Tuesday, July 13, 2004

Employment Watch: Economist Torpedos Optimism

The Economist is pointing out what the oldman has noted before. That the jobs figures are turning sickly again after a brief spurt.

PITY the Republicans. No sooner had America's jobs figures become rosy enough to brag about in campaign ads, than the pesky statistics stopped playing ball. According to numbers released on July 2nd, only 112,000 new non-farm jobs were created in June, far fewer than in each of the previous three months and less than half what analysts were expecting. After rising for four months, jobs in the politically sensitive manufacturing sector fell. The average work-week shortened and the unemployment rate is stuck at 5.6%.

Democrats quickly pointed out that America has lost more than 1m jobs since George Bush took office. The president himself claimed that he had been looking all along for “steady, consistent growth” rather than “boom-or-bust”. Don Evans, his commerce secretary, said new jobs had been created in each of the past ten months, including June. “The trend is our friend,” he argued.

But is it? That depends on whether June's figures were a one-off, or whether they mark a broader slow-down. It is always a mistake to read too much into one month's jobs statistics. And June had particular oddities. The fall in the average work-week, for instance, may have been influenced by the fact that many workers had the day off on June 11th for Ronald Reagan's funeral, a day that happened to be during the statisticians' survey week.

That said, the number-crunchers also revised down the jobs figures for April and May a bit. And other evidence suggests America's economy may be cooling somewhat. Durable goods orders (admittedly yet another highly volatile indicator) fell in May for the second consecutive month. Vehicles sales were decidedly lame in June. Measured at an annual rate, only 15.4m light vehicles were sold in June, a sharp fall from the 17.8m rate in May. And, perhaps most significant, several big chain stores, including Target and Wal-Mart, warned that June would be weak.

The "recovery" wasn't authentic. It was all stimulus and no real growth. That fact could be seen in the real inflation figures, far removed from the antiseptic Washington produced CPI figures that raised more questions than they answered for anyone who looked closely. Real economic growth brought about by the restructuring of the economy occurs with minimal inflation.

Is debt bad? No, not always. It depends on what you spend it on. If you for instance borrow money to buy an asset like a property and then rent it, and the income allows you to pay interest and some principal then this is an investment. We as America could have done that. By repairing our roads. By investing in upgrading the electrical production and distribution grid. By ensuring natural gas supplies. By investing in alternative energy sources. By cleaning up and restructuring our health-care system. By reforming our education system. Do you know that it would take the oldman three semesters of taking classes full time to become certified in teaching high school physics? This is despite the fact that the oldman teaches it at the collegiate level, has high student approval marks, and has experience in working with high-school students in science settings. And in teaching the people who will become their teachers. No wonder why America can't find enough qualified science teachers for its secondary schools. It's turning them away at the door for want of classes such as "Promoting gender equality in the classroom". Well intended but perhaps not the highest priority given a science crisis in America.1

Any of these acts would have increased our productivity and therefore long term wealth, making them net assets to the country's value in addition to spurring much real and sustainable economic activity. Instead America did the equivalent of going to the mall and going on a spending spree. Well what goes around will come around, and unfortunately cheap credit and wasted spending on speculation and luxury consumption equals inflation and depressed job markets.


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