Randomly Noted

In the 1950s, the reknowned Nat King Cole sang a song called “Unforgettable.” For the U.S. economy, 2010 was the opposite, most forgettable.

Oh sure, a lot happened. But who remembers mile 18 in a 40-mile forced march? That’s if 2010 did represent mile 18. Maybe it was mile 23. It wasn’t mile 37.

Back near the start of 2010, Obama economic aide Larry Summers properly described the U.S. economy, calling it a “statistical recovery and a human recession.” The phrase outlasts Summers, who just left the employ of the administration.

Continue reading…

Federal Express reported an 18% decline in second quarter earnings today. At first blush, that might appear to indicate that maybe the economy isn’t on the road to recovery after all. That’s because FedEx, and fellow shipping company UPS, are looked at as proxies for the economy. When businesses are building more products, they need to ship in tools that help them do that. And when consumers are opening their wallets, they buy products that are often shipped to them.

But read above the bottom line numbers at FedEx and you see some positive news.

Continue reading…

In our sporadic, somewhat random, review of commentary about the level of structural unemployment in the U.S., we’ll add some recent comments from Jeremy Grantham of the fund management firm GMO.

They were part of Grantham’s well-reasoned and clearly presented jeremiad at perceived policy overreach by the Federal Reserve, which he maintains doesn’t result in long-term benefits to the economy and creates eventually harmful asset price bubbles.

A reminder about why the debtae on the nature of the high unemployment rate in the U.S. is important. The bigger the portion of the 9.6% unemployment due to structural issues – skills mismatch, geographic mismatch, etc – the less that monetary policy can do to solve the jobless issue, even if all the Fed’s quantitative easing plans work fully as intended. That in itself is a big if…

According to Grantham, by 2007 overbuilding in the housing industry drew about one million additional workers to the sector. The view that housing artificially decreased the unemployment rate has been heard before, but Grantham adds some twists.

He reasons that many of the “lightly skilled” workers drawn to housing would otherwise have fallen victim to another structural unemployment problem caused by increased globalization between 2002 and 2007. Less-skilled work went to lower-wage nations.

“With the housing bust, construction fell below normal and revealed this large increment in structural unemployment,” Grantham recently wrote. “Since these particular jobs may not come back, even in 10 years, this problem may call for retraining or special incentives.”

More statistical detail was provided earlier this week about a troubling aspect of the U.S. unemployment problem: the number of open jobs has gone up a bit even as the already high jobless rate has risen.

The following numbers were provided by Narayana Kocherlakota, the president of the Federal Reserve Bank of Minneapolis, in the text of a speech he delivered Tuesday in Fargo, ND.

The Minneapolios Fed official was building on an earlier talk in which he cited the so-called structural unemployment issue, saying that up to one third of the 9.6% unemployment rate might be due to factors other than a flattish economy. Those could include a skills mismatch, a geographic mismatch and other factors.

Continue reading…

Call it the authoritarian advantage.

The notion gets tossed around all the time in macroeconomic discussions. In difficult economic times, non-democratic countries have an advantage. They can make fast decisions by fiat, steering their economies as they see fit. In democracies, of course, things are messier and slower.

Of course, no one here is advocating dictatorship, economic or otherwise. The freer the economy and the citizen the better. But it is worth noting in these troubling times, America is following an expected pattern in which so-called economic and business elites believe in certain paths to economic improvement and growing numbers of voting citizens think otherwise.

Call it a populist backlash.

Example one is the bank bailout. Lots of people now call TARP (Troubled Asset Relief Program) some variant on the best program that also managed to be the most hated. Many people understand that letting the financial system collapse in 2008-09 would have meant greater disaster for everyone, but having voted for bank bailouts is now no badge of honor for politicians seeking re-election.

Trade is another one. It wasn’t long ago there was a pretty broad coalition in the U.S. that believed the freer the trade, the better. The U.S. would benefit because from agriculture to banking services to manufacturing equipment, we had some useful things to sell the world.

Sure, many unions and other advocates of manufacturing workers, whose jobs could easily be shipped abroad, stood long opposed to freer trade, but they now have lots of company. It’s understandable that when jobs get scarce people want to build walls around the jobs that remain, but such policies, especially if widely adopted by nations, will hurt everyone.

The U.S. Federal Reserve is expected to embark on another round of quantitative easing to help spur the stuck-in-the-mud economy. The essential increased printing of money to buy Treasury securities will hurt the value of the dollar, but the Fed believes a stronger level of inflation and even higher inflation expectations are needed to get people and businesses spending again, eventually increasing employment and keeping the scary deflation monster at bay.

But the notion of higher inflation, especially engineered by a central bank, likely won’t sit well with many people. In a recent issue of The New Yorker magazine, James Surowiecki cited a 1996 study by the well-known Yale economist, Robert Shiller, that showed “sizable majorities” of people globally are dead set against inflation, even in a trade-off for higher employment.

That might well be a reasonable stance, because once ignited inflation and its expectations are tough to tame. Also, the Treasury bond buying plans bythe Fed might simply not work. At least Fed officials don’t have to worry about getting re-elected.

People in Congress do, and that’s why it’s a pretty sure bet there won’t be another big round of fiscal stimulus coming, absent an economic disaster. Too much worry about the giant federal deficits already created.

Even though, abstractly at least, the case could be made the Fed’s efforts would have a better chance of success if there was a stimulative assist from fiscal policy, leaving the essential and extraordinarily diffiicult deficit reduction issue for another day.

The headline numbers and election analysis are all out – the latest unemployment numbers, while about where they were the month before, don’t do the Democrats a lot of good going into next month’s mid-term elections. But there are some interesting numbers underneath the headline numbers that paint a workforce mosaic that shows significant challenges to whoever ends up in Congress in the next round of elections.

Start with this fairly startling number from the Bureau of Labor Statistics today – the unemployment rate for black or African American teenagers (aged 16 to 19) eligible for the workforce is 49%.  That’s up from 38% in May. The same age group among Hispanic or Latino ethnicity was at 31%.  Unemployment for all teenagers in this age group is 26%.

If the future of America begins with its teenagers, then we seem to have on our hands a volcano that is about to erupt. Perhaps a related statistic worth mentioning here is the overall unemployment by levels of education. Not surprising, people without a high-school diploma are the largest unemployment group – 15.4%. High-school graduates who did not go on to college – 10% of them are unemployed. Some college or associate degree shows some improvement – 9.1%.

And those with a bachelor’s degree or higher? Only 4.4%.

Education and employment are certainly linked together. Now, teacher’s unions might want to use this as an argument that cutbacks in school budgets will lead only to more cratering in the workforce. While some of those cutback numbers are big (local government education employment is preliminarily projected to be down 49,800 jobs in September versus August on a seasonally-adjusted basis), school budgets have been historically padded. Companies have had to try to find smarter ways to work. Schools and other governmental agencies need to do the same thing. Be smart.

Here’s another view on a key question for the U.S.: how much of the stubbornly high unemployment rate represents structural issues rather than simply an economy bumping along at a too-low growth rate to absorb new entrants and make a dent in those already out of work.

First, some fast background. In late August, we cited a couple of expert views of the structural problems  contributing to the morass. Manpower Inc., the temporary employment firm, released a global survey that cited an acute shortage of skilled production workers in many advanced-economy countries, including the U.S. and Germany.

Meanwhile, Narayana Kocherlakota, president of the Federal Reserve Bank of Minneapolis, said a skills mismatch might account for up to one-third of the joblessness reflected in the 9.5% U.S. unemployment rate. The Fed “does not have the means to transform construction workers into manufacturing workers,” he said.

So, when Federal Reserve Bank of St. Louis President James Bullard last week joined editors and reporters of Dow Jones Newswires and The Wall Street Journal for a conversation about monetary policy and the economy, it seemed reasonable to ask his view of the structural employment issue.

“At least some part of unemployment is structural,” Bullard said. The debate is about how much.

Bullard blamed the housing bubble.

The years-long, unsustainable escalation in housing prices did more than spark a global credit crisis, leading to deep recession. Bullard said it also led to a misallocation of resources for up to a decade, as workers across the country jumped into the construction boom and related employment streams, developing skills in areas where the demand has all but vanished.

And it wasn’t limited to construction workers or mortgage loan officers. Ripple effects would have included trucking companies whose businesses became too dependent on shipping housing related goods, to cite one example given by Bullard.

As for housing generally, Bullard said the bubble “has deflated.” That likely won’t mean any near-term gains in housing prices, Bullards said, but he added it was hard to see house prices going down a lot more from the low levels to which they already have sunk.

With a key monthly U.S. employment report due Friday, it’s useful to ask  a man who runs a  multinational employment services firm for his view of the jobs market.

After all, the stubbornly high unemployment rate (9.7%) is the key restraint on a more robust recovery.

So what’s the word from Jeffrey A. Joerres, who leads the Milwaukee-based Manpower Inc., which recently reported a 13% increase in first quarter revenues to $4.1 billion and net earnings of $2.8 million?

“It’s obvious that things are better, but they are not at the point that it’s all tied up and put away. The animal is still roaming around here.”

The ‘animal’ is still-high unemployment, which will crimp U.S. consumer spending, the traditional engine of U.S. growth and growth in much of the world.

Consistent with comments the Manpower chairman and chief executive made to this columnist in late January, when he said “2010 will feel better than 2009 but not that much better,” Joerres said today there will be no “sonic boom” in this U.S. recovery, “no euphoric feeling.”

The report on April employment (which follows March gains of 162,000 jobs) will show more of the same, slow improvement, Joerres ventured in an interview here in New York.

Capital spending is growing, hours worked are rising but permanent hiring is very slow to come around, he said. The temporary staffing industry, including Manpower, benefits from what Joerres sees as a “secular” change in hiring.

The uncertainty of the economic future and other factors are keeping more employers interested in temporary help for a longer period of time. (Interestingly, Joerres says 70% of temporary jobs turn into permanent ones.)

Temporary work in the U.S. peaked in 2007 at 1.8% of the work force. Joerres thinks the secular changes might push that number in the U.S. to 2.5% of the work force some time in the foreseeable future, a significant change but “not the tomato that ate New York.”

A similar trend can be seen in Europe, he said.

Speaking of Europe, it’s a key region for Manpower, which derives only 10% of its revenues from the U.S.  Joerres said “Greece cannot at this time be minimized” and that sovereign debt fears hang like “an ash cloud over Europe.” Still, Manpower’s own business in Europe continues to grow, mainly in light industrial work.

Another trend: smaller companies are turning to Manpower because they have cost-cut their way out of being able to evaluate and hire on their own, having gutted human resources capabilities.

“I’m putting more on your shoulders,” clients tell Joerres.

A former boss of mine would often dismiss a hair-splitting argument with the expression, ‘that’s a distinction without a difference.’

That phrase came to mind reading the minutes of the late January meeting of the rate-setting Federal Open Market Committee. The minutes were released Wednesday.

As the central bankers discussed the crucial marco issues affecting the U.S. economy that essentially will determine when the Federal Reserve moves off its emergency zero short-term interest rate policy, they returned to the issue of slack.

Continue reading…

If you are looking for more reasons to be discouraged about the timing and pace of a jobs recovery in the U.S., take a look at a speech given last week by Eric S. Rosengren, president of the Federal Reserve Bank of Boston.

Referring to labor-market dynamics, Rosengren makes the Catch-22-like notation that research shows workers who have been out of work for long periods have a tougher time getting back into the work force.

“It may be that their skills atrophy, or just that their sector of the economy is particularly hard hit,” Rosengren said in his prepared remarks. “And potential employers may worry about the underlying reasons for the long unemployment spell.”

Guess what: nearly 40% of the unemployed have been out of work for 27 weeks or more, the Boston Fed president said, a much higher percentage than in previous recessions.

Other factors cited by Rosengren fall into the category of the things employers can do before bringing new people through the door.

About 6% of the work force is working part time because of the slow economy. They would be made full time, presumably, before new hires are made. Overtime would likely be used more extenseively before new hires are made. And employers will continue to push for more productivity gains – they already have been significant – before making new hires.

All this becomes more relevant, he said, because businesses generally lack the robust confidence about significant growth ahead that spurs hiring.

“Any significant hiring will likely have to wait while current labor resources are more fully utilized,” Rosengren concluded.