Employment Slowing in Q2

Final thoughts on Employment, via Professor Morici:

"Overall, conditions in labor markets remain mixed. Shortages have emerged for workers with key technical skills. For example, construction, business and information technology services, and health care remain strong for workers with technical specialties.

Meanwhile, workers with only high school or a few years of college, having few specialized skills, faced mounting challenges securing positions offering good pay and health benefits. In the Midwest, the weight of troubles at GM, Ford and their suppliers are felt, and in portions of the Southeast, the continuing woes of the textile and furniture sectors weigh down wages.

It is clearly a “haves” and “haves not” labor market, and these conditions go a long way toward explaining why President Bush cannot convince Americans the economy is on solid ground, even as it demonstrates robust GDP and productivity growth . . .

Overall, manufacturing has lost 3million jobs since 2000, and the patterns of past expansions indicate it should have regained about 2 million by now. The huge trade deficit and overvalued dollar against the Chinese yuan play key roles, destroying jobs in manufacturing and knowledge-driven service industries that pay above average wages. In turn, these conditions suppresses wages in communities dependent on manufacturing and other more established industries, and are an important factor creating a “haves” and “haves not” economy.

Unemployment fell to 4.6 percent largely because more adults chose to not participate in the job market. The adult labor force participation rate remains significantly lower than when George Bush took over stewardship of the economy. If adults were participating in the job market at 2000 levels, 2.7 million more people would be looking for work and unemployment would exceed 6 percent."

‘Nuff said.

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Source:
Professor Peter Morici
Robert H. Smith School of Business
University of Maryland
http://www.smith.umd.edu/lbpp/faculty/morici.html

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  1. glenn commented on Jun 5

    Barry, does anyone have a handle on the trend for more adults choosing to not participate in the job market? I keep seeing this cited over and over again, but little has been written as to why. Is this trend real, or is it more data manipulation by the BLS to keep unemployment low? Or…is it a trend toward self-emplyment?…is it the first wave of baby boomers opting for early retirement?

  2. paul commented on Jun 5

    Great quote – exactly.

    In regards to this and your previous post on economic indicators, Jim Hightower’s earlier writing had a story about people in a dinner reading a headline about how the health economy was creating many new jobs. One person says, “yes, I know. I have 3 of them.”

  3. Morgan commented on Jun 5

    glenn:

    I’m not nearly so suspiciious of deliberate data manipulation, but I also wonder exactly what the dropping labor participation rate means.

    I feel comfortable that demographics offer a partial explanation – many Baby Boomers have undoubtedly reached a point in their lives at which continued employment is optional.

    On the other hand, it also seems possible that changes in the economy are impacting the number of people falling into various employment categories (e.g. “unemployed” versus “discouraged”) – underneath the cyclical rise and fall with the business cycle, the length of unemployment spells has been steadily increasing over the last 40 years (the troughs during booms rise with time, and even the recent mild recession produced a peak to compete with older, more severe ones).

  4. eightnine2718281828mu5 commented on Jun 5


    I feel comfortable that demographics offer a partial explanation – many Baby Boomers have undoubtedly reached a point in their lives at which continued employment is optional.

    IIRC, it’s the sub-30 cohort that’s responsible for the majority of the decline.

  5. Brian commented on Jun 5

    A year ago I had one of those old-fashioned jobs with a salary, benefits and all that. Got downsized and now I’m a contractor. Make about 1/3 the money, no benefits. But I guess I’m not counted as unemployed. I think there’s a lot of this stuff going on.

    I live out in the boonies in Ohio and there’s basically two employers: WalMart or you can join the military. There is a fair amount of construction still but when that goes away we’re screwed.

  6. glenn commented on Jun 5

    ————–
    it’s the sub-30 cohort that’s responsible for the majority of the decline.
    —————

    Okay, I’ll buy into the under 30 stat….so going forward, what does this mean?? They have to work at some point, right? This is obviously a new trend so I wonder how long it will last.

  7. Barry Ritholtz commented on Jun 5

    The retirees have been going back to work — some theorize to make up for the damage done in 2000 to their portfolios.

    That’s an example of why the Buy & Hold strategy fails — you need to pull cash out at some time — guess they should have waited another 20 years to retuire . . .

  8. Cherry commented on Jun 5

    Yes, it is manipulation. Bush and his cronies much like Clinton and his cronies have “adjusted” the formula for the unemployment rate much like the Clinton era did for the CPI.

    They throw people off the “Unemployed” list that the Clinton era didn’t(and actually, that era was blamed for being to “soft” on unemployment as well). If you caculate unemployment from the 90’s Clinton model, it was 5.4% in May(range of 5.4% to 5.6%). During 2004/2005, it stayed in the low 6’s moving slowly down to the high 5’s. Now moving down into the mid-5’s.

    It just describes what we already know: we are above full employment(generally around 5.0% using 90’s caculations) and it will take about a 4.0-4.2 number in this model to get there.

    The peek of the last expansions unemployment number was 3.9, which would have been 2.9-3.0 under the Bush era’s “numbers”. Don’t be fooled by their propoganda.

  9. Lord commented on Jun 5

    Actually it is due mostly to kids not working in high school, but rates have declined even for those in their ‘high earning’ years.

    Or is it people mid-career who’ve had their job outsourced and choose not to work, rather than work at Wal-Mart?

    A lot of this, I would say. Rates have risen for those near and in retirement and this will be an increasing trend.

  10. Morgan commented on Jun 5

    89 emus, Cherry, Lord – Can you point me to your sources?

  11. Matt commented on Jun 5

    Someone needs to explain to me just how an adult can “chose to not participate in the job market.”

    Well, I guess my parents do have an extra room in their house I could hole up in….

  12. donna commented on Jun 5

    I choose not to participate in the labor market. My mom died and left me an inheritance, and hubby has a great job with Sony Playstation, a nice Japanese company. So we are not hurting and are out of debt except for the house payment.

    I do software process contracting work, and the only companies that call right now, and they call pretty much every week, are defense contractors, a market I choose not to be involved in right now. You would be surprised how many smart engineers I know who would really rather not do defense work these days. And this is in San Diego, where the 80s were all about defense contracting.

    Icidentally, hubby had six job openings until last week, now he has one. If Sony is worried about this year, I imagine other companies are terrified. Granted, they are launching PS3 and its a big investment, but it says a lot about how well they think those puppies are gonna sell if the economy tanks.

    I also have 20 and 16 year old sons, neither working. The 20 year old had a job at Gamestop for Christmas – they hired 16 kids and gave them 8 hours a week of work. The only jobs available around here are fast food or grocery store bagger, at minimum wage. Well, at least they’re in school.

    So yes, the employment picture in our house pretty much sucks right now.

  13. cm commented on Jun 5

    donna: Last week I checked out local job boards just out of curiosity. Lots of positions in Lockheed.

  14. GRL commented on Jun 5

    After reading both Bernanke’s speech and Roach’s morning commentary, an interesting divergence emerges:

    In the course of explaining why he thinks inflation is not a problem while stagnation is, Roach says:

    Yes, America’s CPI-based price metrics are now listing to the upside — pushing core inflation slightly out of its recent comfort zone. But this recent updrift may be more statistical than real. At work is mainly an upsurge in the largest piece of the CPI — the so-called owner’s equivalent rent (OER) of primary residences. This construct, which attempts to measure the price of the service homeowners derive from living in their humble abodes, accounts for fully 30% of the total core CPI and has now risen 0.4% for two months in a row. Excluding this component, the core inflation rate would have held relatively steady at 0.2% per month over the March-April period.

    http://www.morganstanley.com/GEFdata/digests/20060605-mon.html

    However, Bernanke attributes the increase in core inflation to higher oil and commodity prices:

    Although the rate of pass-through from the higher prices of energy and other commodities to core consumer price inflation appears to have remained relatively low, the cumulative increases in energy and commodity prices have been large enough that they could account for some of the recent pickup in core inflation. Despite recent increases in spot oil prices, futures markets imply that oil prices are not expected to continue rising. The realization of that outcome would reduce one source of upward pressure on inflation. However, the volatility of these and other commodity prices is such that possible future increases in these prices remain a risk to the inflation outlook.

    And Bernanke doesn’t even mention OER.

    And then there is the following comment by Roach:

    I’ll admit to a serious credibility problem with this aspect of my macro view. The main critique on my dour prognosis for the US consumer is that it has been wrong for the past three years.

    Roach assumes globalization will keep inflation “well contained” (to use a well-worn phrase). Bernanke’s comments seem to suggest that globalization, in the form of higher commodity and oil prices, is the source of the higher inflation.

  15. glenn commented on Jun 5

    GRL,

    stuff like OER, and higher oil and commodity prices ARE symptoms of inflation…in the case of OER, asset inflation in real estate and subsequent decrease in home affordability. These are not sources of inflation. The sources are liquidity, liquidity, liquidity (rapid expansion of US and Japan monetary bases) AND non-productive US deficit spending…can you say IRAQ! (yes, fiscal policy can result in inflation).

  16. Blissex commented on Jun 5

    «Roach assumes globalization will keep inflation “well contained” (to use a well-worn phrase). Bernanke’s comments seem to suggest that globalization, in the form of higher commodity and oil prices, is the source of the higher inflation.»

    As always, the question is ”inflation of which prices?”

    It seems from the above quote that Roach worries about wage inflation, and Bernanke worries about input materials inflation.

    While both are prices of inputs to businesses, that impact the bottom line, they are very different categories of prices.

    So, again, ”which prices” matters a great deal. Sure, there have been periods in which all prices were going up a lot, but it looks like now that pricing power is not at all equal across the various factors…

  17. Blissex commented on Jun 5

    «Someone needs to explain to me just how a adult can “chose to not participate in the job market.”»

    Summarizing what other people have said:

    * Young people staying longer with parents and/or choosing a few extra years of school.

    * Spouses staying at home supported by another wage earner.

    * Older people taking early retirement on reduced early pensions.

    * People who have been fired living off savings and severance until it runs out.

    * People working part time, only a few months across the year, or joining the informal economy.

    All these people would rather have a job, but can survive for a while without.

    BTW, why do you think that government encourage people to stay in school for as long as possible? Because their skills are really needed?

    Look instead at it this way: if someone enters the workforce at 22 instead of 18, that’s 4 out of 40 years of their working life they are not looking for a job and they are not counted as unemployed no matter what. Even better, instead of collecting welfare, they are actually paying to be unemployed. Double win for the government. Triple win if they do a further degree.

    «Bush and his cronies much like Clinton and his cronies have “adjusted” the formula for the unemployment rate much like the Clinton era did for the CPI.»

    This has been done in many western countries, under the assumption (quite realistic, see the estate tax story for a refulgent proof) that most voters are gullible.

    According to some econometrician that I think Barry has mentioned before, if inflation and unemployment were measured like-for-like as they were 30-35 years ago, they would be around 8% and 12%.

  18. Blissex commented on Jun 5

    «Overall, conditions in labor markets remain mixed. Shortages have emerged for workers with key technical skills.»

    I think that this is very wrong, in the sense that something like that is happening but it is not quite skills based…

    My impression is that USA (and 1st world) companies have decided on a ”headquarterisation” and/or ”plantation” model of operation.

    This means that they envisage to keep headquarters in the 1st world, with a small layer of ”quality” people as supervisors of far flung operations in cheap ”plantations” abroad, and with low level support otherwise (somebody has got to clean those headquarters and to cook for those supervisors).

    This means that they are shedding (permanently) all those positions (and potentially all can) that are not headquarters related, and can be more cheaply done abroad, and hiring only ”quality” people (which does not mean skilled, it means well connected and with prestige degrees) as supervisors.

    In some way the future is Nike :-).

  19. cm commented on Jun 5

    Blissex: Currently we have a “partial plantation” model for manufacturing, which at least superficially appears to work. The “full plantation” model won’t. The current deal works because the “West” has something to offer in the deal, which is know-how, “IP”, and innovation. Supervision and management alone are not plausible trading values.

  20. Lord commented on Jun 5

    Sources
    Polley, http://www.williampolley.com/blog/, covered the teen workforce nicely some time ago, Altig, http://macroblog.typepad.com/, graphed the data as a function of age, and Thoma, http://economistsview.typepad.com/, covered it as well, some months ago, based on BLS stats.

    Someone needs to explain to me just how a adult can chose to not participate in the job market.

    There are some people, like me, that don’t base their lifestyle on debt, and that can ‘retire’ very early, like the 40s, by living very frugally. It isn’t what I would like, but it is possible.

    Lots of positions in Lockheed.

    If you aren’t already working in the defense industry, you can forget about it. Nearly all require active security clearances. A lot of other companies advertise the same positions but never fill them. Mostly they are just trying to gain inside information on their competitors. You really need to look at ads from several months ago and ads now and see what is actually new. There are some, but only a small portion of those advertised. It has little to do with skills except those of your competitor.

  21. Lord commented on Jun 6

    That reminds me of a company that advertised 52 positions, held a job fair, attended by over 400, and the next month, advertised 54. And no, they weren’t growing rapidly.

    well connected and with prestige degrees

    Bingo!

  22. cm commented on Jun 6

    Lord: Interesting insight. I was aware of the clearance issue.

  23. Blissex commented on Jun 6

    «Currently we have a “partial plantation” model for manufacturing, which at least superficially appears to work. The “full plantation” model won’t.»

    Well, it works already within a country at least to some largish extent. It used to be that each ”region” of a large country had its own ”regional economy” and this still happens to some extent. There used to be for example regional stock exchanges etc.; conversely places like NY or LA used to have a whole panoply of economic activity including for example manufacturing.

    What has been happening inside countries has been the same ”headquarterisation” and ”plantation” model, where companies consolidate and this means they consolidate their headquarters too; also they move their manufacturing and similar activities to cheap locations. The game now is global.

    However while the ”headquarterisation” and ”plantation” model will work, it won’t last long, but ofr other reasons:

  24. Morgan commented on Jun 6

    Lord:

    Thanks for the source. I’ll take a gander.

  25. cm commented on Jun 6

    Blissex: But there is still substantial exchange between regions in the US. It’s not like one region produces everything for another and gets nothing in return. I thought that was one major feature motivating the term “plantation”.

    Your comment seems truncated BTW.

  26. Blissex commented on Jun 6

    «But there is still substantial exchange between regions in the US. It’s not like one region produces everything for another and gets nothing in return.»

    Sure, there is _some_ exchange among the regions in the USA, but that is usually exchange of primary materials or intermediate inputs.

    Then headquarters are very concentrated in a few places, simply because the sort of services and people that a corporate headquarters need are not available everywhere. A bit like with Silicon Valley for electronics.

    Also, there are large parts of the USA which receive a lot of income without producing much anything, for example those regions where the government (usually the military) is a major part of the economy.

    Perhaps once could argue that they are producing public goods. But then there are places with lots of retirees, and those just enjoy the fruits, if any, of asset ownership.

    However the ”headquarterisation” of the economy has gone in the USA before being globalized…

    However, one things that sometimes surprises me is that USA companies are not investing more in the backwards, cheap parts of the USA itself, of which there are quite a few, even if Japanese companies are doing so. Perhaps they are not after all that cheap, but given much lower transport and other costs, they should be fairly competitive. But I suspect that USA companies value operating in foreign jurisdictions.

  27. Blissex commented on Jun 6

    «Your comment seems truncated BTW.»

    Yes, they are, and I can’t post the rest because it registers as spam, even if it is hard for me to see which words may trigger this…

    Lets try a subset…

    «The current deal works because the “West” has something to offer in the deal»

    But headquarters don’t ”trade” with their plantations, they *own* them. The model is based on control, not exchange.

  28. Blissex commented on Jun 6

    And if there is some value added by headquarters it is cheap capital and access to rich markets. But these are indeed not long term advantages.

    However since ”plantations” in other countries operate under different political systems, different cultures, that ownership is indeed rather more tenuous than with national ones.

    USA corporates have been giving lots of capital to China and India to build up businesses that will eventually and quickly become independent (chinese and indians are not idiots), where if they had to do it without all that cheap capital it would have taken them a lot of time.

    From Tim Clissold, the author of “Mr. China”:
    «I think we just completely underestimated how wild business can be in China, and totally underestimated how far people would go in defending their economic interest.»

    But crucially in the meantime the short term sharecroppers in the executive circles of those USA corporates are minting money for themselves in cost-reduction bonuses and options fueled by profits from labour arbitrage.

    Japanese companies that invest in China and India conversely, being run by long term sharecroppers, are quite cautious about upgrading the capital bases of those countries, being reluctant to subsidize the creation of their future competitors…

    It is pretty obvious to me (I reckon I know the IT industry pretty well) that for example most of the USA IT industry will move to India and China, as it has been happening to the car industry and Japan, and like that eventually indian and chinese subsidiaries will be the main success stories (inshoring) of IT in the USA.

    The story BTW has already happened over the past 30 years as the UK IT industry has been offshored to the USA, with native IT companies disappearing and being replaced with USA company subsidiaries.

    In this case the main driver was that capital for tech companies in the USA was much, much cheaper than in the UK, and secondarily economies of scope.

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