Jobs Report: Don't Break Out the Champagne Just Yet

Finally, the economy appears to be delivering jobs--adding 222,000 private sector jobs and 192,000, after losses in government are subtracted, in February.

The unemployment rate fell to 8.9%, even as the labor force expanded with normal population growth and a steady, albeit low by historical standards, labor force participation rate. Counting those who have left the labor force and taking part-time work but would prefer full time employment, the true unemployment rate remains about 16%.

It is still early to break out the champagne, because the February surge came after a weak January when only 63,000 jobs were added. March data will tell much as to whether the economy is on a sustainable path for growing jobs.

Until February, the private sector was creating few permanent jobs-most jobs were either in health care and social services, which enjoy heavy government subsidies, or were temporary services jobs.  In February, those two groups did add healthy numbers-36,000 and 16,000 respectively-but core private sector jobs. After health care and social services and temporary jobs, the "core" private sector gained 170.000 jobs.

Still this is not enough, after such a deep recession, and this is much less than what the economy is capable of accomplishing.

The economy must add 13 million private sector jobs over the next three years-360,000 each month-to bring unemployment down to 6%. Core private sector jobs-jobs net of health and social services and temp positions-must grow at least 300,000 a month to accomplish that goal.

President Obama's policies are not creating conditions for businesses to hire in those numbers, net of layoffs.

Temporary tax cuts, green jobs, waivers from the onerous consequences of the health care law for unions and the states, and modest reevaluation of onerous regulations on business won't cut it.

More fundamental reforms are required to get America back on track-collective bargaining reform, health care, energy, and trade with China must be addressed or we should all get used to our children living with us until they are 30 and older. Decent paying private sector jobs simply are not being created fast enough, because it costs too much to do business in America, and the demand for what Americans make is growing too slowly.

Labor unrest is spreading from Wisconsin, encouraged by President Obama and sustained by the AFL-CIO and other activist groups on the left. More than quick cuts in pension and health care costs, a major realignment of the role of collective bargaining in relations between state governments and unions is needed. The President is instead pushing states into higher taxes, which will drive manufacturers to China, Canada and Mexico.

The states' pain over Medicare spending is merely the prolog to systemic breakdown that will unfold over the next five years. The health care reform law increases demand without addressing the fundamental cost issues. Americans pay at least 50% more to see doctors and purchase drugs, for health insurance company overhead and to support tort lawyers than do the Germans, Japanese and others.

For example, with private systems of health insurance, Germany spends about 12 % of GDP on health care, while the United States spends nearly 19. American companies are simply going to send jobs overseas rather than be compelled to bear that kind of cost disadvantage.

The $500 billion dollar trade deficit is sapping demand for what Americans make, causing growth to crawl along at 3%, when 4 or 5% is possible after a deep recession and is needed to create enough jobs.

Fixing the trade deficit comes down to oil and trade with China.

On oil, windmills and solar panels, mostly made in China, and electric cars won't solve the oil problem. Harnessing natural gas to wider uses and drilling for more oil domestically is the only way out, but the religious aversion to practical energy solutions embraced by the Administration and many in Congress all but damn the U.S. economy to high gas prices, big import bills and slow growth.

The same applies to the veiled failure at changing China's very damaging currency policy and doubling exports. If President Obama won't act against China's currency strategy and stop laying big health care and regulatory burdens on business, the U.S. economy won't create enough jobs.

Hopefully, at some point, the facts will catch up with thinking in the White House. We have to address the world as we find it, not as we wish it would be.

Peter Morici is a professor at the University of Maryland School of Business and former Chief Economist at the U.S. International Trade Commission.