Where Are the Jobs In the Growth Forecast?
Economy: The new White House economic forecast contains more than one stunning revelation. Tops on our list is that no net new jobs are expected this year, even as the economy recovers.
One of President Obama's campaign pledges was to "create or save" more than three million jobs in his first two years in office — not all that ambitious considering the economy has created 1.5 million jobs annually since 1980.
Well, so far this year, 1.9 million jobs have been swallowed by the recession. So he's already nearly five million jobs in the hole.
Now, Christina Romer, chairwoman of the White House Council of Economic Advisors, says don't expect any new jobs this year — and that unemployment could reach 9.5%, up from the current 8.9%, even though she expects the economy to grow 3.5% in the fourth quarter.
We understand that jobs are a lagging, not leading, indicator of economic strength. And this time will be no different.
Yet, in the near term, we're actually more optimistic than the White House. Not because we think what's been sold to the American people as "stimulus" is any great shakes, but because private- sector economic activity and global stock markets appear to have hit bottom and are ready to resume growth later this year.
Manufacturing's plunge and a massive drawdown of inventories late last year mean that any positive change in demand will translate into economic growth and a sudden need for workers. This will be helped by the Federal Reserve holding interest rates close to zero for the rest of this year, which seems likely.
Once a rebound occurs, we'll be hearing the all-hails and hallelujahs for the $787 billion stimulus package that Congress wrote and President Obama signed into law. But remember: The coming recovery will have little if anything to do with stimulus.
Facts are facts.
As of May 1, just $29 billion in stimulus spending, or about 3.7% of the total, had gone out. In a $14 trillion economy, that's nothing. So if the economy bottoms this quarter or next, as seems likely, it can't be due to stimulus spending — though that's what Democrats in Congress and the White House will no doubt claim.
The stimulus money, in other words, isn't getting out fast enough to make a difference. Even if it did, a dollar spent by government is a dollar not spent by you. Government grows at your expense.
More worrying to us are what budget economists call the "out years." In 2010, the White House only expects 3% GDP growth. This coming out of a protracted period during which GDP shrank at a more than a 6% annual rate.
Most economists believe that GDP growth of 2.5% or so, over a long stretch, is the minimum needed to revive job growth. As such, it will take a heck of a lot more than a brief burst of 3% next year to sop up the nation's 13.7 million unemployed.
Indeed, we need sustained growth of at least 3% for years for the economy to reach its potential. How likely is that?
Unfortunately, the smothering hand of government — including massive spending, thousands of new rules, government takeover of key industries, higher taxes on energy, capital and incomes, and up to $4 trillion in added deficits by 2012 — will be everywhere.
That's not a growth scenario — it's a stagflation scenario.