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Where in the World are the Jobs? New Economic Rule: Job Growth not Necessary in new Economy. The Second Derivative Gives Way.
For the first time since March, the stock market actually
showed a little reaction to reality based information. As it turns out, even removing any hint of
stimulus will cause the market to retreat.
We already expected the cash for clunkers program was largely a gimmick
with auto sales dropping like a stone in the last reading. Home sales are being artificially juiced by
the $8,000 tax credit and the Federal
Reserve keeping 30 year mortgages near historical lows. You can expect that if the Fed and the tax
credit were removed we would see a similar reaction as the cash for clunkers
program in the housing market. It is
amazing that so much energy and focus is being put on bailouts, gimmicks, and
transient market forces all the while ignoring one major component. Jobs.
The jobs report issued on Friday was another
disappointment. The problem with how the
jobs argument has been framed since the start of the year is any report is
going to look good compared to the 741,000 job losses in January. Did anyone really think we were going to stay
at an annualized job loss pace of nearly 9 million? Of course not. So every subsequent reading seemed like a
blessing to the media. The rate of
change on a month over month basis has been referred to as the second
derivative (or more specifically the rate of change OF the rate of change). Let us look at both job losses and the rate
of change:
It is rather obvious that we were not going to see 741,000
job cuts per month even if we were heading into another Great
Depression. So as you can see from
the chart above the second derivative from February to May of 2009 was
positive. Yet anyone can see how flawed
this argument really is. It is using the
ground shaking monthly loss of -741,000 as a backdrop for every subsequent
month. Nothing can compete with
that. In fact, the following months had
equally bad reports:
February 2009: -681,000
March 2009: -652,000
April 2009: -519,000
And then in June, we had the second derivative give out
again. Of course the market being guided
by easy money and unlimited stimulus kept moving on up. This minor hiccup was nothing to worry
about. That is until the last report
that shows the rate of change giving way again.
Even at our current pace, we are losing over 3 million jobs a year yet
somehow this is good.
Yet in this new economy apparently buying a car and buying a
home are more important than having a stable job. Even Henry Ford understood that you needed to
pay workers a wage to afford the product you were dishing out. In this new economy, apparently having a job
is an afterthought.
Let us set aside the job losses for the moment.
Who in the world is hiring?
Apparently very few:
Those hiring are still at the levels seen in the March
abyss. Virtually nothing has changed on
the jobs front since March of this year.
Instead of playing hide and seek with mortgages and creating a massive shadow
inventory why not at least focus
some energy on the employment situation?
There is this pervasive tunnel vision focus on everything
put job creation. It seems like very few
want to talk about this. They want to
obsess that the Case Shiller has stabilized or that home sales have increased
but fail to examine the employment front.
For the first time in our history did we have an economy largely built
on a housing and credit bubble. So why
are we to expect similar outcomes in this so-called recovery? In fact, many of these jobs losses are
permanent:
5.4 million people have been unemployed for 27 weeks or
more. In times like this simple
questions bring out the best answers.
This is like asking how a person with no income and no job is going to
pay a $500,000 mortgage in California? If you asked a question like that the outcome
would have been obvious. So with this
above chart, we ask who or what industry is going to employ these people? That is the question that has no answer even
as we pass 21 months of our deep recession.
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Am I worthy?
Creating jobs is actually really simple. Get rid of all the laws and regulations that prevent or impede start ups. As an example, lets say that any vehicle is allowed on the road and safety was no longer required. Overnight there would be shopping carts powered by lawn mower engines and steered with ropes. There would be people buying them, making them, improving them, and yes, even exporting them. How about more example? Making food for strangers? People would cook up food and sell it door to door, on the corners, or make a home restaurant, kinda like Mrs. Knott did (Knott's Berry Farm). There is apparently quite the pent up demand for various illegal drugs, so people could plant and grow the various plants, mushrooms, and cacti. This last idea would probably enhance our border security with Mexico as people no longer would be supporting a heavily armed drug cartel on our doorstep.
None of this will probably ever happen, unless of course the flu kills off 50% of the world. That will create a whole new industry, removing all the infected dead bodies.
I think you would have to reform tort law first.
Not raining on your parade; I agree with you. But I don't for a moment buy that these impediments are in fact for our safety so much as to a) enrich a bloated nanny government and b) CYA in the case of litigation and heavy damages awards.
Except in the case of the 'illegal drugs' you mentioned - if it grows in the ground it's not a drug, but a herb. In THAT case, it's purely for the enrichment of big pharma and big prison, and not about torts at all.
Yeah Fish,
You are right, you are talking about real freedom, something that used to exist in America long ago. I can remember as a young boy, (I live in a small southern town), that there was little "bubble gum" shops and "little Grocery stores" in peoples garages out behind their house, it was great! And you could buy fresh milk, meat and eggs from the local farmers. Of course all this has been squashed by new "Laws" that protect Wal-Mart and so on.
It also reminds me of West Africa, (I have traveled there several times), where anyone who needs to make a few bucks can set up a road side stand and sell anything to support their family, its great, and these people know it, they love their way of life...dispite what you see in the media, which always cast a bad light on Africa.
http://www.youtube.com/watch?v=cDeAzFwcpm8
What a information hiway we have here at ZH---high school grads need jobs??????????-can we create 3 mil a year considering we are loosing 3 mil a year----
http://www.bls.gov/news.release/hsgec.t01.htm
Not everyone goes the loan or scholarship route.
Interesting post. The last chart is astonishing. It joins my collection of (now) three Knock Your Socks Off Charts from this debacle (the other two being the long term Case Schiller chart, and the Bank Reserves Held at the Fed chart).
The cheerleaders might point to it and say, "See, unemployment really is a lagging indicator!". Other people just look at the far right of it and our mouths drop open. Even as a percent of the total workforce, I would bet that if 1930's data was available, today would still look pretty ugly.
Job-creation idea #1: require 25% of school lunches to be locally-sourced, instead of being a dumping ground for excess commodities from agri-business. Point = create a lot of truck gardening locally, which would not solve the problem, since it would be part-time, but which would help people survive.
Job-creation idea #2: end the wars in Afghanistan and Iraq and dedeploy funds directly to hospitals, which employ a wide spectrum of people, many local to their neighborhoods; forbid the funds to be absorbed in costly new medical technologies, but require them to be used for increasing service employment
Job-creation idea #3: redeploy US transportation funding and restructure so mass-transit can include jitneys and a range of interlinking small bus and point-to-point options. A lot of public stuff has to be created - insurance pools for jitney owners, strong regulation of privatge owners, metro-wide computer dispatch systems, but the effect would be to radically lower traffic congestion, while creating a lot of local jobs. Now the US no longer has a car industry (or shortly will not) this is a more feasible option, since it would reduce car buying
No double dip. No recovery to have a dip. I don't know what they call recovery, but I suspect it is something they made up. Every recovery prior to 1990 had job growth with it. Not so since the debt bubble appeared. The statistics about the percentage hiring really blows holes in the idea we are only losing 250K jobs a month with 550K in unemployment claims.
The reason I say no double dip is, as I said, we haven't had a recovery to have a double dip. The whole concept of V, W, double dip, L and all the others is to imply this spending crap actually works. Clearing out the debt is what will work, as they have bubbled every thing that can get an economy going and it is all in ruins. Now all we have left is GS bubbling oil and putting the change in their pockets. Closing GS for a couple of years might be the first stage of a recovery. Maybe we would at least get to an L.
Agree. I refuse to use the term 'double-dip' or 'W-shaped' or anything else that tends to support the corporate propaganda, or to imply that I believe it.
Much as a terminal cancer patient is not in 'recovery' just because she's on a morphine drip.
'L' shaped is the way it continues to look to me, unless/until someone comes up with a real remedy for our collapsing fiat system. Despite what Walt Disney taught us, not every story has a happy ending and wishing on stars tends to have far less than advertised results.
Space program. A well run space program is a new job and new industry goldmine for all. And helps military space. Apollo ran for about 8 years and left millions of jobs in its wake.
Yes, everything possible has been done for the banks and investors but absolutely nothing for jobs and the people. That will not change, mark my words. And when the abra-ca-dabra reaches the end of its useful life, down again will come the house of cards. Its then that one might see the first indications of a genuine populist response to the institutional criminality of the ruling clique, not some manufactured, brownshirt faux-populism in service of the objectives of the regime, but an authentic little people's populism born of homelessness, hunger, despair and the certain knowledge that the franchise and parliamentary remedies are a waste of time. And its then that the worst fears of the maggots that populate the Sunday news programs might come to be realized.
Unfortunately you may well be correct Andrei.
But this is a different generation than that of our fathers. A much more violent and self centered culture exists today. What arises from the ashes of a complete systemic crash will probably involve total dissolution of social order.
Only a possibility at present. But a growing one.
In the meantime enjoy these quiet times while they last!
I think the critical part you guys are missing is: where are the bulk of the jobs fleeing? Those taking it across the chin are without at least a Bachelor's degree. Working back from that, I think we could probably draw some weak assumptions about where growth was coming from over the past 20 years or so.
Funny enough, aside from the auto bailouts, that's not where we're seeing the capital go.
Fair enough that they're the least able to have their voice truly heard. Secondly in those 20-30 years, they've took it across, down and diagonally over the chin. If there's a case of unintended consequences, job flight in this era is one huge one.
Now they've eliminated a place where some of them can start getting the experience that is asked of the individuals - entry level work in traditional "white collar" professions.
As for the other part of the issue:
In the quest to find something to circumvent labor unions, they used developing countries. The problem is that businesses took to the task like Gallagher takes to watermelons with a sledgehammer - indiscriminate splatter without regard for the consequences.
I can only hope there's a Hyatt moment for the white collar professions - if only to wipe the arrogant smirk off the practice of offshore outsourcing.
The college education thing may have at some point in the past had some relevancy, maybe into the 1980s. But consider this, many of the men who came back for World War II had high school educations at best and many had less. I know of some who rose to director of production and planning a major corporations. Why? because they were intelligent and no one expected a college degree. The sad thing is that with off-shoring, the whole college thing is beginning to look like a scam, just like IRAs and 401ks.
I don't think it's a scam as it is one of two points:
a)Higher levels of education are required (Masters/MBA, PhD, accredited certifications)
b)Demonstrated high-levels of performance to substantiate value-add to the company (operational competence, entrepreneurialism, technical ability, etc)
If you don't have one, you without a doubt need to have the other, and in many cases both. I find it interesting you bring up military experience, since one of the major hurdles working in a corporation is just getting shit done - the 95% of crap you push across a desk, Exchange server, or over the phone to accomplish the 5% of actual work that will have a bottom-line impact. Colleges are notoriously poor at preparing students in that regard. But unlike corporations 60 years ago - before the advent of TQM, CAD, JIT, VisiCalc, wide adoptions of DCF/NPV/incremental analysis - the drive is towards hyper-efficient models that live in the 1/100% of returns that separate the weak from the strong using tools that enable broader and more detailed productivity and not the armies of accountants, financial analysts, production managers, and any manner of guru-like human calculators that acted as a support staff over vacuum tube production lines and steel foundries.
That's not to say you can't find this in non-college educated people, but I think it is fair to say the likelihood is greater out of a random sample. The fact there's an accredited body putting their reputation behind the applicant helps minimize the risk and the potential financial burden of having to offer lengthy and expensive training. Again keep in mind we're talking about this in terms of both education /and/ experience. Offshoring, at least right now, has its own problems and I think people forget the cultural dimension it has on the quality of labor produced. Take for instance countries like South Korea or India, where the level of technical education is ridiculous. This works well in those societies where power distance is orders of magnitude wider than the US and the amount of task variety is very limited (at least for the first "phase" of professional development). However, ti's been a common complaint for a while now that offshored employees have a tendancy to fall apart when you get them into topics that require independant and creative thought, regardless of industry.
Scam as it may seem, people with Bachelor's degrees or greater have been impacted the least. There's a SF Fed paper on it from the 90's (iirc), which saw companies treat employment in a similar manner as inventory or production capacity. My original argument/observation was that I *think* we're seeing a great purge of warm-body labor from the workforce, and those low(er)-level jobs that are available are being filled by those with high(er) levels of education who find themselves in a frozen job market, displacing an entire bracket much like we saw in East Asian countries after the IMF crisis. Unless there's some kind of manufacturing revolution or a breakthrough technology/industry that will find a place for these workers (or create enough of a void to where they could "train-up"), we're going to find ourselves with a Welfare Entitlement liability beyond comprehension and a lot of waiters with published research in applied solid-state physics. Unlike inventory, we can't just dump slack-employment in some developing economy or donate it to poor African tribes.
At least not yet.
To a limited extent, IBM already dumps some "slack-employment" into a developing economy, see "Project Match".
Until the lovefest with Third World countries ends, I'd argue for something that pits things between:
* Limiting the ability to require a degree to very low levels of (U-6) unemployment (2% if you really wanted to be mean).
* Lowering the standards for prosecution towards offshoring efforts.
The former is to consider your situation of creating that void to "train-up". While there is some credibility to your claim of increased performance, cutting off the first floor (via offshoring) isn't going to help get those displaced to work.
The latter is to make it possible to reduce the workload on enforcing 20 CFR 655 and 20 CFR 656, the regulations that have largely enabled your purge of "warm body" labor.
College degrees are arbitrary; they simply certify a certain level of competence and ability to commit to a long-term goal. It could easily be ASE, FINRA, CFA Institute, Cisco, MSCE, or any number of independant bodies that accredit individuals and learning centers. Bitch all you want, but they [being the training/education] provides liquidity to the labor market by giving a supply of quality labor, facilitating the controlled burn of old-growth forrests, and ensuring that labor capital isn't misallocated such that promotion paths aren't clear (i.e. the infamous immigrant nuclear physicist and mental giant in his home country reduced to produce clerk once he steps foot in America).
Businesses love nothing more than to be unencumbered by external regulation not associated with it's top-line - namely any government. Get gov't out of the way by reducing taxes and streamlining the free-enterprise process, and you will see the labor markets improve dramatically, along with the standard of living. Because like it or not, so long as we continue to compete in terms of resource cost, we will anchor those industry wages to the lowest bidder, and with it, their standard of living.
I wouldn't say they've eliminated it. I'd argue it's there, pretty strong in fact. The difference is now the competition for those jobs more or less demands at least /some/ college experience. What /is/ missing is a manufacturing base to where they can at least acquire skills to reduce downtime when we have big technological shifts like we've had recently.
And because its missing, I don't see where those folks will go to in the future...
If you turned on the TV, you'd think no one is unemployed. There are few stories on it, few chronicles on those who struggle, few stories about those searching for jobs and not finding them, few stories about what happens when the benefits run out, few stories on the huge teenage unemployment...
You'd think the country would be raising hell, but we're going off on health care.
When the benes run out, what happens then?
I am direly concerned about the lack of capital to create valuable jobs, not washing each others laundry jobs.
Modern production, engineering development and biochemical research take enormous amounts of money to develop jobs. Manufacturing requires robots to get more out of each employee. Computer engineering requires billions to establish new fab sites. Biotech requires well kitted labs with MRIs, animal facilities, and expensive chemical feedstocks along with all the glassware and infrastructure.
The government is killing job creation by stealing savings through its numerous rescue programs and money printing. We don't need banks. We need money in the hands of individuals who can invest in capital projects. All that debt is an overhang on business credit needed to conduct factoring and general business inventory creation and management.
You and me both PF.
I think alot of the market types here are missing where productive economic activity actually arises from.
Political elites seem to miss these 'little' factoids entirely. Probably a by-product of producing more lawyers than engineers for the last couple of decades. That is to say that we graduate more students in the arts than in the sciences yet these students are the ones that are shaping the economic destiny of this country... or lack thereof.
I really wonder if they will ever wake up to reality... or is everything already lost?
Bravo, ZerOhead, your name sound german notwithstanding, you have hammered the nail on its head spot on. America's problem today is too many lawyers, not that they can't th'ink, but their brains are just twisted, like their spines. Its better to have B grade actors as political leaders than lawyers.
In the Sacramento Areas there are over 8000 homes vacant and waiting to be sold, and people are still loosing jobs and small business is getting killed. Things are worse than the good ol US GOV is letting on. Thanks ZH for the great reading.
The last chart, "Civilians unemployed for 27 weeks and over," would be better redrawn as a percentage of the population aged from, say, 18 to 65. By showing just raw numbers, you do not take population growth into account. This explains the gradual average slope (although of course the final spike remains nightmarish).
The last chart, "Civilians unemployed for 27 weeks and over," would be better redrawn as a percentage of the population aged from, say, 18 to 65. By showing just raw numbers, you do not take population growth into account. This explains the gradual average slope (although of course the final spike remains nightmarish).
Excellent analysis and clear presentation. This website remains awesome in my view.
Visualisation for the Nation.
I like your colored graphs too... although I don't see any corrections for those jobs they missed counting...
For the chartists here, here is a little more clarity on the visualization. Just be aware the data input for the chart is suspect as it's from the BLS.
http://tinyurl.com/yepgapl
I'm in the double dip camp, so looking at this just adds to my POV.
Double dip... triple dip... I don't care just so long as we exit will a leg that is at least horizontal and the sooner the better.
These graphs are great. Thanks.
Who is buying these homes? It can't be real people. Are we quickly becoming a land where people rent the company owned house?
Company store ? You , my friend , have cut through all the crap and are spot on . We are intended to be made slaves to the Gov't , totally dependent on them for our EVERY NEED . They are the new Company store . Any rosy koolaid drinkers out there ??prove otherwise!!
As my daughter would have said a few years ago, "Well, duh!" If we must stimulate the economy, maybe we need a new CCC (minus the heavy lifting - most of us boomers have bad backs) or some such program to create jobs directly, or maybe a mandatory 30 hour work week to make those jobs spread around a little more. Bon jour!
If you believe the BLS, we already have a 30 hour work week.
Another point is that noise in data is amplifed with each additional derivative. Not sure what the reported changes in the 2nd derivative really mean.
Here in Aus, we dream of a 30-hour workweek...
Australia considers a person statistically 'employed' (ie, not counted in unemployment numbers) if that person did one (1) hour of paid work in the previous week.
Hence, Aus's official unemployment rate remains unchanged at 5.8% while the real (corresponding to US U-6) unemployment is about 15% now.
Links, in case you think I'm exaggerating:
http://www.theaustralian.news.com.au/story/0,25197,26055384-5018526,00.html
http://www.themercury.com.au/article/2009/09/13/97115_opinion.html
There's no spin like the spin coming out of Oz, home of the original Wizard.
Renfield,
The truth you speak. I am an Aussie living in New York, and am left in fits of laughter when I see the bullsh*t coming out of the SMH, The Age, and The West every day. For example:
- I understand you have a "severe real estate shortage" out there (the most sparsely populated western country on the planet) which is driving prices up? MYTH. Gee, I would have thought that $21,000 "first homebuyer grants", reduction of stamp duty, and a mining boom "might" have had something to do with that?
- I believe you are on the verge of another "massive real estate boom". Of course, when average prices are already 8x average wages, I guess they can always go to 16x right? Do people not understand the limitations of debt coverage down there?
- With the country having hitched its lil' red wagon to the Dragon, and the Dragon now in the midst of a massive stock and real estate bubble, this can't end too well.
- Shipping is down about 90% from its peak, and the Dragon is completing its stockpiling of commodities. Yet BHP trades near its all time commodity-bubble high? Sure doesn't make sense to me......
Just a few observations. See you in the US winter/Aussie summer!
HA! Cheers mate - good to see you!
When I saw your post I was quite chuffed and I told my husband, Guess what, I just saw someone else from Aus on Zero, living in New York. He gave me the old harRUMPH and muttered 'Still counts as a Yank then' - but you must forgive him, he's hurting bad after the Eels' heartbreak loss to the Storm in the Grand Final. So he's not quite himself yet.
Here's a lovely chart for you, comparing Aus house prices with the US, UK, and NZ:
http://www.whocrashedtheeconomy.com/blog/?p=523
You can see that a) Australia's are by far the worst, and NZ comes second; and b) there's a nice little UPTURN in prices in UK and Aus, corresponding very nicely with government stepping in to help 'buy' these bloated alligators.
Here's another, showing the dramatic rise in Aus household debt to date, ballooning since the mid-90s to arrive at nearly 160% of income today:
http://www.whocrashedtheeconomy.com/blog/?p=556
Me, I'm waiting until either I can bloody AFFORD our own home, and can in fact buy a HOUSE rather than a mortgage; OR the government ponies up the entire cost. Maybe until they throw in a free Lexus too. If we were to take on a lifetime of unpayable debt, then let it be a mountain's worth. :-)
To answer your question, I expect people will understand the limitations of debt coverage on the very same day that the financing institutions do. For example, BankWest at mid-year 2009 reported losses/loan impairments rising from $88MM to $825MM, 800% rise in a single year.
http://ozrisk.net:80/2009/05/04/bankwest-what-is-the-story
That's only one I remember off the top of my head, only because the multiple watered my eyes. This was before this bogus equities rise of course. I'll check back on them after the rise rather than during. ;-)
Unemployment is the creeping malaise here, our 'green shoots' slowly blackening around the edges as it creeps inward, still unnoticed by the Big-Brother watching homedebtor crowd.
Me, I'll be glad when we can finally call a halt to pretending everyone is rich so the likes of Alan Moss can take home a $33MM bonus and be slobbered over in the press for it; and return to a time when hard work and savings, together with the spurs of potential failure, will reap a real reward for more 'average' Australians.
Renfield,
Further enlightening material, thanks! Tell your hubby that I am most certainly an Aussie, although "citizen of the planet" is a more fitting description these days! Haha.
Hey, I don't know if you have a Marketwatch account, but if you do, I have the same name over there, hit me with a "friend" request and we can talk about this further.
Steve
PS - Amazing still, that the media down-under reports "booming" house prices as "the best thing since Vegemite". However, everybody I talk to down there is "balls to the wall" strapped for cash, just trying to service their mortgage fortnight to fortnight. It really is sad, used to be a great, affordable place to live. Now, I live better in New York for the money I put to work!!
Is it true that homebuilding is still going pretty well in Aus?
Depends. Construction is enjoying an uptick YOY which seems to be winding down (see below). Vacancies abound (especially commercial) and property companies are hitting the decks in terms of earnings:
http://www.businessday.com.au/business/elders-caps-worst-earnings-year-on-record-20090904-fam5.html
As in the US, I expect construction is a 'lagging indicator' to sales in our housing market.
House/apartment starts were down 3.7% from Q1 to Q2 against an expected 1% rise, and up about 0.8% YOY (Aus Bureau of Statistics numbers).
http://www.fxstreet.com/news/forex-news/article.aspx?StoryId=d07ffe8d-22c8-4504-86f4-833b08950a8f
The trend estimate for the total number of housing starts, which smooths seasonally adjusted numbers, fell 4.1% from the Q1 to Q2.
Moving away from reported numbers, the usual Sentiment suspects (HIA) have burst through the gates in short skirts shaking their biggest pompoms, prophesying increases over the next two years which nowhere near meet demand. I'm loathe to present this rather fact-free link but in the interest of fairness here it is:
http://www.sbs.com.au/news/article/1090787/Housing-starts-picture-looks-brighter,-HIA-says-
We are still in the midst of a financing bubble as Dear Leader is pledged to uphold property prices as long as Aus bond yields will allow him. Therefore, I don't expect this game to last much longer...at the same time, the market can remain irrational longer than and so forth.
Along with the improvement in sentiment it is still ridiculously easy to obtain credit here, hence the construction uptick. I expect that, absent real recovery (employment, manufacturing, real income) this will wind up a short-term blip on a natural, long-term bubble correction trend.
Dr HB excellent post & analysis. Visualizing the jobs data without charts is most difficult. You have provided the missing link.... Thanks!!
Once again ZH is the source for all this informative data & comment.
Does anyone have any ideas for labor intensive stimulus... even infrastructure spending is more capital intensive than labor intensive?
Just to avoid alerting the young'uns, it's spelled "A.F.G.H.A.N.I.S.T.A.N."
40,000 pairs of boots on the gound by Christmas, for about 80 Billion more consumption spending in 2010. Let's see them do that with infrastructure.
Crack Ho?
Sadly even then, someone has to have enough capital to buy the crack to get the hoe moving.
Leaf raking. In the great Chicago tradition.
Of course even that needs capital: Someone has to buy rakes.
Sorry. No capital = No jobs.
There is simply no job that can be made without capital. Some just take more than others. And all the federal debt is killing jobs by draining capital.
Round and round we go, down into the vortex.
Seems to be a lot of capital laying around. Just not so many profitable places to put it to work.