COMMENTARY - U.S. job losses point to slower growth

(Peter Morici is a professor at the University of Maryland School of Business and former Chief Economist at the U.S. International Trade Commission. The opinions here are his own.)

By Peter Morici

BALTIMORE, Md (Reuters.com) -- Today, the United States Labor Department reported the economy lost 84,000 payroll jobs in August, after losing 60,000 jobs in July. This was much worse than was expected, as the full weight of banking crisis, rising oil prices and imports from China drive up unemployment.

Unemployment rose to 6.1 percent from 5.7 percent in July. Factoring in discouraged workers, unemployment is closer to 7.7 percent.

Hidden unemployment and wages lagging inflation make the economy the most important issue dogging U.S. Republican presidential nominee John McCain. Quite simply, ordinary Americans have not benefited from the strong GDP growth accomplished in recent years, and this gives Democratic candidate Barack Obama's proposals to redistribute income a lot of traction. These will not much help ordinary workers two years from now but in the heat of a campaign, populist policies and promises enjoy strong appeal.

The government added 17,000 jobs. Factoring out government employment, which is fairly steady in times of economic distress, the private sector bled 101,000 jobs.

Over the last eight months, the economy has lost 605,000 jobs. The banking crisis, subsidized fuel prices in Asia and protectionist policies in China and elsewhere are causing employers to relocate to Asia rather than endure the eminent U.S. economic slowdown.

These job losses, along with slowing activity in consumer spending and construction activity, indicate third quarter GDP growth will be significantly less than the 3.3 percent posted in the second quarter. The stimulus package tax rebates gave consumers a boost in May and June, but now consumers are trimming back. Gasoline prices, though easing still strain consumer budgets, car sales remain poor and skewed toward imports, and heating oil will be expensive this fall and winter. Overall, GDP growth should be about 1.4 percent in third quarter and slow further in the fourth quarter and the first quarter of 2009.

Inflation will come down with falling oil prices. With the banks in trouble, the Federal Reserve will not be raising interest rates anytime soon.