Joblessness stuck on high plateau
The Reagan administration has slimmed down its robust economic assumptions for 1985 and '86. But the new figures, formally released Monday after becoming public last week, are still rosier than the numbers most private forecasters are using.Skip to next paragraph
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By assuming economic growth will accelerate for the second half of 1985 and continue strongly in 1986, the administration can project better news on several politically sensitive fronts, including unemployment and the budget deficit.
The unemployment rate, for example -- perhaps the most politically sensitive economic barometer -- is projected to ``decline steadily,'' says Beryl Sprinkel, chairman of the President's Council of Economic Advisers. Revised budget-deficit figures will be released in late August, presidential spokesman Larry Speakes says.
After being stuck on a high 7.3 percent plateau for five months, some private forecasters expect the US unemployment rate to climb when jobless figures for July are announced this Friday.
``We are expecting 7.4 percent'' for the July civilian jobless rate, says Martin Mauro of Merrill Lynch Economics. ``We have it increasing slightly to 7.5 percent by the end of the year.''
The Reagan administration, on the other hand, sees the jobless rate for all workers, including the military, averaging 7.1 percent in 1985 and 6.8 in 1986. The all-worker rate tends to be about one-thenth of a percentage point lower than the civilian rate, according to private economists.
In the past, a jobless rate of 7 percent was experienced at the end of a recession before a recovery began. But the US economy has been expanding since the fourth quarter of 1982 -- still, private forecasters say the picture will remain grim.
Experts cite several causes for the unusually high jobless rate, including the sales (and eventually jobs) US companies have lost to foreign firms as a result of the dollar's unusual strength in currency markets. While consumer demand has remained strong, US economic output, and job creation, suffered as imported goods took the place of homemade products in consumers' shopping bags. The dollar is ``the key factor'' in the recent persistence of high unemployment, says David Wyss of Data Resources Inc.
Other causes cited by experts include pressure on the economy to absorb an unusually large number of baby-boom generation workers and slower world economic growth due to oil price hikes of the 1970s.
The shift from a manufacturing to a service and high-tech economy is not ``having a major impact on unemployment,'' says Merrill Lynch economist Mauro. Manufacturing employment as a share of total employment has been declining for 80 years. And recently the decline in the number of manufacturing jobs has been offset by increases in the number of service jobs.
Assumptions about growth make a key difference in the unemployment outlook. Economic growth of about 3 percent is needed to offset the upward push on the unemployment rate which comes from new entrants into the labor force and efficiency gains by existing workers.
The administration now projects 1985 economic growth at 2.7 percent on a calendar-year basis. That's down from a 3.8 percent projection in April.
But hitting the administration's current target will require that the economy grow at a pace faster than 4 percent to make up for lackluster growth at a 1 percent rate in the first half of 1985.
During 1986 the administration expects growth to be a robust 4.2 percent.
``They have been optimistic throughout,'' says Bernard Markstein III of Chase Econometrics. In 1983 and '84 administration forecasters ``tended to underestimate the recovery. Lately it has been the reverse,'' he says.
Chase expects growth of 2.4 percent for 1985, 2.6 in '86.
The Reagan growth forecast assumes businesses will spend to rebuild inventories and that consumers will keep up their robust first-half spending patterns. But that assumption ``is foolhardy,'' since shoppers had to trim savings to maintain first-half buying, notes Donald Ratajczak of the Georgia State University Economic Forecasting Project.
The administration also trimmed its inflation and interest-rate assumptions. GRAPH: US Civilian Unemployment Rate
1980 - 7.1 pc
1981 - 7.6 pc
1982 - 9.7 pc
1983 - 9.6 pc
1984 - 7.5 pc
Jan - 7.4 pc
Feb - 7.3 pc
Mar - 7.3 pc
Apr - 7.3 pc
May - 7.3 pc
Jun - 7.3 pc
Source: Bureau of Labor Statistics