Month: March 2013

Job and Earnings Churning Is Not Job and Earnings Growth

Paul robs Peter, then Peter robs Paul.  Round and round and round.  And we all fall down.

SOURCE ITEMS

At the price of a doubling in unemployment and near-10 percent plunge in labor costs, the so-called peripheral euro nations are reviving manufacturing and trade. In Spain, exports reached a record 222.6 billion euros ($287 billion) in 2012.

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Joblessness already tops 25 percent in both Spain and Greece…

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Ford Motor Co. (F) (F) said at the end of last year it will increase capacity near Valencia as it shuts plants in the U.K. and Belgium. Peugeot (UG), which is cutting workers in its home market of France, is also lifting output in Spain and Portugal.

Simon Kennedy, Even Greece Exports Rise in Europe’s 11% Jobless Recovery, Bloomberg, March 21, 2013.

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Barely two years ago, Brazil’s rapid economic growth and expanding middle class made it the darling of financial markets …. With slow growth and stalled economic reforms, financial markets were about to write off Mexico as a lost cause.

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So Brazil has become the star that disappoints, while Mexico is the underperformer that suddenly shines.

Andres Velasco, A Tale of Two Countries, Project Syndicate, March 14, 2013.

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Mexico’s minimum wage commission set the increase for 2012 at 4.2% for all three of the country’s geographic zones…

The increase brings the minimum wage in Mexico to 62.33 pesos ($4.60) a day for zone A, which includes Mexico City. The minimum wage is slightly lower in other geographic zones.

What is the minimum wage in Mexico?,Maquila Reference website.

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Perry sent letters to 26 gun and ammunition manufacturers earlier this month inviting them to consider a move to Texas if the states they currently operate in impose “restrictive laws” on their industry, according to a copy of the letter and list of the manufacturers provided to ABC News by the governor’s office.

“As you consider your options … you may choose to consider relocating your manufacturing operations to a state that is more business-friendly.  There is no other state that fits the definition of business-friendly like Texas,” Perry wrote, pointing out financial incentives the state offers companies.

Arlette Saenz, Rick Perry Invites Gun Manufacturers to Set Up Shop in Texas, ABC News, February 22, 2013.

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We find that products systematically tend to co-appear, and that product appearances lead to massive disappearance events of existing products in the following years…. This is an empirical validation of the dominance of cascading competitive replacement events on the scale of national economies, i.e. creative destruction.

Peter Klimek, Ricardo Hausmann, and Stefan Thurner, Empirical confirmation of creative destruction from world trade data, arxiv, December 13, 2011.

COMMENTS

A few years back, business was booming in Ireland and experts were hailing it as the land of smart policy.  Then things went south.  Overnight, the land of smart policy became the land of dumb policy.

The problem for the world’s nations isn’t whether a nation adopts smart policy or dumb policy. The problem is that the world economy is a system of trade and competition in which nations, provinces, states, and local governments design and implement policies to steal jobs and earnings from other nations, provinces, states, and local governments.  As a result, there is much less actual job and earnings growth in the world economy and much more inter-territorial migration of jobs and earnings (churning) than is typically claimed by the champions of global capitalism.

This has always been the case, but decades ago this reality was much less visible to Americans and Western Europeans because the churning took place at a much slower pace and the winners and losers were not so intimately connected to each other through global systems of communication and transportation.  Moreover, we were usually winners in the global job churning system, so we had little incentive see the churning.

In the interceding decades, the rate of inter-territorial movement of jobs and earnings has been accelerating.  Global communications and transportation systems have expanded and improved markedly, facilitating ever rising numbers of inter-territorial financial transactions and deal closings. In turn, job and earnings churning has and continues to accelerate.

As the churning accelerates, it is becoming more visible to Americans and Europeans.  One reason is that the same communications and transportation systems that are accelerating churning are also connecting the peoples affected by the churning more closely together.  More importantly, though, Americans and Europeans are now more often finding themselves on the losing side of the churning.  Seeing the churning has become more likely because not seeing the churning only leads to policies that work only over a short period of time that is growing increasingly shorter.

The best policy move for everyone is for the world’s leaders to put an end to global job and earnings churning.  In the U.S. we certainly must put an end to interstate job and earnings churning, or our political gridlock and policy floundering will likely pull us deeper into an accelerating spiral of economic and political disasters. 

February Job Numbers: Evidence for a Growth Trend or Just One More Outlier in an Era of Employment Volatility and Too Little Growth?

SOURCE ITEMS

Chart-Current Job Growth Not as Strong as last yearSource: Employment Situation Summary Table B. Establishment data, seasonally adjusted, Bureau of Labor Statistics Economic News Release, March 8, 2013. 

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Chart-Industries with largest employ increases, feb 2013 Source: Employment Situation Summary Table B. Establishment data,seasonally adjusted, Bureau of Labor Statistics Economic News Release, March 8, 2013.

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Looking at a series of economic indicators, and going back to the costliest 18 hurricanes of postwar history along with the Northridge earthquake of 1994, Goldman’s research team found that retail sales, construction spending, and industrial production “show a clear dip in the month of the disaster, followed by a significant recovery within 1-3 months that typically takes their growth rate above that seen prior to the disaster.”

Agustino Fontevecchia, Despite $50B In Damages, Hurricane Sandy Will Be Good For The Economy, Goldman Says, Forbes, 11/06/2012.

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Chart-Construction employment in Louisiana, 2002-12  Chart generated by BLS State and Area Employment web site.

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The largest global disasters of 2012 were Hurricane Sandy (with a cost of $65 billion) and the year-long Midwest/Plains drought ($35 billion), according to the company’s Annual Global Climate and Catastrophe Report, which was prepared by Aon Benfield’s Impact Forecasting division.

Doyle Rice, Hurricane Sandy, drought cost U.S. $100 billion, USA TODAY,  January 25, 2013.

————— Chart-Major Disaster Declarations 1953-2011

Bruce R. Lindsay, Francis X. McCarthy, Stafford Act Declarations 1953-2011: Trends and Analyses, and Implications for Congress, Congressional Research Service, August 31, 2012

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Joel Naroff of Naroff Economic Advisors … expects average monthly job gains of 200,000-plus this year if the White House and Congress can agree to put off the budget cuts. If all the reductions occur, it likely would mean monthly gains of about 165,000, he says.

Paul Davidson, Employers add a stunning 236,000 jobs in Feb., USA TODAY, March 8, 2013.

COMMENTS

Stronger than usual February job growth is widely hailed as part of an economic recovery in the U.S. that many are seeing in recent positive market signals – rising housing prices and a flourishing stock market, for examples.  The explicit expectation is that we will not look back a year from now and see February’s 236,000 added jobs as only an outlier in year of mostly disappointing employment news.

It is possible that job growth will be strong this year, but it is unlikely.

Several factors involved in the production of February’s job growth numbers suggest that job growth numbers will bounce up and down in 2013 as they have in the past and leave the U.S with unemployment, underemployment, and labor force participation rates much as they are today.

Job growth is weaker this year than last

The first indicator that we should not put much stock in February job growth numbers is that job growth numbers for January and February 2012 were considerably better than the numbers for January and February 2013.  Yet 2012 ended with little progress toward getting Americans back to work.

Unpredictable weather events may be a factor in February job numbers

Both the Midwest/Plains drought and Hurricane Sandy damaged industries and destroyed property.  Smaller weather events, such as severe winter storms, have also done damage.

Rebuilding after Hurricane Sandy and repairs following winter storms could well have contributed to February job numbers.  In the case of Hurricane Sandy, which did $50 billion or more in damage, cleanup, redevelopment planning, negotiating insurance payments, and getting money flowing from government agencies may have pushed much of the impact on the demand for goods and services into 2013.  So, it is possible that:

  • the impact of Hurricane Sandy on the construction and retail industries is just now peaking
  • hospitality and leisure are still be benefiting from housing people displaced by the hurricane
  • Hurricane Sandy still has a significant impact on the demand for social services
  • some professional and business services, such as legal, architectural, engineering, document preparation and clerical, security and surveillance, cleaning, and waste disposal services, are part of recovery efforts related to Hurricane Sandy.

Employment related to Hurricane Sandy and winter storms will fall off as the year progresses.  Of course, other disasters and damaging weather events will strike.  But, when and where those events strike and how much demand for goods and services they will generate can’t be known.

It is fairly certain, though, that the impact of large and small natural disasters on employment will grow larger over the coming years, adding more volatility to month to month job growth numbers.

 Volatile government spending adds volatility to some private sector industries  

Although jobs in health care and social services are listed in the private sector, many of those jobs are paid for by grants and contracts from local, state, and federal government agencies.  The same is true for employment in most educational institutions and in many manufacturing business service industries that supply goods to government agencies.

Given the volatile political tugs-of-war over revenue and spending policies at all levels of government, jobs in industries with federal funding can come and go quickly.  Perhaps some of this effect is in the February job numbers.

A final note

 It is good to have job growth, but it is certainly less than optimal if a growing proportion of new jobs are associated with repairing and replacing the damaged wealth of those who already have it rather than creating new wealth to be shared with the very large number of Americans who have no net wealth at all.

Climate change and government gridlock are robbing both those of us with wealth and those of us without it.