Larry Kudlow

Despite some modest improvements in the jobs picture with the release of today’s Labor Department report, I would guard against any irrational overexuberance that problems with employment or the economy are being solved.

A smaller-than-expected 80,000 gain in nonfarm payrolls was bolstered by upward revisions in the prior two months, amounting to 102,000 additional jobs. So over the past three months the establishment survey has averaged 114,000. It’s really nothing to write home about.

A 2 percent economy is simply way too slow to generate the kind of 300,000 per month job gains the country needs. Economic growth at 5 percent would be more like it.

And this should be a warning to members of Congress who are flirting with higher tax rates as part of the supercommittee deficit deliberations. There’s loose talk about raising the top Bush tax rates and adding to that a surcharge on millionaire tax rates. That would be a big negative for future growth. Moving the top rate for investors, small-business owners, and other successful earners from 35 percent to 50 percent in the name of deficit reduction would be a devastating blow to growth. By the way, it would not even remotely solve our deficit problems, which are the result of overspending across the board.

Turning back to the employment report, one of the biggest problems is the lack of income and earnings power. Average hourly earnings are only 1.2 percent annually over the past three months, compared to a consumer price increase of 4.8 percent. So after-tax post-inflation income is still falling. 

Meanwhile, aggregate hours worked rose by only one-tenth of a percent in October and only 1.7 percent over the past three months at an annual rate. So even when you combine hours worked with hourly earnings, there’s still a shortfall in real income.

The best part of the jobs report is the recent surge in the household survey, which picked up 277,000 in October and has averaged 335,000 over the past three months. This is a good sign for small business, and it’s responsible for the small drop in unemployment to 9 percent from 9.1 percent.

But it seems as though the difference between nonfarm payrolls and the household survey is starting to narrow. Over the past year, for example, corporate payrolls have increased 125,000 per month while households have increased 102,000. This is a normal pattern over time.

Again, while there’s progress on the jobs front and the economy is moving away from recession, the numbers are relatively small. That’s why Washington must be mindful of the tax and regulatory barriers which continue to impede economic growth. Republicans in particular should not be lulled into a bad deficit package that could inhibit growth.

Tax incentives matter enormously, and we’re still in a very slow-based economy.


Larry Kudlow

Lawrence Kudlow is host of CNBC’s “The Kudlow Report,” which airs nightly from 7 p.m. to 8 p.m.