Trade Deficit Says Jobs Growth Isn't Sustainable

By Peter Schiff Townhall 3-10-12

Today the Labor Department reported that 227,000 new jobs were added in February, representing the third consecutive month of job creation. Many observers have taken the report as clear evidence that the economic recovery has taken hold in earnest. However a second data set, also issued today, throws significant amounts of cold water on that assumption.

The Commerce Department reported that, after surging for much of the last year, the U.S. trade deficit expanded by $4.3 billion in January to $52.6 billion. This is the largest monthly trade gap since October 2008, and it comes with record imports. So in terms of trade, the U.S. is in exactly the same position we were during the opening act of the financial crisis.

While it may be true that we are adding jobs, it is also true that we are not adding the kinds of jobs that will put us on a sustainable path. Large and persistent trade deficits were a primary reason that the U.S. economy imploded in the first place. If we fail to build an economy that can pay for imports with an equal number of exports, we will simply revisit the pain of last few years.

Despite some marginal improvement in manufacturing employment, new hires have been overwhelmingly in the service sector. We need a shrinking service sector and a shrinking trade deficit. As it is, newly employed Americans are spending money on imported products that America should be producing.

The trade figures are evidence that our spending has increased while our economy has not. It is also shocking to consider that we are importing more with 8.3% unemployment than we were five years ago when unemployment was near 5%. I can only imagine how large the deficit would be if we had even more service sector jobs.

Job creation at home has been like vegetation sprouting along the banks of the rivers of stimulus money. These artificial pathways may help temporarily, but they can only be sustained while the stimulus continues.

All the while, however, they prevent growth where it is needed most. The recession should have forced us to address the problem of persistent and enormous trade deficits. We have utterly failed to do this. So while the job numbers look good for now, there should be thin confidence that the pattern is sustainable.

Peter Schiff
An expert on money, economic theory, and international investing, Peter is a highly recommended broker by many leading financial newsletters and investment advisory services. He is also a contributing commentator for Newsweek International and served as an economic advisor to the 2008 Ron Paul presidential campaign.