Category Archives: employment

average wages in the US are back to pre-recession levels …the point is?

April 21, 2014 By in capital flight/brain drain, Current Market Thoughts, employment, inflation vs deflation, Recent Market Action, Stock ideas, Strategy Tags: , , , , , Leave a comment

Good news, but not great.

How so?

80% of the wage gains since 2008 have gone to the top 20% of wage earners, meaning those earning $190,000 a year or more (this is despite recent government allegations that top tech firms in Silicon Valley have conspired to hold down their employee wages).

In other words, the vast bulk of the workforce still isn’t as well off as six years ago.

In addition, the unemployment situation remains stubbornly high.

My conclusion is that what we have now is about as good as it gets in the domestic economy, without policy action from Washington.

Two data points suggest that structural changes in the world economy are at the root of a lot of this:

–the decline in the fortunes of the middle class in the US coincides with an improvement in the lot of the middle class in emerging markets, and

–anecdotal accounts are circulating of firms filling their vacancies by poaching from rivals, which would suggest we’re close to full employment.  I heard economist Paul Krugman the other day saying that the basic problem in the US is that there are too few jobs.  He means that necessity isn’t forcing employers to hire unskilled workers and train them.  In a sense, that may be right.  On the other hand, how long will it take and how much will it cost to train an average high school graduate to become a statistician or a web designer?   Why not relocate to a place where skilled workers are more plentiful and corporate taxes are lower (the latter meaning just about anyplace else)?

investment implications

The current domestic economic situation says, I think, that we should continue to focus on companies with worldwide, rather than simply US, businesses.  We should also avoid firms that cater to domestic customers with average or below-average incomes.  These will only be able to grow revenues by “stealing” them from competitors–persistent price wars will break out, in other words.

At the same time, this state of affairs has been around long enough that we should also be scanning the horizon for evidence of change.  I suspect that changes in education/training will come informally–not through intelligent government action–and will sort of sneak up on us.  On the other hand, reduction of the Federal corporate tax rate to a level more in line with the rest of the world would probably give a surprisingly large spur to job formation (more about this tomorrow).

the Chinese economy (ll): what’s happening now

April 11, 2014 By in Asian economic development, China, Current Market Thoughts, economics, employment Tags: , , , , , , , Leave a comment

The administration of Xi Jinping took over leadership of the Chinese Communist Party in late 2012 determined, I think, to deal with a number related issues:

–economically, China has reached the point where can no longer grow by exporting simple products made with labor-intensive methods.  It also has much too much simple, inefficient basic industry.  It has to shift to more sophisticated, higher value-added production.

How so?

The country, particularly in the more industrialized east, has finally run out of unskilled workers to staff labor-intensive operations at low cost.  Air, ground and water pollution from primitive basic industry is becoming a very serious national problem (by the way, I’ve traveled to a lot of developing countries in my career, but Beijing is the only place where I’ve been physically ill from the poor air quality the moment I got off the plane).

The textbook way of dealing with development transition is to allow the local currency to rise to the point where simple manufactured goods are priced out of the world market.  But that invariably causes large scale unemployment, which is the last thing China wants.  Beijing has been taking another approach over the past few years–keeping the currency stable but mandating large wage increases for employees.  As far as I can see, this approach seems to be working.

–forces of the status quo, epitomized by province and local governments, have continued to resist making the transition.  They continue to strongarm local banks into making loans for old-style (and now uneconomic) construction, manufacturing and basic industry projects.  Why?  …some combination of:  it’s easy, it’s all they know, they’re under pressure to create GDP growth and they get kickbacks from all parties concerned.

Beijing has ordered the banks to stop this sort of unsound lending.  Unfortunately, the banks in China have done what banks everywhere else in the world do in the same situation.  They set up non-bank subsidiaries that continue to make the dud loans.  (Ever wonder why most of the horrible US sub-prime mortgage derivatives originated out of London?   –to evade the regulators, of course.)

Xi Jinping has decided to crack down on the non-banks, too, even allowing s0me of their projects to fail.  I don’t mean to suggest that a banking crisis is imminent in China.   Far from it.   As I see it, Beijing is just establishing that it will hold banks, and bankers, to account for violating the spirit of its regulations, not only the letter.

–clinging to a growth model that’s no longer viable has three “externalities,” namely, that it’s destroying the environment, it weakens the banking system and it’s seen by ordinary citizens as simply a vehicle for official corruption–which threatens the legitimacy of the Communist Party.

investment implications

Ever the optimist, I think that Beijing is well-intentioned, its policies are sound and that they have a good chance of being successful.  So, all in all, what’s happening is a good thing   …and necessary for China’s future economic development.  Maintaining the status quo would be a recipe for disaster.

Nevertheless, transitions take time, and:

–GDP growth in China will be lower as export-oriented manufacturing disappears faster than domestic-demand, consumer-oriented businesses can be built up to replace them

–there’ll be less basic industry in China, and less demand for metals

–there’ll be more focus on technology and, as time goes on, on export of consumer goods

–there already is a shift in the luxury goods market away from foreign brands toward local.  This will likely continue and eventually spread to other areas.

 

employment: the Employment Situation and JOLTS reports

April 9, 2014 By in Beveridge curve, employment, Employment Situation report, JOLTS report, Recent Market Action Tags: , , , , , , Leave a comment

Over the past few days, the Labor Department has released two periodic reports about employment in the US.  Both were favorable and suggest that the economy was stronger during the winter than the consensus has been theorizing.  Either the severe winter was less of an impediment than most thought and/or the underlying strength of the economy is greater.  The safest course is to assume that the reality is a little bit of both.  But if it’s mostly the latter, the groundwork is being set for s positive surprise about jobs as the weather improves.

the Employment Situation

Last Friday, the Bureau of Labor Statistics published its monthly Employment Situation report.  The Establishment Survey part of the ES showed that the country gained +192,000 new jobs during March, which was considerably better than the initial reports for the prior two months.  All the gains came from the private sector;  government neither added nor subtracted from the total.

Revisions to the prior two months’ data were also a positive.  The grim +113,000 figure reported for January, which was revised up to +129,000 positions last month, was upped again–this time to +144,000.  The February figures were also increased, from +175,000 to +197,000.

These figures describe an economy that’s absorbing all the new entrants to the workforce and chipping away at the long-tern unemployed at a rate of about 50,000 a month.  The latter rate would suggest that we won’t be back to full employment for lat least several more years.  Personally, I think the reality is a lot more complex.  Nevertheless, there appears to still be plenty of labor available for employers–enough that big wage gains, the earliest signs of incipient inflation, shouldn’t be a worry.

JOLTS (= Job Openings and Labor Turnover Survey)

The JOLTS report for February came out yesterday.  It’s the government’s compilation of the number of unfilled jobs available in the economy, as well as an analysis of the reasons why people leave the jobs they have.  Included in the report is an interesting  series of highlight graphs.

Overall, JOLTS portrays an economy that has steadily progressed back toward normal in job creation since mid-2009.  Although it may be difficult to say exactly what “normal” is in the early 21st century, most measures seem to be just about back to their levels in 2004.  Certainly, the job situation is nowhere near as buoyant as it was in early 2007–but that’s when the economy was overheating as a result of the banks’ home mortgage fraud.

At the end of February, there were 4.2 million unfilled jobs in the economy.  There were 2.5 unemployed people per job opening vs.  6.2 in the depths of the recession.   Of total job leavers, about 60% are quitting, meaning leaving voluntarily (and presumably for other jobs), and 40% being layoffs and discharges.  That’s about the same ratio as in 2004.  However, the absolute number of quits, 2.4 million in February, is still below the 2.5-2.6 million a month that occurred in 204.  It’s also way below the 2.8 million a month rate that prevailed in mid-2007.

The quits figure seems to suggest that there’s still considerable reluctance on the part of employees to take the risk of leaving secure jobs, even with the promise of higher wages and more fulfilling work.

investment significance

Whatever gyrations short-term traders may be putting the securities markets through, the overall economy in the US seems to be healthy, and achieving steady, if unspectacular growth.  There’s also some possibility that growth will accelerate a bit as the weather improves.

 

 

the February 2014 Employment Situation

March 7, 2014 By in bond market, Current Market Thoughts, employment, Employment Situation report, stock market, Strategy Tags: , , , , , Leave a comment

The Bureau of Labor Statistics of the Labor Department released its monthly Employment Situation this morning at 8:30 est.  The report was awaited with some trepidation by economy watchers, who were uncertain how badly the workforce would be hurt by continuing severe weather in many of the most highly populated regions of the country.

The report tuned out to be a very good one, in three respects:

—the headline figure was a gain of +175,000 jobs, consisting of an increase of +162,000 positions in the private sector and +13,000 in government (a large gain in state and municipal workers offset by a small reduction in the Federal payroll).  The dividing line between good and bad in ES reports is typically seen to be +150,000 new positions.  That’s the average needed to absorb people finishing school and entering the workforce for the first time.  The  December and January ES had both come in well below that line, leading to worries that the economy was beginning to lose steam.

The February figure looks especially strong, given that winter storms likely subtracted from the jobs total.

—revisions to prior months’ figures were positive.  The December ES job gains were revised up by +9,000 positions to +84,000.  The January numbers went up by +16,000 to +139,000.

—wage gains were surprisingly strong.  Over the past year, wages have been rising at a +2.2% annual rate, more or less in line with inflation.  The monthly rate of wage gains in February, however, were at a +5.2% annual rate.

This is a good news/bad news figure.  Rising wages means the corporate profits are strong enough for firms to pay more to workers. In other words, the economy is showing a sign of better health.   On the other hand, Sharply rising wages can indicate that all the slack in the workforce has been used up–that the only way a company can add to employees is to headhunt them away from other firms at sharply higher pay.  Great for the workers concerned   …but since inflation in developed economies is all about rising wages it’s also a warning sign that the economy may be overheating.  That would imply higher interest rates are coming from the Fed much sooner than anyone has thought.

Let’s not go overboard, though.  This is only one strong data point that comes after a whole slew pointing in the opposite direction.  It could just be a quirk in the seasonal adjustment the BLS does to the raw data.  And it’s not a good idea to project the future from a single month’s data.  The stock market is taking the correct approach, I think, by taking this number with a grain of salt.

Still, a second strong wage gain figure would start to turn heads.  It would also be in line with my long-held view that much of current US unemployment is structural, not cyclical.  So next month’s ES is going to be important.

 

 

the December 2013 Employment Situation

January 10, 2014 By in economics, employment, Employment Situation report Tags: , , , , , , 4 Comments

my day (very skippable)

I was out taking photographs early this morning.  While I was waiting (in vain, as it turns out) for a decisive moment to show itself, I was also rehearsing the form this post would take.

I expected the monthly Employment Situation report to say that the economy had gained, say, +250,000 jobs.  I’d remark that lots of recent anecdotal evidence supported the idea that business confidence was increasing and that the economic growth was beginning to accelerate a bit.  I’d point out that the figures were presaged by Wednesday’s ADP employment report of a gain last month of +238,000 jobs.  ADP’s is a quirky survey, it’s true, but on the money for once.  And I’d observe that the present trend represented a monthly jobs gain of about +100,000 over the number needed to absorb new workforce entrants.  Assuming continuation of this trend for the rest of the year, well over a million workers who lost their jobs during the Great Recession and haven’t been able to find work since would be gainfully employed again.  That’s a really big deal.

S&P futures were up by 7.5 points in anticipation of a strong ES report.  The only short-term investment question would be if, and by how much, futures would rise once the ES was published.

the Employment Eituation report

Well, the actual ES report was bad–very bad.  Bad enough, in fact, that I think the market will dismiss the figures as being a case of seasonal adjustment gone rogue.

a tale of two surveys

According to the establishment survey, the part that generates the job gains and losses, the economy added +74,000 positions in December.  That’s only a third of the job gains in November.  It’s also less than half the number of jobs the economy added on average per month over each of the past two years.

For what it’s worth, the private sector gained +87,000 positions; government declined by -13,000.  Other than retail trade and temporary help, weakness was across the board.  Revisions to past months’ figures were positive, but not close to the magnitude of the December shortfall:  October unchanged, November +38,000.

According to the household survey, the part of the ES that produces the unemployment rate, that fell from 7.0% to 6.7%.  Of the improvement, a third comes from more people having jobs, the other two-thirds from people (mostly men) dropping out of the workforce.  A good number, but a bad reason for it.

my take

It will be interesting to see how Wall Street reacts as equity trading unfolds today.  As I mentioned above, I think investors will ignore the report.

The reaction of the futures to the ES report suggests that the perverse, bond-oriented idea that economic weakness postpones interest rate rises and is therefore good news has passed its use-by date.

The 6.7% unemployment rate is very close to the 6.5% figure that the Fed set as a necessary condition for beginning to withdraw extra money stimulus (remember that “tapering” is just adding extra stimulus, but at a slower rate than before).  But I don’t see any bond market reaction so far.

If I’m correct, next month’s ES assumes greater importance, since the market will likely expect substantial upward revision to the December figures.