By LAWRENCE KUDLOW
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 percent to 7.5 percent.
And with all the hysteria over the economic evils of the sequester cuts, 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 Barack 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 10-year, $1 trillion spending cut launched in 2011 and the 10-year, $1 trillion sequester cuts, which began this year, are bright spots in economic policy. As a share of gross domestic product, 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 also fell 0.4 percent. Those are worrisome trends for the future. It may be a harbinger of the ill effects of the job-killing Obamacare program, in which rising tax, mandate and regulatory costs penalize the 50th worker hired and the 30th hour worked in small business.
Fearing Obamacare, profitable business is reluctant to invest in the kind of capital projects that create jobs. That is one reason job growth is falling short by at least 100,000 per month.
Nonfarm payrolls remain 2.6 million short of the peak, reached in January, 2008. What’s more, the number of people who are effectively unemployed—those who are not working, underemployed or forced to work only part time—is roughly 22 million.
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. That translates to a loss of roughly 10 million jobs from the long-term trendline. 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 past 15 quarters (compare that with the 4.4 percent post-World War II 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 10 years, 5 percent growth could reduce the tax-hike-threatening budget deficit by more than $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.