Wednesday, May 1, 2013
US Unemployment and Obama's New GDP Calculation
President Obama got a dose of cold water Wednesday morning, with the ADP National Employment Report showing that the private sector added 119,000 jobs in April, well short of the estimated increase of 150,000 jobs. The ADP report said trade and transportation led with job gains of 29,000 in April. Professional and business services added 20,000 and construction, 15,000. The really bad news came in manufacturing, which cut 10,000 jobs. Small and midsize businesses accounted for most of the job gains for the fourth straight month. Small businesses added 50,000 jobs, midsize ones, 26,000. The Labor Department said employers added only 88,000 jobs in March, a significant drop from the average 200,000-plus a month from November through February. The unemployment rate fell to 7.6% from 7.7% BUT only because 500,000 Americans stopped working or looking for work. This is not good news since experts estimate that at least 225,000 NEW jobs a month are needed just to stay level with the losses. ~~~~~ But wait, dear readers, let's take a look at Obama's plan to improve this disastous job creation situation. Will he -- Reduce taxes?? Eliminate unnecessary reporting requiremenrs?? Ah - too reasonable. No - the President is going to change the way the American GDP is calculated, thereby showing a bigger total economic activity...and thus a lower unemployment rate, among other things. Michael Pento, founder of Pento Portfolio Strategies, told CNBC, "It shouldn't come as a surprise they are going to change the way this number is reported....When GDP numbers are chronically bad [averaging just 1.45% in the last two quarters] and the labor force participation rate is perpetually falling, our government will do the same thing they did for the inflation data - tinker with the formula until you get the desired result." So, in two months, revised government estimates will undoubtedly show that the economy is even bigger than the currently stated $15 trillion. And while the numbers may shock some people, the new calculation of the Gross Domestic Product won't hide the fact that in terms of actual growth, this is the worst US economy in 83 years. GDP growth may be in its longest sub-3% annual growth rate since 1929, the beginning of the Great Depression. The economy hasn't topped 3% since 2005 and is unlikely to top 3% this year. So even if the new GDP calculation adds 3% to the US economy - say, another half-trillion dollars - the US is still stuck in the slow-growth period it has endured since the beginning of the Great Recession. And this is reflected in employment. Though employment has risen by 1.3 million in the past year, unemployment that counts the discouraged and underemployed, as well as the jobless (often called the "real" unemployment rate) has remained stubbornly high, at 13.8% of the workforce, according to the most recent estimates. A state-by-state look at the numbers, released a few days ago and current through the first quarter 2013, shows that just six states have real rates below 10%. The best of the lot is North Dakota, at 6.2%, while the worst is in beaten-up Nevada, with a real rate of 19.6%. In the past year, the unemployment rate actually rose in six states (Alaska, Delaware, New Hampshire, New Jersey, New York and Pennsylvania) and was unchanged in three (Connecticut, Mississippi and Oregon). SO, when you hear, dear readers, that the US government believes the GDP revisions will present a more realistically complete look at the economy, you will understand why critics are crying out that the changes are an attempt to mask weak growth and rationalize more debt, caused partly because the almost stagnant economic growth rate, with its high unemployment rate, cannot generate the tax revenues needed to prevent higher national debt levels. As Mr. Pento said, "It's a shame they won't just implement real measures to grow the economy like reduce regulations, simplify the tax code and balance the budget."