The New News Is Old News
Nothing changes it seems. Our rocky economy remains rocky. Instead of moving steadily towards the higher ground we are, apparently, doomed to wander in the lower reaches of recovery. This is not good news since it exposes us to a higher risk of relapse. But what’s new in that comment. Nothing.
Today’s report on new claims for unemployment assistance is just one more signal that we are stuck. By now we should have been well below the levels of late last year. Indeed the first months of 2010 showed significant improvement. Yet here we are back at 500,00o new claims a week, up 12,000 from last week, and back where we were last November. The pundits all seem shocked. I am simply disappointed. This sticky job market is fast becoming the touchstone issue of the entire cycle. Our economy appears unable to generate sufficient jobs, even though we have now experienced several quarters of growth.
My perspective, as you all know, is a little different from the breathless types who populate the media. I never expected a robust recovery – history teaches us not to expect such a thing after a financial crisis – and the stimulus was way too small to kick start such a moribund economy. Besides the best efforts of Washington have been severely undermined by the contagion of budget balancing and cost cutting that swept through our various local governments. That’s why the total government stimulus is much smaller than a cursory look at the Federal level indicates. Perhaps the pundits forget that we are 50 nations plus the Feds? In any case the accumulated impact of the State and Federal is way smaller than the already paltry amount that comprised the Fed stimulus alone.
My take on the stickiness in employment is that corporate America has completely altered its view of its workforce. We have entered a period of dissociation between employer and employed. Workers are simply a cost to be shunted off at the least provocation and hired only in the extreme. Lean management and flat hierarchies imply much more swift workforce reduction and mush less rapid workforce growth. This is not a new phenomenon of course. We have been discussing the destruction of the social contract and America’s more flexible workforce for decades. But it is only during the last two recessions – 2001 and now – that the real impact of this social change has been manifest. If you recall one of the great criticisms of George Bush was that his presidency produced the most anemic job market in American history. His record was lamentable. We are now experiencing the same shallow curve of recovery that we went through after the 2001 recession, only this time the devastation was so severe that, at our current pace, we won’t get back to pre-recession levels of unemployment for another two or three years. American businesses have protected profits, but at the cost of massive and prolonged unemployment.
The social implications of this are enormous and will only be apparent in the years ahead. Perhaps the most corrosive is that the balance in incomes in the American economy will continue to swing away from the average worker and towards those who make their living off of dividends and interest. Unless workers can reacquire sufficient clout to take a share of the increased productivity that the jobless recovery is now producing – and at some point that should be inevitable – then the distorted distribution of wealth we have created over the past three decades will be worsened.
This would have the effect of making future recoveries more difficult still. A larger concentration of the nation’s wealth in the hands of a few makes consumption, a key to the overall health of the economy, less responsive to the business cycle. People who already have wealth are less inclined to spend during a recovery than people who are less well off and are, therefore, more likely to spend any increase in income that comes their way. It is this phenomenon that makes the distribution of income a matter of concern to us all.
Apart from this, I also disdain looking at the job market as if it were one entity. Employment tends to be local and is driven by demand. That is to say that national wage levels are far less important than the level of economic activity itself in determining the shape of the job recovery. Couple this with corporate America’s obsession with short term profits and its lean management style, and I think the reason for the sluggish recovery in employment is obvious: demand is too low, and businesses want to syphon productivity improvements into profits rather than expansion.
Which brings us to another repetition. We need more stimulus if we truly want to break free of the grip of recession/poor growth.
I won’t bang that drum today, but rather I will point to the continuing quiescence of bond interest rates as a sure sign that the credit markets are betting more against than for the recovery. There are signs of life: industrial production kicked up a little last month, so our factories are gaining, not losing, momentum. But that data was more noticeable as an outlier than as just one more good statistic. The economy is obviously weaker now than six months ago, so I see no reason to expect a surge in hiring. At the same time I see no huge downside either. The most likely trajectory remains slow growth for the rest of the year and into next. With most of the risk on the downside.
And thats not news.
