Radio commentary, March 5, 2011
[The Dean and Rogers interviews referred to below are part of this show. The version of these comments delivered on that show, however, don’t include the analysis of the February employment report, which was written just for this “blog.”]
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February’s job market
The economic recovery, such as it is, has been chugging along during my hiatus.
February’s employment report was solid, with no serious sub-surface blemishes. It featured the strongest headline gain in nine months and the lowest unemployment rate in almost two years. Even so, the rate of job growth was just enough to keep up with population growth. Some details.
February’s headline gain of 192,000 was the best since May 2010. The goods sector contributed more than a third of the gain, 70,000. Manufacturing employment, which rose by 33,000 in February, is up by 112,000 over the last four months, or about 1%, the best performance over such an interval in 14 years. Private services added 152,000, with most subsectors showing gains. Government, though, was off 30,000, with federal employment unchanged, state down 12,000, and local, off 18,000. More than half the decline in state and local came from education. Austerity is really beginning to bite.
Average hourly earnings for all workers were unchanged, but the average was pulled down by an 0.8% decline in manufacturing. In private services, hourly earnings were up a more “normal” 0.2%. Yearly growth in private services is 1.9%, a very subdued number—about the same as inflation. So we’ve got employment tracking population growth and earnings tracking the CPI: these days, just staying in place looks pretty good, compared to what went before.
Those numbers come from the survey of employers. The simultaneous survey of households showed decent employment growth—but again, roughly in line with population growth. The employment/population ratio—the share of the adult population in paid employment—was unchanged for for the month. While the ratio is up 0.2 point from its November 2010 low, it’s still below where it was in September. At 58.4%, it’s more than 6 points below where it was at its all-time high in 2000, and is now about where it was in 1973.
The unemployment rate fell another 0.1 point to 8.9%, its lowest level since April 2009. “Hidden” unemployment also fell, with the broad U-6 rate (which accounts for those working part-time who want full-time work and those who’ve given up the job search as hopeless) down 0.2 point to 15.9%, also its lowest since April 2009. It’s still very high, though—nearly twice what it was in early 2007.
The Bureau of Labor Statistics publishes data on the flow of people in and out of employment every month (see here). They don’t get much attention, but they tell a dramatic story. Just 16.5% of January’s unemployed found a job in February, down from 17.2% the previous month, and close to an all-time low for the series (which begins in 1990). The share moving from outside the labor force and into employment was unchanged at 4.2%. An enormous number of the unemployed have simply been giving up and dropping out of the labor force: the share of the unemployed dropping out of the labor force has exceeded those finding work for two years. Much of the recent drop in unemployment comes not from the jobless finding work, but from a slowdown in the rate of job loss, now at its lowest level since early 2008.
So we’ll need to do a lot better than this to make a serious dent in unemployment. And while it’s nice to see a continuing decline in job loss, it’d be even nicer to see a serious pickup in hiring.
I doubt we’d be in this weak recovery were it not for all the fiscal and monetary stimulus we’ve received over the last couple of years. Fresh proof of this comes from the Congressional Budget Office (CBO), which is out with its latest estimates of the effects of the stimulus package—officially the American Reinvestment and Recovery Act (ARRA)—on employment and incomes.
For the fourth quarter of 2010, the CBO estimates that ARRA:
- raised real GDP by 1.1–3.5%
- lowered the unemployment rate by 0.7–1.9 points
- increased the number of people employed by 1.3–3.5 million
- increased the number of full-time equivalent jobs by 1.8–5.0 million above what would have happened without ARRA
These are substantial numbers. Take GDP. The midpoint of the estimate is 2.3%. Real GDP is up 4.5% from its 2009 low. In other words, the StimPak accounts for about half the growth. Or employment. It’s up only a little over a million from its low; it would still be in the red without ARRA. And if you add 1.3 points to the December unemployment rate (which is what you should use, and not something more recent, since the CBO is talking about the fourth quarter of 2010), it would be 10.7%, above its worst level of 10.1% in October 2009.
Of course, the stimulus is fading and the austerity party is getting the upper hand. That, and $100 oil, could make us nostalgic for early 2011.
Speaking of $100 oil, why is its price, along with most other commodities skyrocketing? There are several reasons. One is demand from China—which means, of course, partly China’s internal needs and partly what it needs to satisfy the rest of the world’s lust for its exports. Another is the uprisings across the Middle East: turmoil is always worrisome to oil traders, especially if it leads to the replacement of imperial stooges with more complex political figures. And third is the huge flow of speculative cash—from hedge funds and the like—into commodity funds.
Let’s look at oil more closely. Reasons one and three above—China and speculative hot money—sound like a trip back to the great commodity run-up of 2002–2008, which took the price of oil up seven-fold, from under $20 a barrel to over $140. Back then, though, the U.S. and other First World economies were decently strong; now they’re not—much of the real demand is coming from Asia (excluding Japan) and nowhere else. Then, OPEC’s spare capacity was tight, not much more than a million barrels a day (compared with world demand of about 90 million); now it’s almost five times that. A supply cushion in excess of 5% is nothing to sneeze at.
Surely, there’s reason for oil traders to be nervous about supply interruptions with governments falling and/or teetering across the world’s Oil Belt. But prices had already risen before Tunisia led the region into open revolt. The political jitters added maybe ten bucks to the price—what about the previous fifty?
After the bubble burst in 2008, prices quickly sank below $40—and then began rising, even though the world was in recession. Prices rose steadily through 2008 and stabilized around $75–80 during most of 2010. But late in the year, prices rose again, breaking $90 at year-end, despite a weak economic recovery in much of the rich world.
No doubt some people, including many listners to this show, will say that peak oil is kicking in. But the long-term supply/demand balance hardly changed between February 2009, when oil was $40 a barrel, and December 2010, when it was $90. Markets are awful at pricing the long-term anyway; in almost any instrument you look at, from interest rate futures to inflation expectations to stock prices, prices are almost always driven by the present and recent past and have little or no predictive value.
So it looks like hot money has been a major force in driving prices higher. This is a mixed blessing. Since we can’t pass a carbon tax, higher market prices will encourage conservation and doom SUV sales. But since most Americans have little choice but to drive everywhere, high gas prices are going to hurt, and the last thing the working class needs now is more hurt. And oil prices north of $100 are almost certain to weaken further and already weak economy.
Enough for now about oil. There’s one commodity group where the spike in prices has been deadly—food. There are some real-world reasons for higher prices: rising demand for more and fancier foods coming from China (of course), and crop failures, often the result of a climate driven mad by all that oil we’ve already burned. But again, the hot money has greatly amplified these real-world concerns. For the billion or two of the world’s people living on the margins, higher food prices can mean starvation.
So why is all that hot money chasing commodities? Because the money’s managers think the world is on the verge of another great inflation, like the 1970s. And when that happens, the reflex is to buy tangible goods, not financial assets. Why, with half the world’s economy barely off the mat, should we worry about inflation? Because fiscal and monetary policy, especially in the U.S., has been stimulative.
Actually, over the last 20–25 years, commodity prices have had little effect on general inflation. They did in the 1970s, but, traders’ anxieties to the contrary, this is no longer the 1970s. In recent history, commodity price spikes have remained largely confined to the commodities themselves. And the last few run-ups in oil prices have led to recessions, not great inflations.
So, given the spike in oil prices and the move towards austerity, the economic outlook is not encouraging.
Wisconsin, collective bargaining
Later in the show, we’ll hear from Joel Rogers of the University of Wisconsin on some of the longer-term background to the labor eruption in his home state. But I do want to say a few things before we get to that.
It’s been a very pleasant surprise reading the polls on the confrontation in Wisconsin. A reminder to those of you who might not be following this intensely. The new governor, a right-wing Republican named Scott Walker, has proposed dealing with the state’s budget problems—which are serious, but far from drastic—by not merely forcing state workers to contribute more to their pension and health benefits (a polite way of saying taking a wage cut), but by essentially destroying their unions. The workers have agreed to the pay cuts, but that’s no enough. Walker wants to break their unions. He made it clear during a prank call with someone he believed to be the right-wing billionaire David Koch, but who was actually a reporter for the Buffalo Beast, that he wanted to duplicate Ronald Reagan’s firing of the air traffic controllers in August 1981, just eight months into his presidency, a move that signaled open season on unions. Before that, it was considered bad form to fire strikers and replace them with permanent scabs. Reagan changed all that, and every CEO in the USA took the cue.
Walker wants to do the same for public sector unions. As we will hear Joel Rogers say shortly, this isn’t just about saving money—it’s about eliminating an important source of financial and organizational support to the Democratic Party. Unions spend scores of millions in every election cycle, and send their members out to campaign and round up voters on election day, and get little or nothing in return for all their efforts. This is one of the tragedies of American politics: organized labor has to choose between a party that tolerates their presence but basically ignores their interests, and one that wants to destroy them. Some choice, eh?
I happened to be in Madison to give some talks at the University of Wisconsin when the demonstrations at the state capitol began. They were remarkable—populous and lively, not the thinly attended, dispirited affairs you often see (which is what I saw in a demonstration of support for the Wisconsin workers in New York last weekend—that, and not a word about Democratic governor Andrew Cuomo’s own lust to fire teachers and cut taxes on the rich).
I was afraid that the labor upsurge in Wisconsin wouldn’t find much support in the broader population. And I figured that the Republicans would be successful in mobilizing resentment against the pay, benefits, and security enjoyed by public sector workers. Mark Ames has written some terrific stuff on resentment as a political force in the USA—in this case, the thinking would, “If I don’t have those things, they shouldn’t either,” and not, “Why can’t all workers have those things?”
But so far, it hasn’t worked out that way. Polls by Gallup and the New York Times show strong support, in the two-to-one range, for collective bargaining rights. But “collective bargaining rights” seems to be a magic phrase, much more so than the word “union.” Support for unions is much lower. The New York Times poll found twice as many Americans believing that unions have too much power as believe they have too little. Since unions have almost no power in this country today, I’m not sure what to make of that, but that’s what the poll says.
But as you’ll hear Joel Rogers say, while unions aren’t popular, apparently people think there’s something un-American about telling workers that they can’t have a union if they want one. But a Pew poll using the somewhat toxic words “public employee unions” still found their supporters outnumbering Gov. Walker’s by a 42–31 margin.
The New York Times poll also found strong opposition to cutting the pay and benefits of public employees. I’m guessing that there’s been some success in positioning public employees as good guys—teachers and firefighters and the like—and not slackers or corpulent labor bureaucrats. Anyway, this is all very good news.
Also, considering some of the points made in the interview with Jodi Dean we’ll hear shortly, I want to underscore the importance of organizaiton in making these things happen, whether in Cairo or Madison. It’s gotten very fashionable on the left over the last couple of decades to celebrate flat networks and ad hoc coalitions and to hold organizations like unions in disdain. God knows there’s lots to criticize in the American labor movement; I’ve done plenty of it over the years. But the Wisconsin fightback is evidence of the good they can do when they put their minds to it. There can never be any better politics in this country until there’s a rebirth of the labor movement.
And a few points of factual background to the Rogers interview. Rogers mentions that Wisconsin is the most manufacturing-intensive state in the country. Here’s a measure of that: nearly 16% of Wisconsin workers are employed in manufacturing, nearly twice the national average of 9%. Indiana is just a hair behind Wisconsin in the national rankings, but then the manufacturing share starts falling quickly. The classic factory states, like Michigan and Ohio, are nearly 4 percentage points behind Wisconsin; they’ve been hammered by the carnage in the auto sector. California’s share is right at the national average, 9%. New York’s is way below, at just above 5%.
Oh, and Wisconsin’s unemployment rate is nearly 2 points below the national average—7.5% vs. 9.4% in December. That’s not the lowest in the country, but the state is still doing a lot better than California, at 12.5%.