Recovery?

Fed Chairmen (paternal or motherly)
Have made a depressing discovery:
If demand isn't great,
You can lower the rate
But you can't cut your way to recovery.

Things Are Looking Up

Said a job-seeker, not so dejected:
"In the past I was feeling neglected.
But things may rebound,
As of late I have found
That at least I am being rejected."

"I'm sensing revitalization
In every failed application.
My hopes may be fond,
But once they respond,
It's proof of their consideration."

Update on Helping the Long-Term Unemployed

Yesterday I wrote of the need to "conquer [long-term unemployment] ills / By developing skills," and today I learned of a program doing just that. Jane Polin, a reader who advises charitable foundations, introduced me to the National Fund for Workforce Solutions, an award-winning, 32-site public-private collaboration. The NFWS (as distinct from the NSFW) is "an unprecedented initiative of national and local funders whose goal is the career advancement of low-wage workers using a model of substantial employer engagement to increase the potential for successful outcomes." Over the next three years, the Fund looks to elevate 23,000 workers into high-growth industries. It's a small step, but a big example.

Help the Long-Term Unemployed

The news has been better concerning
A rise in the ranks of the earning,
But many confirm
They've been out longer-term
Without showing signs of returning.

In order to bring employees in,
We need programs to put more trainees in,
To conquer more ills
By developing skills
Than the Fed's quantitatively easin'.

Dow Jones Record High

Despite the new highs in the Dow,
Economists still disavow
The hope that those wishin'
To find a position
Will likely be getting one now.

The stock market's rate of return
Is based on what companies earn.
As long as it's more,
On the stock exchange floor,
Employment's of little concern.

Back To Work

The ranks of the long-unemployed
(A status you'd like to avoid)
Have started to thin
From the slow growth we're in;
Is it reason to be overjoyed?

The jobless in longer-term stages
Are fewer than they've been in ages,
Though many returning
To rolls of the earning
May settle for minimum wages.

There's a glimmer of good news for the long-term unemployed: your chances of finding employment are growing.  The proportion of job-seekers unemployed six months or longer was 39.1% in December, the first time this ratio has fallen under 40% in more than three years, according to the Wall Street Journal.  Although that still leaves 4.8 million long-term jobless, it's a considerable reduction from the peak of 6.5 million in 2010.  But, you say, haven't most long-term unemployment reductions come from discouraged job-seekers dropping out of the labor force?  The answer appears to be: not so much.  The number of jobless who report they've given up looking is estimated at 400,000 over the last year, while the number of Americans with jobs rose by 2.4 million over the same period.

Now for the bad news: wages of returning workers fall by 11% for every year they are out of the workforce, and unemployment benefits no longer last 99 weeks - it's now 73 weeks at most, depending on your state of residency.  Some of the long-term unemployed may have been motivated by their expiring benefits to take lower-paying jobs.  Finally, those poor souls who have gone three or more years without work had no holiday cheer in December, as their numbers have not yet reduced.

Out of the Labor Force

Said an analyst, closely critiquing
The job market trends that are peaking:
"One is struck once again
By the outflow of men
From the ranks of employed or jobseeking."

"This development's long been projected
With retiring boomers expected,
But nothing so strong
Came to push it along
As the 2008 fiscal wreck did."

"Whereas once the laid-off might be prowlin'
For jobs from the ads they'd been scourin',
Many downsized afresh in
The current recession
Are optin' for throwin' the towel in."

Last Friday's non-farm payroll data incited more than the usual discussion for the fact that the unemployment rate declined even as more people were not working. This prompted much discussion (including limericks) of the labor force participation rate, which has declined sharply since 2008. The Atlantic's Derek Thompson anticipated this discussion when he asked earlier in the week: "Why Are So Many Men Dropping Out of The Workforce?" Not only has the LFPR declined in the last few years, but men's participation has been in decline for three generations.

Since the 1950s, men have slowly flowed out of the workforce as women have flowed in. Some of this male outflow stems from an aging workforce headed into retirement. In the Great Recession, older men may look pessimistically at their job prospects and decide, in many cases, that their wives' incomes and their social benefits comprise an acceptable fallback position. Thompson concludes that "the combination of an aging workforce (which we cannot control) and a weak economy (which we can control) has tugged down the participation rate, which in turn has tugged down the unemployment rate -- and threatens to make us poorer in the long term."

School of Hard Truths

Said a grad whose finances were played out,
And whose face could not help but betray doubt:
"The lessons I learn
May improve what I earn,
But not at the prices I paid out."

College: can't afford it, can't live without it. That appears to be the message of mounting data on debt and employment. On the one hand, the New York Fed's latest Quarterly Report on Household Debt and Credit shows that, while the overall delinquency rate of US consumer debt improved from 9.3% to 9.0% in the second quarter, the student debt delinquency rate has worsened from 8.7% to 8.9%. These numbers are part of a trend; says the New York Fed: "Since the peak in household debt in 2008Q3, student loan debt has increased by $303 billion, while other forms of debt fell a combined $1.6 trillion." Clearly, student debt is on an unsustainable path.

On the other hand, there is clearly value (at some level) in higher education. The Wall Street Journal reports that the Brookings Institution recently surveyed US metropolitan areas, looking for the gap between the average level of education sought by employers vs. the average level of education attained by the population. The survey found that a lower "education gap" was associated with areas whose housing markets had best weathered the downturn. Moreover, Brookings found that, in 2011, for every unemployed worker with a college degree, there 5.6 openings requiring such a degree; for every unemployed worker with only a high school degree, there were only 1.6 openings.

It is evident then that a college education confers a great advantage in the job market, but is it worth any price?
Hat tip to Kelly Evans of CNBC for alerting us to the New York Fed consumer debt report.

Swing States

It's an axiom proven and tested
By candidates besting and bested:
If you're looking to win,
Mind the jobless rate in
All the states where the outcome's contested.

As we all know, the economy - especially employment - is the main issue in this 2012 Presidential campaign. If the pace of job creation quickens to the extent of reducing the national 8.3% unemployment rate, those undecided votes swing to President Obama; if it doesn't, the advantage goes to the challenger, Mr. Romney. That's why, in this summer of our discontent, it has to raise concerns and hopes respectively that the unemployment rate has ticked up in many of the so-called "battleground states".

According to the Wall Street Journal, 9 out of 10 pivotal states saw their unemployment rates increase in July. That includes Iowa, Florida, Michigan, Nevada, New Hampshire, Pennsylvania, Virginia and, somewhat less so, Colorado and North Carolina. Ohio held steady after 11 months of decline. In a cruel twist of statistics, many of the higher jobless rates resulted from an improving labor climate; that is, more workers got into the job pool with rising expectations of finding employment, thus increasing the denominator in the unemployment rate.

Proceed Cautiously

The economy, generally dreary,
Brings occasional news that is cheery,
But consider all facets
Before moving assets
Because of a bull market theory.

Marketwatch reports that "Asian stock markets were bolstered [today] after the U.S. economy added more jobs than expected in July." According to Paul Ashworth of Capital Economics, “The bigger-than-expected 163,000 increase in U.S. non-farm payrolls in July, alongside the small rise in the ISM non-manufacturing index, should ease fears that the U.S. economy is following Europe into recession.” However, there are three good reasons to proceed cautiously in reacting to a single, positive datapoint:

1. The July number does not confirm a positive trend; the average NFP increase over the last three months is only 105,000, at the lower end of the 100,000-120,000 monthly increase considered necessary to accommodate new jobseekers. 
2. The unemployment rate went up; unemployment is calculated based on a household survey "of people who are without jobs, who are available to work and who have actively sought work in the prior four weeks, and that number rose in July—by 45,000 to 12.8 million," says the Wall Street Journal's Phil Izzo. NFP is calculated from the number of jobs reported in a survey of businesses, so workers can be counted twice. 
3. A single datapoint may be influenced by one-time factors; in this case, auto manufacturing layoffs that normally occur in July did not happen, raising the possibility that they may do so in August, depressing that month's jobs data.

Skills Mismatch

Though an HR director named Schmidt
Looked for candidates with the right fit,
The conditions she set
Could only be met
By the one who had recently quit.

One of the puzzling aspects of America's ongoing high unemployment rate is the so-called skills mismatch: in spite of millions of unemployed, there are also millions (though not as many) of unfilled positions for which employers cannot find applicants with the right skills. The Wall Street Journal looks at this conundrum and finds an alternative explanation: that the software used to screen candidates imposes so many requirements that only someone who has already done the job would qualify. One may infer an element of behavioral economics behind this; evidently, the aversion to a less-than-perfect candidate is greater than the desire to fill the position.

Thanks to Jodi Beggs of Harvard University and Economists Do It With Models, who requested a behavioral economics limerick. Hope this fits the bill, Jodi!

Government is the Problem

When politically seeking causalities
For our tepid employment realities,
It seldom is heard
How shrinkage occurred
At states and municipalities.

Friday's Non-Farm Payroll report of 69,000 jobs added was shockingly lower than the consensus expectation of +150,000. The disappointment dominated stock markets, news programs and weekend punditry. Many repeated the question: what will it take to get companies hiring again? Seemingly lost in the discussion was the fact that, while private employment rose slowly, government employment actually continues to fall. The Calculated Risk blog schools us:

So far in 2012 - through May - state and local government have lost 7,000 jobs (8,000 jobs were lost in May alone though). In the first five months of 2011, state and local governments lost 126,000 payroll jobs - and 230,000 for the year. This graph shows total state and government payroll employment since January 2007. State and local governments lost 129,000 jobs in 2009, 262,000 in 2010, and 230,000 in 2011.

Remember folks, jobs in the public sector are just as important for the economy as those in the private sector.

More Made in the USA

Though more work on the factory line
Is always a positive sign,
Manufacturing's rise
In the US belies
That wages are on the decline.

The headline in The Wall Street Journal reads: Flat US Wages Help Fuel Rebound in Manufacturing," but, looking a little behind the headline, it becomes apparent that the rebound is fueled by a sharp decline in starting wages. Two-tier wage agreements have become a common practice in union factories, with new hires earning $8-10 an hour less than "legacy" workers. Coupled with the strong rise in Chinese manufacturing wages, as well as increases south of the border, this development has led to the migration of factory jobs back to the US, and a 4.3% overall increase since 2010.

So-So Employment Consensus

The employment report's understood
To say the economy could
Adroitly provide ways
To move along sideways,
But not ever get any good.

The ADP Employment Report will be released Wednesday morning at 8:15 and, though hotly anticipated, is not expected to be so hot. As shown in the graph, the disastrous employment losses of 2008-2009 have reversed and begun to recover, but not at a rate that would bring back full employment. The economists' consensus is for a gain of 183,000 jobs in April, down from the 209,000 increase in March. So-so, and trending lower. There is a possible upside surprise, though: Tuesday's better-than-expected ISM manufacturing survey, as well as recent regional surveys, point towards manufacturing job creation exceeding expectations.

Which Recovery Matters Most?

When the market was all of a-tatter,
To revive was a serious matter
In housing and jobs,
With the preference, obvs,
For the former ahead of the latter.

Q: If initial jobless claims fall less than expected, and the EU's economic sentiment indicator falls more than expected, how does the Dow react?
A: It jumps up by 100 points, provided that existing home sales rise more than expected.
The National Association of Realtors said on Thursday that its seasonally adjusted index for pending sales of existing homes jumped 4.1% from the previous month, vs. the 1.3% increase expected by economists. On the strength of this news, and against the headwinds from the US hiring slowdown and the European malaise, the Dow Jones Industrial index rose 114 points, or 0.9%, to reach 13,205. Investors evidently believe that the first sign of a US recovery will be in the housing market, whence all of our financial crisis troubles have come.

Non-Farm Payroll Holiday

When unfortunate news is disclosed
On a day that the market is closed,
Investors are hopin'
That, at the next open,
It's better than firstly supposed.

The US stock market was closed for Good Friday, as were European exchanges, and thus could not react to the surprisingly weak employment data that came out on that day. The Bureau of Labor Statistics announced at 8:30 AM last Friday that non-farm payrolls increased by 120,000, much less than the 200,000+ increases in the previous three months, and definitely below expectations. Unable to trade on the news, market professionals thus had all of a three-day weekend to mull it over, a weekend punctuated by Easter and Passover celebrations. Is it possible that festive gatherings with family afforded the trading community a new perspective? We'll find out on Monday at 9:30 AM on Wall Street.

JOBS Act

When streamlining stock regulation
With the goal of employment creation,
The access to mammon
May jumpstart the scammin'
By persons of low reputation.

Washington has descended to the point where, if you see bipartisan agreement on any economic issue, you have to suspect the worst. Such is the case with the so-called JOBS Act (Jumpstart Our Business Startups). In her Bloomberg column, Susan Antilla writes: "Though the JOBS Act was packaged as a plan to streamline rules to help small companies crank out jobs, even its cheerleaders have come up with scant evidence the law will boost employment much, if at all. In an election year when pragmatic politicians are laboring to come off as allies of deep-pocketed business donors, the JOBS Act is a slapdash attempt at securities-law deregulation, plain and simple."

Remember the ZZZZ Best carpet-cleaning company, one of the most notorious investment frauds of the '80's? One of the perpetrators of that fraud says: “I wish legislators would consult with people like me before they write something like this. I could tell them, ‘I know what your intent was with this wording, but we can get around it so easily, it cracks me up.”’ Mark Morze, a self-described reformed scammer who now lectures on how to guard against people like himself, gives his expert opinion that the JOBS Act has real potential for abuse.

Hat tip to Jordan Terry a.k.a. @The_Analyst.

Time To Invest?

Said a broker, in recommendation,
At a client's undue hesitation:
"Throughout time, we deduct,
Sh^t has always been f#cked;
Pray be bold in your risk allocation."

In times like these, after a prolonged economic slump, isolated indicators may offer glimmers of hope; an improving jobs number here, more manufacturing there. And yet, the economy as a whole is not clearly improving. At such times, investors may become paralyzed by the conflicting data, waiting for all the stars to align and thereby missing a rocket launch to the moon. Investors may need the equivalent of a "snap out of it!" delivered with a bracing slap. Here to meet this pressing need is Joshua Brown, the investment advisor and blogger known as the "Reformed Broker". Urging investors to "Get Your Shit Together," Mr. Brown says:

I have no idea when this secular bear market and the attendant economic malaise will truly be over - but I know for a fact that if you're not planning for its end you're going to miss your chance.

It's The Improving Economy, Stupid

For the typical President wannabe,
The election's about the economy;
So what's there to do
For the wannabe who
Is afraid how much better it's gonna be?

This is the dilemma faced by US presidential contender and former Massachusetts governor Mitt Romney. Having put some distance between himself and Newt Gingrich, the nearest Republican contender, Mr. Romney has now pivoted to the general election, in which his key issue is President Obama's "failed stewardship of the economy", particularly where "job creation" is concerned. Only, what if the economy (and particularly the private sector) begins creating actual jobs? The latest BLS data show that this has now happened, and Mr. Romney's response is that job creation occurred "in spite of the President's policies." This may be the best he could do under the circumstances, but it seems a dangerous road to go down. After all, if jobs can grow in spite of the President's policies, the voters may ask, what do we need you for?

Why Apple Is Not Made in the USA

"With the notion we might go along
That employment at home should be strong,
But our skills, we apprise,
And our chain of supplies
Don't compare to those guys' in Guangdong."

A New York Times profile on Apple's manufacturing of the iPhone opens with President Obama at dinner with Steve Jobs, asking him what it would take to bring this operation back to America. It's a poignant moment, as it seems that both US iPhone jobs, as well as Steve Jobs himself, were going and not coming back. Charles Duhigg and Keith Bradsher take an in-depth look at the economics of iPhone manufacture and determine that factory-ready skills and scalable supply chains are lacking here at home. "Though Americans are among the most educated workers in the world, the nation has stopped training enough people in the mid-level skills that factories need," they write. As for supply chains -

The entire supply chain is in China now,” said another former high-ranking Apple executive. “You need a thousand rubber gaskets? That’s the factory next door. You need a million screws? That factory is a block away. You need that screw made a little bit different? It will take three hours.

Is massive vocational and technical training America's answer to this challenge?