Radio commentary, April 30, 2009
A review of some of the headlines before hitting some big-picture stuff.
unemployment claims: easing a tad
More tentative signs of some slight gloom-lifting in the job market. First-time claims for unemployment insurance filed by people who’ve just lost their jobs fell by 14,000 last week, and the four-week average is now about 20,000 below its high, set last March. As I’ve noted here before, the yearly percentage change in these weekly initial claims figures has proven a pretty reliable early warning sign that a recession is drawing to a close, and that peaked in February. So this is suggesting that the worst may over. But, and this is a very big fat “but,” that doesn’t mean that the good is about to begin. The number of people continuing to draw unemployment insurance benefits—continuing claims in the jargon—rose last week, and has been drifting steadily higher. In fact, the behavior of continuing claims suggests that when the Bureau of Labor Statistics releases the April employment data next Friday, the unemployment rate is likely to rise towards the neighborhood of 9%, from March’s 8.5%. Putting all this together, I’d say that while the pace of job loss is probably slowing, hiring remains in the doldrums, and is likely to stay there for many months to come. It could be a year before we start to see plus signs in the monthly employment figures.
GDP: down hard
U.S. GDP for the first quarter fell at a 6.1% annual rate, adjusting for inflation, only slightly less than the 6.3% fall at the end of 2008. The first quarter decline was the sixth-worst in the nearly 250 quarters since the figures begin in 1947, and the two quarters together are the second-worst back-to-back performance over the same period. The only worse stretch was in 1958, in the midst of a short, sharp recession. This one is sharp, but it isn’t short. So, in other words, quite bad.
Under the headline number, there were some awful figures. Real investment fell by over 50% at an annualized rate. (Annualized means the total change were the quarter’s rate sustained for an entire year.) Business investment in machinery and equipment, the motor of economic growth over the long term in a capitalist economy, fell at a 34% annual rate. Investment in new housing was off 38%. Exports were off 30%; imports, 34%. For some reason, consumers bought a lot of durable goods, things like cars and appliances; that gain kept the headline figure from being even worse than it was. But consumption had been falling very dramatically, so this looks a bit like what Wall Street calls a dead cat bounce.
the crisis in auto—and in the UAW
Speaking of car sales—which were astonishingly up around 20% in the first quarter, after falling almost twice that much in the previous three months—news that Chrysler will file for bankrupcy, while hardly surprising, is still arresting. Once an iconic industrial corporation, it became the beneficiary of the first modern bailout, in 1979. That one involved a billion and a half in loan guarantees on which the Treasury actually made money; the company recovered, and its CEO, Lee Iacocca, became a celebrity. This crisis is a lot deeper and more structural.
For a while it looked like the Obama administration had gotten Chrysler’s creditors to agree to a restructuring of the firm that would have kept it out of bankruptcy court. Fiat would have gained operational control of the company, and the United Autoworkers would have owned just over half the stock.
(An aside: it’s amazing to see Fiat in the role of the savior of an American auto company, and the source of advanced engine and manufacturing technology. Americans used to laugh at Italian industry. Who’s the laugh on now, paesani?)
In any case, the speculation is that Chrysler will emerge from the bankruptcy process looking pretty much like the deal the administration had arranged for. We’ll see. Sometimes the process is unpredictable.
At the same time, GM is going through a similar restructuring that could well end in bankruptcy court as well. If that happens, the firm’s bondholders would see their paper turn into stock, making them, in partnership with the UAW and the government, the company’s new owners.
Let’s bracket all the details of this for now and focus on one thing: the United Auto Workers is likely to become a large, and perhaps controlling stockholder in two major industrial enterprises. What will it do with them?
Sad to say, probably nothing. It’s likely that the courts and the government will assure that the union’s stockholdings are largely on paper, with no actual rights of ownership to be exercised. Will the UAW complain about this muzzling? Probably not. Which is a sign of just how braindead the American labor movement is.
Here would be a wonderful opportunity to reshape a crucial industry. The UAW, had it anything like vision or a public spirit, could have spearheaded the development of new, earth-friendly kinds of cars, and new, worker-friendly ways of making them. It has given no sign of ever having thought about anything remotely like this. Here it is, with two enormous potential gifts dropped into its lap, and it doesn’t know what to do. Tragic.
And I see a lot of labor radicals can do little but lament how the workers are giving up wages and benefits and the retirees are being screwed—and all because of decades of management mistakes. All very true. But the companies are broke. There’s just no money to pay wages or benefits. The bourgeoisie isn’t making this up as part of a big con game. The UAW sat quietly by during the deceptively fat years of the 1990s, when low oil prices encouraged the sale of high-profit SUVs, and the domestic car industry ignored its underlying rot. For more than 60 years, it’s paid no attention to the strategic direction of the industry, which has been in varying stages of crisis for almost half that time. And now, the union is badly, perhaps terminally screwed.
What will it take to rouse the American working class from its torpor?