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Slow Growth: Good for Stocks, Not Jobs

The U.S. economy is likely to dodge a recession, but good jobs will remain hard to find.

The global economy is slowing because the EU, Japan, China and other emerging economies can’t execute long overdue reforms. Burdened by debt and excess industrial capacity, most seem bent on cheapening their currencies through a combination of capital controls and monetary policies that drive interest rates into negative territory.

Weak global demand and the strong dollar have delivered body blows to U.S. oil, mining, and manufacturing. Along with a pullback in holiday spending, fourth quarter GDP registered a weak 0.7 percent.

Oil prices will stay reasonably low, further boosting autos sales, and consumer spending for other items should accelerate as ordinary folks become more confident that the “tax cut” afforded by cheaper gas is more or less permanent.

Still, petroleum is poised to be a good news sector.

Shale producers have learned to cope better with oil at $30 a barrel—at least in the near term. U.S. field production has simply not fallen as much as expected and is actually up since Christmas. This resilience frustrates Saudi Arabia’s open throttle strategy to drive small U.S. independents out of business, and now OPEC and Russia finally appear ready to at least consider production cuts.

Overall a strong performance from consumers and a stabilizing petroleum industry should drive GDP up at about 2 percent the first half of the year and 2.4 percent in the second.

Longer term, fundamental changes are redefining the U.S. economy. The shift from manufacturing to services no longer means trading high labor productivity for low. Breakthroughs in artificial intelligence and robotics will make it possible to replace 90 percent of all jobs with smart machines by 2030, and will benefit non-industrial activities most. Chores as sophisticated as a dentist filling a tooth may be replaced by a remarkably dexterous robot.

The cost of smart machines is falling, and many can be reprogramed to perform multiple tasks and adapt to changing environments. Investments in those to replace workers will fall rapidly as this revolution unfolds.

All of this should be good for stock prices. The knowledge that America can indeed grow—albeit slowly while leaders in Brussels, Beijing and elsewhere dither—should shake fears that China’s flagging fortunes dictate the pace of progress in America.

Stocks should recover from recent losses and post decent gains for the year as a whole.

Still, growth in line with the 2.2 percent pace of the six year recovery won’t create a lot of new jobs. The monthly pace should slow to about 185,000 from 221,000 last year and 260,000 in 2014.

The explosion of regulations—including federal and state pay equity rules, the minimum wage movement, the proliferation of unnecessary state occupational licensing requirements, restrictive local land use regulations that push up apartment rents, and policies that disperse low income workers across the suburbs—are raising the costs of hiring and keeping the unemployed and poorly paid from moving to better opportunities.

Along with policies that now pay some 7 million men between the ages of 25 and 54 to neither work nor look for work—for example, expanded access to food stamps programs, easy access to social security disability benefits and Medicaid for able bodied men who refuse to work—politicians seem more adept at cultivating disaffection than broadening economic opportunity.

All of this encourages businesses to get more out of their workers rather than hire and accelerate the build out of smart machines to replace people—automated checkout lines at supermarkets are just the cutting age.

Friday, economists expect the Labor Department to report the economy added only 188,000 jobs in January. Thanks to new technologies and wrong-headed government policies, that tepid jobs report will be the face of things to come.

Peter Morici is an economist and business professor at the University of Maryland, and a national columnist.

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