Still no answers for the Jobs CrisisPosted: May 5, 2011
It’s difficult for me to watch the job market continue to dither knowing full well that nothing is being done about it. Just in case you’ve missed the other headlines today, U.S. jobless claims “unexpectedly” jumped. It wasn’t unexpected on my part.
Applications for jobless benefits jumped by 43,000 to 474,000 in the week ended April 30, the most since August, Labor Department figures showed today. A spring break holiday in New York, a new emergency benefits program in Oregon and auto shutdowns caused by the disaster in Japan were the main reasons for the surge, a Labor Department spokesman said as the data was released to the press.
Even before last week, claims had drifted up, raising concern the improvement in the labor market has stalled. Employers added 185,000 workers to payrolls in April, fewer than in the prior month, and the unemployment rate held at 8.8 percent, economists project a Labor Department report to show tomorrow.
“We’re seeing so many distortions in the claims numbers week to week that it’s hard to say, but I’m willing to be patient and wait and see,” said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut. “Other reports show an improvement in the labor market. It’s going to take a while to dig out of the hole we have in relation to the jobs the economy lost during the recession.”
Yes, it is a hole, and there’s very little being done to fill it. There are quite a few factors that contribute to the current appalling job market. The Fifth Fed District’s Macroblog looks at the contribution of offshoring. Offshoring basically means that part of a production process is moved to an overseas location. That can mean anything from a call center to manufacturing of a good. You can see that the impacted industries include both service and manufacturing sectors. The nifty table up there in the left hand corner will give you an idea of the impact of offshoring by industry. The numbers are tabulated from data during the years of 1999 – 2008. The changes and content of the ‘other’ category is further elucidated in the macroblog piece. It includes another table that you may review too.
Sixty-nine percent of the foreign employment growth by U.S. multinationals from 1999 to 2008 was in the “other industries” category, and 87 percent of that growth was in three types of industries: retail trade; administration, support, and waste management; and accommodation of food services. Some fraction of these jobs, no doubt, reflect “offshoring” in the usual sense. But it is also true that these are types of industries that are more likely than many others to represent production for local (or domestic) demand as opposed to production for export to the United States.
This is a bit interesting. There are two main types of Foreign Direct Investment that involve ‘offshoring’. One is called vertical and the other is horizontal. Horizontal FDI means that one segment of the process is moved to another country but the final good or service still goes to the consumer in the company’s home country. The last analysis from macroblog implies that a substantial part of that offshoring is actually Vertical FDI. This means that the company is moving itself over to the country to take advantage of end consumers in the other country.
This finding isn’t surprising if you consider the number of countries that are experiencing booms in the number of middle class citizens. There are more middle class Chinese than there are US citizens, as an example. There is also the fact that the middle class in the US has been losing income and purchasing power for nearly 30 years. It only figures that these companies would look for greener pastures elsewhere. Why expand here when your customer base is unlikely to be expanding and unable to afford your products in any meaningful way?
Macroblog points out that this is unlikely to explain all the doldrums in the US job market, but it does provide one factor and and interesting one at that. I would say that this analysis basically says that US businesses are much more bullish on foreign markets than they are on their own. (Capital flows for investment suggest this too.) This should give all of us pause.
Interestingly enough, another FED President also suggested that the economy and the US job markets weren’t as stable as they could be and suggested more stimulus. Three Fed Presidents rotate in and out of the Open Market Committee–that’s the monetary policy decision body–and each district is a world unto itself in many ways. Fed Boston is not in the current rotation.
Federal Reserve Bank of Boston President Eric Rosengren yesterday said record stimulus is necessary to spur the “anemic” economy and that raising interest rates to combat increasing food and fuel prices would impede growth.
“With significant slack in labor markets, stable inflation expectations, and core inflation well below our longer run target, there is currently no reason to slow the economy down with tighter monetary policy,” Rosengren said during a speech in Boston.
Not surprisingly, equity markets seemed to be caught a bit off guard with this news. Right now, I think the market seems to be in one of those periods where it’s not paying much attention to fundamentals. Bloomberg.com notes that Futures Fell on the news. Some times Wall Street thinks as long as their churning out fees and capital gains, all is right with the world. This is definitely not the case. It does explain why their economists tend to get caught off guard though. Hello? Real World anyone?
Stock-index futures dropped after the report. The contract on the Standard & Poor’s 500 Index maturing in June fell 0.6 percent to 1,334.8 at 8:58 a.m. in New York. Treasury securities rose, sending the yield on the benchmark 10-year note down to 3.18 percent from 3.22 percent late yesterday.
Weekly unemployment claims jumped to 474,000 last week, an increase of 43,000 from the level reported the previous week. This is seriously bad news about the state of the labor market. It seems that the numbers were inflated by unusual factors, most importantly the addition of 25,000 spring break related layoffs in New York to the rolls due to a changing vacation pattern, however even after adjusting for such factors, claims would still be above 400,000 for the fourth consecutive week.
This puts weekly claims well above the 380,000 level that we had been seeing in February and March. This suggests that job growth is slowing from an already weak level. This is news that should be reported prominently.
Unfortunately, the lackadaisical job market is off the front pages. Much of the political focus on the economy remains honed in on the federal debt. Again, this is the silly because one of the best ways of increasing tax revenues and closing the debt is for people to be employed. It’s an uphill battle to expect the deficit to close with this unacceptable level of unemployment. I still can’t figure out where they’ve placed their heads back their in Washington, D.C. Oh, well, look over there … it’s a dead Osama Bin Laden and we’ve not got any pictures yet!