February's Jobless Report Is Not Cause For Celebration

Forget the cheery 0.2 percentage point decline in the "headline" unemployment rate during February. Here is what Friday's "Employment Situation" report from the Bureau of Labor Statistics (BLS) actually said.

America's working age population went up by 165,000 during February. Despite this, a net 130,000 people dropped out of the labor force, continuing the most worrisome trend of the Obama years. The number of people with full-time jobs fell by 212,000, while 382,000 Americans took part-time jobs, thus producing the reported 170,000 gain in total employment (which includes everyone who worked at all). "Full-time-equivalent" (FTE) jobs, which we can approximate as the number of full-time jobs plus the number of part-time jobs divided by two, fell by 21,000.

Does this sound like cause for celebration to you?

It will be important to keep an eye on the number of FTE jobs during 2013, because Obamacare provides a huge incentive for businesses to replace full-time employees with part-time help. Replacing full-time people with part-timers will reduce the reported employment rate, but it will not do anything for incomes or economic growth.

America reached full employment toward the end of the Clinton presidency (59.6% adults had FTE jobs in April 2000) thanks to a relatively stable dollar engineered by Federal Reserve Vice Chairman Wayne Angell, a corporate income tax rate that was lower than the average of our OECD competitors, and a capital gains tax cut pressed upon Clinton by a Republican Congress.

Economically, it has been downhill ever since.

In April 2000, we had 59.6 FTE jobs for each 100 Americans of working age. In February 2013, we had 53.2. With a working age population of 244.8 million, this means that we are now 15.6 million FTE jobs away from full employment.

Most of the damage occurred under Bush 43, with a loss of 9.2 million jobs relative to FTE full employment. However, on a monthly basis, Obama has been even worse than Bush. During the 50 months since Bush 43 left office, America has moved an additional 5.5 million jobs away from FTE full employment.

Of Obama's total, 1.3 million came after his so-called "economic recovery" began in July 2009. During February 2013, we moved 119,000 jobs farther away from FTE full employment, after losing ground amounting to 53,000 FTE jobs in January.

During the four calendar quarters of 2012, quarter-over-quarter real GDP (RGDP) growth averaged only 1.6%. There is no way that the number of FTE jobs can increase much unless the economy starts growing considerably faster than this. In fact, if the stagnation in RGDP that the BEA reported for 4Q2012 (a 0.1% annualized growth rate) continues, the number of FTE jobs will continue to fall.

So, what are the prospects for faster real RGDP growth as we move through 2013? They are not good.

Robust economic growth requires stable money, low tax rates (especially on capital), reasonable regulations, and free trade. International trade negotiations move glacially, so they will not be much of a factor during 2013. However, the other three factors impacting growth are all moving in the wrong direction.

Calendar year 2013 began with a double-whammy of Obama tax increases on capital. Between Obama's new "taxes on the rich" and his Obamacare taxes on investment income, top marginal tax rates rose by 59% on capital gains (from 15.0% to 23.8%) and by 190% on dividends (from 15.0% to 43.4%).

Also, just by doing nothing while other nations have relentlessly cut their corporate income tax rates, America has become less and less competitive in attracting investment from multinational companies, including those based in the U.S. In 2012, the top marginal U.S. corporate income tax rate (39.1%, which includes state taxes) was 54% higher than the simple average of OECD nations, and 50% higher than that of Canada.

The regulatory environment is also becoming progressively (no pun intended) less friendly to economic growth.

Newly re-elected, President Obama has promised that if Congress refuses to do what he wants regarding "climate change" he will ignore the law and impose new regulatory restrictions on energy production. Whatever good these may do for the polar bears, they will not help RGDP expansion and FTE job growth. In other areas, federal regulatory agencies continue to advance measures that are hostile to economic growth.

Perhaps most negative of all for the employment outlook, the Federal Reserve continues to fly by the seat of Ben Bernanke's pants, thus delivering the polar opposite of stable money. As it proceeds with QE3, the Fed has not seemed to notice that the faster it expands its balance sheet, the slower the economy grows.

For the first 5 months of QE3, there has been a perfect negative correlation between changes in the monetary base and changes in our distance from FTE full employment. The more quantitative easing the Fed has done, the more negative the impact has been on jobs. Since the Fed more than doubled the size of QE3 in mid-December, America's distance from FTE full employment has grown by 172,000 jobs.

Right now, there is nothing on the political horizon that would improve the environment for jobs and economic growth. The best that we can hope for is that the Republicans will use this period of economic stagnation to get their act together, both intellectually and in terms of fielding strong, pro-growth candidates.

By the elections of 2014 and 2016, the voters will be very tired of the stagnant Obama/Bernanke economy. To capitalize upon this, the Republicans must turn away from Bush/Boehner/Kantor/Ryan/McConnell "clueless conservatism" and back toward the timeless economic wisdom of Ronald Reagan.