Posted by Michael A. Kamperman on April 3, 2010
It is great news that more Americans found a job in March than lost one. That is the end of the great news. That is unless of course your a quantity-over-quality kind of guy or gal. Of the 162,000 jobs created in March, over half were temporary jobs split between the private sector and U.S. Census Bureau. The ADP report showed a loss of 24,000 private sector jobs, while the Labor Department reported a gain of 123,000 private sector jobs. Last year the Labor Department was consistenelty more optimistic than ADP. Then a couple of months ago the Labor Department revised down the number of jobs for 2009 by almost one million workers. More disturbingly average earnings declined by .1%. When coupled with the recent .1% decline in the Core CPI rate the risks of entering a deflationary spiral are rising. What has come to be known as the underemployment rate or real unemployment rate (U-6) rose to 16.9%, even though the official unemployment rate (U-3) held steady at 9.7%. The recent Gallup poll reported the underemployment rate rose to 20.3% in March, up from 19.9% in January. The difference between Gallup and the U-6 rate is probably related to questions surrounding how often you looked for work in the last 12 months and seasonal adjustments. Gallup is not anxious to find technical loopholes to exclude people from the labor force. Additionally, the number of people out of work 6 months or longer rose again and now stands at over 6 1/2 million. But the number that jumped out at me is the number of people who were forced to work part-time for economic reasons rose by 263,000 in the household survey. When the last 5 months are taken together as a whole it appears the labor force has stabilized. However, the wage declines are an indication that the quality of jobs are going down as much as it is an indication of deflation.
What appears to be happening is that as people’s unemployment benefits run out they settle for any job. It makes no sense to take a job for less than half the pay of your old job while you are collecting unemployment benefits. It makes a lot of sense to take whatever you can get when the checks stop coming in the mail and you need to find a way to put food on the table. The problem is it is not enough for our society to simply have people working. We need to have them working in good paying value added jobs. We are a society deeply in debt. As such we need rising incomes to service the debts. If incomes are declining it is much more difficult to pay our debts. If incomes are declining it is much more difficult for tax revenues to stabilize. And finally, if incomes are declining it is much more difficult to grow our economy. For despite the .1% drop in average earnings we have a long way to fall if our wages are to reach par with China where the average worker in Shanghai makes $5,000 per year. Most of these workers have no benefits, such as pensions or health care. The Chinese society also doesn’t have the percentage debts to service that the American society does.
Rather than high-fiving at the Whitehouse while strategizing with Census hiring how to have the lowest top-line unemployment number possible for the November 2010 election, the Whitehouse should take a serious look at this supposed economic miracle. President Obama should ask is the March Unemployment Report the best we can do after-all? After we spent a bunch of our $787 billion economic stimulus money? After the Federal Reserve printed over $1.5 trillion? What will happen now that the printing has ended? What will happen now that taxes will rise due to the health care bill, due to the states need for revenue, and due to the pending expiration of the so called Bush tax cuts in 2011? What will happen in 2011 when the states don’t have stimulus dollars to plug some of the shortfalls in their budgets? Where do we go from here? The President’s strategy of having the U.S. double exports within 5 years is a joke when one considers we are competing against global workers who make $5,000 per year without benefits and that have free and open access to our markets while we don’t have free and open access to theirs. The next big joke is the oppositions plan that the way to improve the economy is to reduce the federal deficit primarily through spending cuts. Why don’t we ask Latvia, Ireland and Greece how that’s working out. Our country needs to have a real long look in the economic mirror and quit spinning every economic statistic in a way to make it benefit either the Republican Party or the Democratic Party. Otherwise, like Japan we are staring at two lost decades, not one.
Posted by Michael A. Kamperman on October 4, 2009
Vice President Joe Biden has been the Whitehouse’s point man on implementing and defending the failed stimulus bill. After Friday’s unemployment report he bailed on being the sacrificial lamb for the President’s political and economic advisers. He said “We don’t think that ‘less bad’ is good. ‘Less bad’ is not our measure of success. One job lost is one job too many, and it’s still too much pain. That is not what the American people were promised.” How could he possibly defend the stimulus bill or the other economic programs as working in light of Friday’s unemployment report? It was so bad the government itself lost 53,000 jobs. There were 15,000 teachers who were not returned to the classroom. The stimulus bill is not only failing to create jobs, it now not even saving the jobs of state and local government employees, or even teachers. Financial support for state and local governments and for schools was a key component of the stimulus bill. But stimulus support from the federal government is simply insufficient to make up for the lost tax revenues the states are experiencing. State governments are being forced to either raise taxes or cut spending. In many cases they are doing both. This is precisely the wrong response to dealing with a severe economic contraction in the private economy. Total tax revenues from all sources fell by double digits in 39 out of 50 states in the second quarter of 2009 compared to the second quarter of 2008. The economic contraction is so severe that sales tax revenues in all of the states fell by 9%. There is no better measure of consumer spending than sales tax revenues.
The cause of continuing job losses is not the stimulus plan. There is no doubt things would be even worse if nothing were done. But we need Washington to succeed in solving problems and not just say at least we tried. The real reason we are still hemorrhaging jobs is the stress test of the banks. Treasury Secretary Timothy Geithner supported Wizard of Oz style smoke and mirrors over the politically painful steps of fixing the broken credit markets. He should have created a “bad bank” to absorb the toxic assets, he didn’t. He doesn’t even want to encourage the FDIC to borrow money directly from the Treasury now that it is obvious it is broke, even though the FDIC has a $500 billion unsecured line of credit already set up with the Treasury. Remember, the stress test’s worse case assumption was that unemployment would not rise above an average of 8.9% in 2009. If not for removing 1.5 million people from the labor force the unemployment report would have already reached 11%. The banks cannot side step the fact that the real unemployment rate is much higher than the stated unemployment rate. People without jobs cannot pay their debts no matter how the statisticians in Washington categorize them. The losses at the banks will be much higher than the worst case scenario modeled by the Treasury. Therefore, they do not have enough capital and that is the reason they are not lending. Zombie banks do not lend.
The creative destructionist on the Fed and the liquidationists in the Obama Whitehouse are reaping what they have sown. The Whitehouse and the Fed have been talking tough on the need to reign in the deficit. The Fed has been talking tough about rapidly withdrawing monetary support to prevent the return of inflation. The Fed is concerned about the appearance of their independence. What the Fed should be concerned with is they are talking about withdrawing monetary support when they should be talking about adding it. They will add it. The Fed will back pedal and up its quantitative easing program. This reminds me a lot of August of 2007 when the Fed met in the first week of August and refused to lower interest rates. Less than three weeks later they started cutting rates drastically in an emergency session. The unemployment report and the state sales tax reports are better indicators of future Fed policy than tough talk. The Whitehouse has no political option but to back pedal come forward with a real job creation plan. Even the New York Times has turned against the President and his economic policies. Here is what the Times said in its editorial this morning “If successful, ambitious goals like health care reform and energy legislation may generate jobs, but officials have not persuasively linked them to job growth. Congress and the administration also have not done enough to directly create jobs. That could be done with more stimulus to spur job creation, or a large federal jobs program, or tax credits for hiring, or all three. Or surprise us. Just don’t pretend that the deteriorating jobs picture will self-correct, or act as if it is tolerable.” Ouch! The talking heads on the Fed and in the Whitehouse look like economic fools. At least Joe Biden is done with being made to look like one.
Posted by Michael A. Kamperman on August 23, 2009
Christina Romer, the chairperson of President Obama’s Council of Economic Advisers, says “Deficits do matter.” “No one believes that more than the president.” First we lost the Fed this week and now we lose the President. For those wondering how to interpret these comments let me translate. Ms. Romer is saying the President cares more about satisfying the bond vigilantes in China and on Wall Street than he does about whether or not the average American keeps their job or their home. First the Fed thinks keeping Zombie Banks that don’t go under, but don’t lend either, will eventually work even though it didn’t work in Japan. Now the President is assuring the balanced budget hawks the federal government is prepared to either raise taxes or slash spending in the middle of the greatest downturn since The Great Depression. Perhaps he can channel the ghosts of Herbert Hoover and FDR to find out that if they had a chance to do it all over again the last thing they would have done is worry about the deficits until the economy was strong enough to stand on its own. We are still hemorrhaging jobs and we have significant deflation. Washington needs a real stimulus plan, needs to fix the broken credit markets, and needs to print a lot more money. But it is obvious that this will not be happening anytime soon. Hence, the “Great Unraveling” will continue unabated.
The “Great Unraveling” is simply the process of the economic dominoes falling into each other one by one. A person loses their job, loses their home, and quits spending money at the local clothing store and restaurant. The local clothing store and restaurant go out of business and the owners default on their mortgages. These dominoes will continue to fall into each other until something stops them. In the Great Depression the domino stopper was World War II. In the Panic of 1873 the domino stopper was time. In the Japanese Lost Decade the dominos have not stopped falling into each other even though their crisis started 20 years ago. Do you know a family member or close friend without a job? Is there a home in your neighborhood that is vacant? Do you see local businesses closing their doors? These are the economic dominos that represent the “Great Unraveling.” That is what a debt-induced deflationary depression is all about. Those trapped in post World War II inflationary boom bust cycle thinking erroneously believe that the dominos will reverse on their on. They won’t.
Consider that we will enter September with more people unemployed than at anytime since the crisis began. Consider that we will enter September with more people delinquent on their mortgages than at time since the crisis began. Consider that those that lost their homes already and those that have been out of work for more than a year are not counted in these statistics. Consider that state and local governments enter September with lower spending levels and higher taxes than they entered last September. Consider that most for profit and non-profit institutions enter September with small budgets than they entered last September. We enter September weaker, not stronger. The consumer has shown no signs of opening their wallet, except for those with clunkers to unload. Homebuyers are scarce, except for first time homebuyers taking advantage of the $8,000 tax credit. To balance the budget the federal government has to end the few kernels of stimulus spending that have actually been working. However, I would like to suggest a budget cut that will have overwhelming bipartisan support amongst the American people. Until the unemployment rate is back under 8% as promised, let the President, every senior member of his Administration, and every member of Congress take a 50% pay-cut. We need to see an end to the “let them eat cake” policies Washington is sending us.
Posted by Michael A. Kamperman on June 28, 2009
In today’s New York Times, columnist Thomas Friedman said “we might be able to stimulate our way back to stability, but we can only invent our way back to prosperity. We need everyone at every level to get smarter.” He is right that the long term solution to having America become a better and more prosperous society for all is to focus both on having all of our teenagers graduate from High School and on raising the bar on what counts for excellence. But other than offering a superfluous suggestion from Craig Barrett that “any American kid who wants to get a driver’s license has to finish high school,” he doesn’t explain how we can get from here to there. Who would be surprised to see High School dropouts drive without a license if we made such a ridiculous law? He also says “lately, there has been way too much talk about minting dollars and too little about minting our next Thomas Edison…” No, there has been too little talk about printing dollars to stimulate our way back to stability. Mr. Friedman needs to understand that we cannot put the cart before the horse. Yes, we can tackle both problems at the same time. But if we don’t restore stability and have a job waiting for the kids that graduate from High School and College, then we will never get them to stay in school. And we want them to want to learn something, not coerce them.
The Congress should enact a second stimulus bill focused solely on making America’s 1st through 12th grades the best education for young people in the world. Yes, this will take money. But it will also instantly create a couple of million new jobs, which is nothing to sneeze at. The depression already is forcing many school districts to lay off teachers. Right now only 1 in 5 of this spring’s college graduates found a job before graduation. There is no reason to believe the prospects are any better for next spring’s graduates. Let’s get some of these bright young people off of mom and dad’s couch and into a classroom. Research has shown that one of the best ways to improve performance in a classroom is to lower the student teacher ratio. We should double the number of teachers in America and cut the student teacher ratio in half. We should also up the budget for science labs and other educational resources for schools. This will improve the potential performance for both our high achievers and those who plan to graduate from High School without further assistance. And with more teachers per pupil some who may have dropped out will graduate instead.
However, this will not be enough to come close to having every kid stay in school. We have many high schools in America where two out of three 9th graders never finish the 12th grade. Most of these are at risk kids. There are very few national honor society students who fail to graduate. We need to find a way to have these teenagers feel a connection to learning and to their school. One thing that would help would be a return to vocational training where English and math are the only required academic courses. No student should fail to advance to the next grade because they cannot pass some minimum proficiency exit exam. As long as the student attends school and puts forth an effort they should advance with their grade. Not everyone was born to be the next Thomas Edison. And the next Thomas Edison that will invent America’s next breakthrough is not going to take beauty shop class rather than physics, chemistry, or biology. But the next potential dropout might. Additionally, we should find a meaningful club for every student. How about starting with an extensive intramural sports program so that every kid that cannot make the varsity can still play on a team? If a young person feels connected to an activity and has friends in school and isn’t shamed, then they will be more likely to stay in school. Lower student teacher ratios and better resources will aid out top students. To aid our at risk students we need to give up on the idea that everyone was born to be an academic genius. I love and play basketball. I can tell you that at 5’9” not everyone was born to play in the NBA.
