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One Thing Is Clear: Not Enough New Jobs

12:00 AM, May 5, 2012 • By IRWIN M. STELZER
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Summer is approaching and nerves are jangling. In recent years the green shoots of the early months withered in the heat of summer. The queue of people worried that this summer will be another in which a recovery is aborted is long: the unemployed, retailers, investors, President Barack Obama and his team, incumbent congressmen of both parties, home builders, and car salesman—to name just a few. Mitt Romney, although not one to wish the nation ill, would be less than human if he did not feel a frisson of excitement at every bit of news that suggests the green shoots won’t flower until after the November elections.

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Friday’s jobs report provided the Republican contender with just such a frisson. Only 115,000 jobs were created in April, and the unemployment rate dropped from 8.2 percent in March to 8.1 percent, the lowest level since Barack Obama took the oath of office in January of 2009, but only because thousands more workers gave up the job hunt. If those discouraged workers had remained in the work force, the unemployment rate would be in double digits.

GDP, which grew at the satisfactory rate of 3 percent in the final quarter of 2011, managed only a tepid 2.2 percent growth in the first quarter of this year. That’s half the growth rate of all our recoveries since World War II. Some economists estimate that unseasonably warm weather—the warmest since 1895—added 0.2 percent to growth. Worse still, 0.6 percent of the first quarter growth in output merely swelled inventories of unsold goods. Back out the weather and inventory build-up, and growth comes to a measly 1.4 percent. Business investment declined at an annual rate of 2.1 percent. A bad start to the year—bad enough, in the words of the Wall Street Journal, “to give the word recovery a bad name.”

To make matters worse, Europe is sinking into recession—after the eleventh monthly increase the unemployment rate is 10.9 percent and rising—and France (budget deficits for the past 35 years) has been added to Spain (one-in-four workers unemployed) as a country too big to fail and too big to save. That won’t help U.S. exporters, already staggered by the speed of the slowdown in demand from China.

There is some good news. Corporate profits in the first quarter of this year topped last year’s level by more than 6 percent, or over 4 percent if Apple’s massive profits are backed out of the figures for the 500 companies in the Standard & Poor’s index. Some 70 percent of the S&P 500 companies beat analysts’ estimates. Better still, most of the improvement comes from U.S. operations, offsetting the weakness companies such as General Motors, UPS, and Starbucks report for their European businesses. But note that the first quarter figures are a three month average, with January and February doing better than March, in which month orders for durable goods recorded their largest drop in three years, and factory production declined, perhaps presaging a slowdown in the following months. 

Or perhaps not. The very latest data suggest that the recovery remains on course. Not at a rate that creates enough jobs, but one that permits the president to claim that he has turned around the recession he inherited. The University of Michigan index of consumer sentiment rose a bit in April: both households’ assessment of current economic conditions and their expectations of the future both rose. With 16 of the 18 industries in the Institute for Supply Management’s Index (SMI) reporting gains, activity in the manufacturing sector rose for the 33 consecutive month, and at the fastest pace since June of last year. Most important, the new orders’ index, an indicator of the level of activity in coming months, rose sharply. “Encouraging,” Goldman Sachs economists say. And private sector spending rose sufficiently to offset a decline in spending by state and local governments.

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