lot of problems. Over ten years, 5 percent growth could reduce the tax-hike-threatening budget deficit by over $7 trillion.
Is 5 percent growth possible? It could be, with the right market-oriented incentives for work, investment, innovation, immigration, health, and retirement. Keep the heat on spending restraint. And don’t forget a sound dollar.
In other words, stop our downward economic course. The U.S. needs an ambitious growth agenda. There is no time to waste.
– Larry Kudlow, NRO’s economics editor, is host of CNBC’s The Kudlow Report and author of the daily web log, Kudlow’s Money Politic$.