Sunday, December 8, 2013

Unemployment Not As Low As Reported, GDP Gains, Tapering Coming

Peter Morici to Moneynews: True Unemployment Rate at 13 Percent

Friday, 06 Dec 2013 01:55 PM
By Dan Weil and Lisa Barron
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While Friday's jobs report represents a sign of progress, it also understates the magnitude of the unemployment problem, said Peter Morici, a professor of international business at the University of Maryland and a Moneynews Insider.

The headline number for unemployment fell to a five-year low of 7 percent last month. But the total exceeds 13 percent if you count people who have given up looking for work or are working less than they'd like, he tells Newsmax TV in an exclusive interview.

"We see this at both ends of the labor force, young people who are basically reluctant graduate students for the third time and older folks in their 50s who have lost their jobs," Morici said.

While non-farm payrolls gained 203,000 in November, "we're not getting the kinds of numbers we would need to get unemployment to an acceptable level and have high quality jobs," Morici said.Still, "they [the jobs numbers] are a lot better than we were expecting," he said. "And going forward, 2014 will be a little better year. We're not going to get the 400,000 jobs a month we need, but we're going to get more jobs than we've been getting."
As for the economy, third-quarter GDP growth was revised up to 3.6 percent Thursday from 2.8 percent previously. But the gain came largely in inventories, Morici notes. That will have a dampening effect on fourth-quarter growth as those inventories need to be worked off, he said.
He expects growth of about 2.5 percent for 2014 and 2015. "However, this is nowhere near what can be accomplished," Morici said. "Ronald Reagan, at this point in his recovery, had the economy growing at nearly 5 percent, and he was recovering from a deeper recession than Mr. Obama
"Morici said the economy is strong enough for the Federal Reserve to begin tapering its quantitative easing. The Fed is buying $85 billion of Treasurys and mortgage-backed securities a month."We'll start tapering in January and February," the professor predicted. "I believe we've gotten all we can get out of steroids, and now we have to get down to fundamental structural reforms." 
If President Barack Obama is unwilling to make those reforms, the Fed should stop bailing him out, "because it's building up a lot of negative effects in the agricultural land market, in the real-estate market, and so forth," Morici said.

The Fed should avoid tapering dramatically, so that it doesn't send the economy and stock market out of whack, he said.

"This is something the U.S. economy can accept and the stock market can deal with," Morici said.

"There may be an initial adjustment in the market because you know how the market is. It should be looking ahead six months. Instead, it looks ahead six days and maybe only six hours at times. But tapering is on the way."


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