Alan Kruger speech on economic changes

Alan, Kruger, who is chairmen of the Council of Economic Advisors, gave a long speech in Clevland, OH on the causes of inequlaity.  You can read the speech here.

The speech uses the metaphor of rock n' roll to explain what has happened to the economy.

Construction and Manufacturing Ratio of Unemployed to Open Positions

In the previous post we looked at just construction unemployment to job openings.  Now we are going to add a series for manufacturing.  The ratio of manufacturing industry unemployment to job openings topped out at around 20 to 1.  That's 20 unemployed manufacturing worker for every one open position.

The analysis come from Hiedi Sheirholz at the Economic Policy Insititute here. The article called, "Unemployed workers still far outnumber the job openings in every major sector," discusses the limited number of job openings in many fields.

The chart below compares the ratio of unemployed workers to the number of open jobs in two industries: Construction and Manufacturing.

Manufacturing's ratio peak was in May 2009.

April BLS Unemployment Review: Solid Report with great revisions

165,000 new jobs added in April

The April unemployment report was another average growth report recording a net 165,000 new jobs (176,000 private job gains and a loss of -11,000 government job) added to the economy. The report, which was released on  May 3rd, 2013, recorded a 0.1% drop in the national unemployment rate from 7.6% to 7.5%.  The number of total unemployed persons was around 11.7 million of which 4.4 million were long-term unemployed.  An additional 7.9 million people were underemployed (working part time but wanted full time work) so a total of 19.5 million are unemployed or underemployed. That is about 13% of the workforce.

The unemployment rate for women declined to 6.7% while the rates for other groups remained unchanged: men (7.1%), teenagers (24%), whites (6.7%), blacks (13.2%) and Hispanics (9.0%) were unchanged.

The labor force participation rate was 63.6% which is low by historical standards.  The employment to population ration stayed at 58.6%.  The rate reached a peak in 2000 at nearly 65% and as late as 2007 the rate stood at 63%.  If the rate were 63% right now, approximately 10 million more people would be employed !!!  The economy is short 10 million jobs !!!

The Big Story

On the day the report was released, the Dow Jones Industrial Average broke 15,000 for the first time. It later retreated, but based on the employment report, the index made a strong move over 15,000 later in the week. In political news, Alan Kruger, Chairman of the Presidents Council of Economic Advisers issued a standard statement welcoming the news while criticizing the government cuts led by Congress known as the sequester.

The second big story was the positive revisions of NFP payroll data for February 2013 from 268,000 to 332, 000 which is an increase of +64,000 positions and a positive March revision from 88,000 to 138, 000, an increase of 50,000.  The total revision was +114K for the two months.

Unemployment report summary

Non Farm Payroll increased by 165,000 which is just below the 12 month average of 169K jobs created.   There was strong growth in all employment categories except construction, information and federal government. The unemployment rate dropped 0.1% to a calculated 7.5%.

The black unemployment rate was set at 13.2%. The number of black people who held jobs grew by 99,000 while the labor force grew by 93,000 causing a 0.1% drop in the unemployment rate. The 12 month average has be 13.75%

The chart below shows the slow decline in the national unemployment rate and the recent plateau of the black unemployment rate.

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Household Survey Results for February

The household data survey reported that the total labor force expanded by 210,000 while the number of people working expanded by 293,000. When the change in workers is greater than the change in the labor force (293K / 210K > 1) the unemployment rate goes down. The household survey is a sample of individual workers and considered less accurate than the establishment survey(business). 

The chart below shows the real black unemployment rate (Black U-6) is stuck around 20% even as US national rate slowly declines.

The long-term unemployed (27 weeks or more) was 4.4 million people which represents 37% of the unemployed.  The median duration of unemployment was 17.8  weeks  while the average duration was 36.9 weeks.  People are finding jobs slightly faster.

The “work part-time, wants full-time,” number was 7.9 million.  These people are considered under employed and would like additional work.  About 2.3 million workers were marginally attached to the labor pool.  They have looked for work in the last 12 months but not in the last four weeks.   And there were 835K discouraged workers (part of marginally attached) who are not looking because they believe there are no jobs for them.

There are some small but good signs in the report: the numbers of both marginally attached and discouraged workers have been dropping for several months.

Establishment Survey Results for February

Non-Farm Payrolls rose by 165,000 positions in April with growth coming in business services, education, health care and leisure. Construction was a very strong area of the job growth.  Construction added 48,000 jobs while retail trade added +24,000. Government lost -10,000 jobs. 

The following chart show the huge jump in private jobs which added 165,000 jobs in April. You can see the wide spread growth across all job categories except for construction, information and the federal government.

Non-Farm Payroll Revision

As stated earlier February and March NFP figures were revised upward by +114,000 jobs.

The average work week decreased to 34.4 hours and wages added 4 cent in April 2013.

ADP

ADP reported an increase in private payrolls of 119,000 positions for February.  Small business (1-49 headcount) added 50,000 jobs; medium size (50-499) added 26,000 and large companies (500+) increased workers by 43,000. The breakdown is important because large businesses tend to pay employee more and offer better benefits. 

Construction Unemployment vs. Job Openings peaked at 70-to-1 during recession winter in 2008

The recession was incredibly tough on construction workers.  At one point during the recession the number of unemployed construction workers was 70 times greater than the number of openings.  It was impossible to find a construction job.

I was looking at another great report from Hiedi Sheirholz at the Economic Policy Insititute here. The article called, "Unemployed workers still far outnumber the job openings in every major sector," discusses the limited number of job openings in many fields.

While the economic environment has improved, we can look back at how tough it was during the recession. And how tough it still is.  The nation has a huge job shortage.

The chart below is the ratio of unemployed construction workers to the number of open construction jobs.

March Monthly Unemployment Review: A disappointing 88,000 new jobs in March

BLS Unemployment Report Review for March

The BLS reported that only 88,000 net new jobs were created in March. which is well below the expected 150,000 average.  The national unemployment rate did not move from 7.6%. The black rate was 13.3%.  Most of the job growth was in temporary help, healthcare and leisure and hospitality. Retail sales employment was down by 25K jobs.

Overall unemployment report summary and reaction

The big story is the 663,000 people who dropped out of the labor force as reported in the household survey.   The drop outs were spread across all demographics categories. The stock market shrugged of the small job increase number and rose slightly.  The chart below shows the slow decline in the national unemployment rate.

Almost every other unemployment statistics were unchanged.

The national unemployment rate dropped 0.1% to 7.6% consistent with the slow growing economy. The Employment to Population ratio dropped to 58.5% and the participation rate was rate 63.3%. Both dropped during the month to record lows.  The low values point to a huge number of people who have dropped out of the labor force.

Household Survey Results for February

The household data survey reported that the total labor force decreased by -496,000 and the number employed dropped by -206,000.  All demographic categories, white, blacks and Hispanic, saw large number of people who self-classified as not in the labor force. 

The black unemployment rate moved down to 13.3%.  The reported black labor force decreased by -115,000 people however 9,000 more black people said they were working.  About 148,000 additional black people said they were not in the labor force. Changes in labor force statistics do not always match.

Total black employment was estimated at 16,068,000 workers.  Black teenage unemployment was 34% versus 23% for whites and 28% for Hispanics. Unemployment rate for Hispanics/Latinos was 9.2% while the rate for whites was 6.7%.

The black unemployment rate has reached a plateau while the national rate continues to decline.

The real black unemployment rate (Black U-6) is stuck around 20% even as US national rate slowly declines.

The long-term unemployed (27 weeks or more) was 4.6 million people which represents 40% of the unemployed.  The median duration of unemployment was 18.1  weeks  while the average duration was 37.1 weeks.  People are taking longer to find jobs.

The “work part-time, wants full-time,” number decrease by about 350,000 people to 7.6 million.  These people are considered under employed and would like additional work.  About 2.3 million workers were marginally attached to the labor pool.  They have looked for work in the last 12 months but not in the last four weeks.   And there were 803K discouraged workers (part of marginally attached) who are not looking because they believe there are no jobs for them.

Establishment Survey Results for March

Non-Farm Payrolls rose by only 88,000 jobs in March. The growth came in construction, healthcare, hospitality and temporary help. Retail trade lost 25,000 spots.  Construction was a strong area of the job growth adding 18,000 people to the workforce. The number would have been higher except for a 9000 job reduction in civil engineering category.  Government shrank again losing -7,000 jobs. 

Here is a chart of the changes in Non Farm Payrolls since the start of the recession in 2007.

The following charts show the small change in Non Farm Payrolls in March.

The following chart show tepid growth in all categories. Business Services was pumped up by temporary help increases of 20,000 jobs. One would suspect the some of those works are not real temps but permatemps who have been outsourced.

Non-Farm Payroll Revision

Non-farm payrolls were revised in January upward to +148K from +119K and for February 2013 from +236K to +268K.  The average work week was at 34.6 hours and wages added 1 cent in March.

ADP national employment report

ADP reported an increase in private payrolls of 158,000 positions for March.  Small business (1-49 headcount) added 74,000 jobs; medium size (50-499) added 37,000 and large companies (500+) increased workers by 47,000. The breakdown is important because large businesses tend to pay employee more. 

The Entrepreneurship Industry: Another annoying down side of US capitalism

There has been an explosion of entrepreneurship programs in the US.  It looks like everyone has some sort of "start-up" program, incubator or resource web-site. It's like everyone is trying to hit the lotto and a who industry has developed to sell people tickets and in some cases even "lucky" numbers.

Here are some examples:

Google has site focused on Entrepreneurship called Google Entrepreneur.
So does the City College of New York but on Facebook. Here is the link. 
There are also website that let you create business model like LeanLaunchLab.Com.

But you have to ask how much real, new value add are they creating and how much are they just stealing from one another. All this talk about entrepreneurship is great but it seems like a lot of "fake" PR with lots of smiling young people talking about "doing" good or "risking it all."

The truth is most businesses fail.

Another difficult truth is that the US economy is really a zero-sum game.  In order for you to get rich, someone else has be lose money or income. Despite what people are sold, money does not come from thin air.  It comes out of other peoples pockets.

And large businesses, especially retail, incredibly efficent at removing that money from other peoples pockets. Big box retailing has grown faster than the GDP for the past 30 years.  They have put department stores and mom and pop retailers out of business.  The competition is strong and vigorous   While average customer incomes are flat for the past 30 years.

So, lets be honest, in order for some business to succeed others must fail.

The real key in any business including small start-ups is a defensible niche; a natural or created monopoly that allows the owner to enjoy surplus profits. That can be the corner delicatessen  the local auto-repair business, a mid level medical instrument manufacturer or Amazon.com. (Ed. Note: It was really hard coming up with a mid-level factory example, they all have been pretty much wiped out)

What to do about black unemployment

I would say the real black employment rate on average is about 22%. If you take U-6 and add the difference between the white and black U-3 rate you get 22%. The difference can mostly be traced to educational differences, immigration competition among the poor, geographical differences, different career choices (fewer entrepreneurs) and reduced government employment. The residual is discrimination.

Because of the huge legacy of racial oppression and discrimination, you cannot a conversation about black unemployment. Even the most liberal whites have come to associate blacks with being undeserving. In fact, the defenses go up so fast, that I have stopped writing or discussing "black unemployment" directly. I also use code.   I now always use "hard working poor people" or "former military servicemen" both groups contain large number of poor and minorities.

The problem is that society undervalues a job by social justice standards   Many people equate a job with their wage or the valued added returned to the employer. But a job is much more than that. In our society. A job is freedom, dignity, and respect.  It is a chance to participate in society, to earn a wage, to make friends and socialize with people from different backgrounds. It is also a chance to learn and develop. It is a chance to have pride. Without out a job you are worse than unemployed: you are a loser.

Now what to do ? Three things to start: we need to tilt the economy back to rewarding labor, set a realistic limit on immigration, and have the government (state and local) become the employer of last resort. The way to increase returns to labor are all pretty well known: limit corporate size and market control, encourage unions, increase the minimum wage, and teach and encourage entrepreneurship. Immigration should be a function of the unemployment rate.  And finally, the government should be the employer of last resort. It would be cheaper than the current social safety net.

Delaware = Cayman Islands North

If you every wonder about the power companies to "rig" the system in their favor, take a look a Delaware.  The state is know as Cayman Islands North. Delaware is a state that benefits from helping companies and individuals avoid state taxes. It also promotes business friendly, "light" regulation.  The state has been used by money-launders and arms smugglers.

Almost all of the financial activities in the state are linked to corporate tax reduction or tax avoidance. There was some back office check processing going on during the 90's and 00's but that has greatly diminished. About 50% of the fortune 500 are incorporated in Delaware. There is little real economic activity going on in Delaware outside of Dupont and Perdue Chickens. Delaware is little natural resources and remained a slave state until emancipation.

Instead what Delaware has done is exploit a loophole in the tax system allowing companies to "shop" for a state jurisdiction for tax purposes. For state tax purposes, companies recognize some their US profits in 0% tax Delaware regardless of where they are earned rather than in high tax NY state. Corporation use this tactic to reduce taxes on royalties and other payment that can be recognized in any jurisdiction.

Though it is small potatoes  Delaware has also benefited greatly from individuals avoiding local sales taxes.  People from Maryland, Pennsylvania and New Jersey drive to Delaware for consumer products like liquor, appliances, flat screen TVs and cars.  This damages state tax coffers resulting in higher taxes for everyone.

To it's credit, Delaware has set-up specialized courts, like the court of chancellory, to hear business cases.

The sad part is that Delaware is really usurped federal power.  And not in a good way like the Pennsylvania Department of Agriculture or California EPA's Air Resources Board. Delaware let corporations avoid taxes and robs other states revenues.

You can read more details in the NYT piece: "How Delaware thrives as a corporate tax haven."

Economic Reasons are five of the top ten reasons for joining the military

We, at the Evil Black Economis,t have been thinking about guaranteed jobs program with the government as the employer of last resort. So we are looking at the government programs that most closely resemble a jobs programs: the military, homeland security and civilian criminal justice (police, fire, and corrections).  Each of these job classes produces little to no value added in society or contributes to GDP other than through salaries.

We believe these areas, which are really cost avoiders, are perfect examples of government jobs programs.

Here are the top ten reasons to enlist in the armed forces.  This list was taken from a military recruiter on the military.com website. So it boils down to one expert opinion.

Here is the list.  Reason which are economic in nature tagged with an "E".

Education ([E]conomic)
Money (E)
Medical Coverage (E)
Career (E)
Travel and Adventure
Camaraderie
Sense of Direction
Real World Skill (E)
Honor
Other but Military Related - Like the idea, weapons and technology, a challenge, friend or family member is in the service, etc.

Affirmative Action is Everywhere

Affirmative action is everywhere these days and no one has a problem with it when the beneficiaries are US military personnel.  Veterans affirmative action even has quotas. And the public is completely accepting of this type of affirmative action.

 The Whitehouse web site has some new details on the affirmative action program for military personnel and their spouses. The program is called "Joining Forces Employment" is a program to get large corporations to hire veterans. The program includes specific commitments (quotas). Michelle Obama recently announced new hiring commitments from companies at  the Whitehouse.

One bit of good news is that poor people and blacks are over represented in the military.

The Whitehouse story is here.

The Joining Forces website is here.

Here is a great report from the Army called "Blacks in the US Army" that has statistics on black participation in the armed forces.

Military.com reports that 5 of the top 10 reasons for joining the military are economic.