The economy should be creat ing jobs.
That, anyway, is what everyone says. President Obama thinks that. And so does Federal Reserve Chairman Ben Bernanke, every Wall Street economist and all the unemployed folks sitting around Starbucks logging on to Monster.com.
But jobs aren’t being created — at least not nearly enough by even the most forgiving definition of an economic recovery.
Even if last Friday’s disclosure by the Labor Department that only 36,000 new jobs appeared in January was flawed on the pessimistic side (as I showed in my last two columns), private measures of employment aren’t showing a labor market that is even the least bit robust.
So, what gives?
The easy explanation is that companies simply don’t want to hire.
Executives are being stubborn even though their profits are rising nicely. Please, please start adding workers, the president implored the other day, as if all companies had to do was flip a switch.
They want to keep earnings up so that the stock market will reward them with higher share prices.
Or, maybe, they just aren’t sure these profits gains will stick, especially with higher inflation expected in the future.
And there are other possible explanations as to why companies might not be adding to their payrolls.
Maybe they are afraid of the future costs of health care reform. Why take on more medical obligations when you aren’t yet sure what your current workers are going to cost you?
But there’s something else that almost nobody is considering: perhaps the economic recovery just isn’t as strong as Washington thinks (which, incidentally, isn’t very strong to begin with.)
Nobody, of course, wants to hear this. But let me make the case.
Take a look at the Gross Domestic Product announcement put out by the Commerce Department a few weeks ago. It showed that the economy grew at an annualized rate of 3.2 percent during the final three months of 2010.
The 3.2 percent rate was a smidgen better than the 2.6 percent annualized growth recorded in the third quarter.
Take away the word “annualized,” divide the quarters’ performance by four and you see just how small the improved expansion really is: 0.8 percent actual growth in the fourth quarter compared with 0.65 percent in the July-Sept. period.
So, maybe companies simply aren’t hiring because they really cannot see much economic expansion.
Maybe they are right to be cautious in expanding payrolls because it’s the only way they can protect their profits.
But there is another problem with taking the government’s word on how fast the economy is growing.
The December estimates put into the GDP are about as solid as a Jello mold.
Worse, according to economist John Williams, 3.44 percentage points of the annualized growth in the fourth quarter — more than the total 3.2 percent reported — came from a sudden, inexplicable decline in imports.
Without the reduction in imports GDP would have been down in the fourth quarter and we’d be hearing talk right now — again — about a possible double-dip recession!
The Commerce Dept. also attributed a lot of the gain in fourth quarter GDP to retail spending.
But we already know — from a column I did during the holiday shopping season — that much of the sales increase in December wasn’t coming from a sudden burst in consumerism, but instead from rising prices on things like energy.
That isn’t growth; it is inflation. And inflation is bad.
Despite all the inflation that you and I see in the real world, the Commerce Dept. barely noticed that prices were rising in its GDP calculations.
It used 0.3 percent as the annualized deflator in the GDP report when the consumer price index (the CPI, which itself understates inflation) is up 2.6 percent from a year earlier.
Let me explain it a different way.
Each point that inflation rises decreases the GDP by a point.
So, for instance, if the GDP deflator had simply stayed at the 2.0 percent reported in the third quarter the annualized GDP growth in the final three months of the year would have been an extremely modest 1.2 percent annualized, not 3.2 percent.
Countries get them selves into trouble when they publicize false eco nomic data, whether the deceit is intentional or not. And they confuse people. The Russians, in the 1960s couldn’t figure out why they were going hungry when the Kremlin was reporting huge grain crops.
And Americans today are equally baffled about the lack of job creation — despite the crop of optimistic economic numbers coming from Washington.