The Bureau of Labor Statistics’ May jobs report of only 38,000 new jobs was bad, even when adding in the Verizon strikers who are accounted for in the monthly count.
This is the first time since 2010 that jobs numbers have come in so low, and the third month in a row that there is a marked decline.
What is going on? Well, as Jared Bernstein explains, there are several factors that are in play. First, older workers are retiring and, as Jared points out, that has a structural, not cyclical, effect. Then, there has been a decline of participation among the 25-54 cohort, and factory jobs have been shed due to the higher value of the dollar and resulting weaker exports. On manufacturing, Bernstein points out that 120,000 of those jobs were created last year. This year, 80,000 have been shed so far. Another indication of a weakened job market is the addition of nearly half a million involuntary part-time workers – workers who are looking for full time work, but can only find part-time jobs. According to Bernstein, the underemployment rate is at 9.7%.
Healthcare hiring is on the rise, which is consistent with the last few years’ predictions that, with an aging population, this would become a larger market. Consistent with the new Pew Research study I quoted from in a recent post, the trend in those with some college education having a higher employment rate is holding at 4% to college educated workers at 2.4%.
Jared Bernstein’s chart tells the story:
“Given the volatility in these monthly reports, I have been appropriately cautious in suggesting that the US job engine has truly downshifted. However, a look at JB’s monthly smoother now at least tentatively supports that conclusion. Going from 12, to 6, to 3 month averages of monthly job gains shows a steady deceleration from 200,000 to 116,000.
This new, slower trend could, of course, reverse if growth picks up and part of May’s very low topline number is due to the strike at Verizon, a one-off event which, according to the Bureau, reduced the payroll count by about 35,000. But even adding those information workers back into May’s tally, the three-month bar in the smoother would rise to 127,000, still well below the 200,000 trend over the last 12 months.”
Bernstein concludes with a reiteration of the fact that fiscal investment is still the missing ingredient in job creation. Our dysfunctional political system continues to hinder a true recovery. While the Fed keeping interest rates low continues to be a help in stabilizing the job market, it is insufficient on its own. As Bernstein points out, in a functioning political environment, now would be the best time to borrow money at low interest rates and implement a large-scale infrastructure package, at a minimum, to give the economy the boost it needs.
Update- In a speech on June 6, Fed Chair Janet Yellen dropped mention of raising rates from her speech and gave the economy a mixed review:
But we don’t have the kind of political environment we need in order to jump-start the economy. If we did, we wouldn’t have had such an anemic recovery for so long. So, one wonders, if this trend continues to accelerate into summer, whether the political pressure might be sufficient for a temporary truce to happen and an economic package deal to be made. The increase in inequality over the last four years and the explosion in growth of the precariat into a new social class can be directly attributed to the austerity the GOP forced on the nation when it took over the House of Representatives and solidified since taking the Senate in 2014. In the face of an impending new economic downturn, it would put the GOP at a disadvantage to continue denying economic relief to the nation during a presidential election cycle, even if the nominee is far from being the party’s ideal choice of candidate. The GOP has its congressional seats to think of. On the other side of what logic might have dictated before the Great Recession is the political reality we’ve been living over the last seven years: obstruction, nullification, and the suffocation of government by the GOP. If any kind of package comes through as the result of a downturn and the risk of a new recession right before an election, it will most likely be less than optimal in size, if at all.
In, “Many Northeast, Midwest States Face Shrinking Workforce,” Pew Research’ Jen Fifield writes:
“Maine, Vermont and West Virginia will see their working-age populations drop more than 10 percent. Connecticut, Illinois, Michigan, New Hampshire, Ohio, Pennsylvania, Rhode Island and Wisconsin will see theirs fall more than 5 percent.
“You have young people moving out,” said Mark Mather, a demographer at the Population Reference Bureau, an international research center. “You are losing your skilled workforce. And so businesses don’t want to work there. And there is less demand for services. So everything feeds into itself, for a negative downward spiral.””
This set of facts makes it all the more important and one must also look at the impact of fiscal policy within the states. Here, in California, the new budget signed by Governor Brown is smaller than expected because of lower tax receipts. Now that we have three months of jobs numbers trends, we see why. But just as it is important for the federal government to stimulate the economy in times like these, it is as important for the states to do the same. Local NPR affiliate, KPCC reports:
“The governor avoided any new, large initiatives in his $122.6 billion budget plan that he released in January. He proposed a $2 billion rainy day fund and pre-funding employee retirement benefits, among other items — but he warned lawmakers then that a downturn is just around the corner and advised against sweeping new programs.
He repeated that warning Friday.”
We’ve been here before. Post-Great Recession stimulatory policy ended in 2010, after the GOP won back the House of Representatives in 2010. The following year, less federal funding was sent to the states and we saw cut-backs in funding across the board, causing a forced austerity. Some states fared better than others. Though California continues to have high unemployment, it has managed to turn things around, from where it was at the start of the recession. That said, on May 13, 2016, Governor Brown did state:
““By the time the Budget is enacted in June, the economy will have finished its seventh year of expansion, two years longer than the average recovery,” Brown said in his budget summary. “The next recession is getting closer — even if we cannot tell exactly when it will hit.”
Brown said there are few signs of an “immediate contraction.” However, he noted the falling revenues since the beginning of the year.”
Friday’s jobs report refutes that and confirms we are, at the very least, at a very delicate moment, Now isn’t the time to tighten spending. With a looming crisis in housing and the need to create a half million units in the next two years, now is the time to invest in the infrastructure and development needed to ensure the need is met. While the counties are all working to meet housing needs, especially with vastly increased numbers in homelessness, the state must step up to do its part to deal with the current crisis, and avert a new one, especially if it is unlikely that the federal government will step in until after the election.
Another key item that Brown eliminated from this California budget is funding for transitional kindergartens. With income inequality and private preschool tuition at an all-time high, this is a huge blow to working parents and single mothers.
Outside of California, there are still states that haven’t stopped taking the brunt of the Great Recession due to the policies of austerity-minded governors. Two such examples are the governors of Kansas and Louisiana, whose austerity policies have been likened to the Greek economic crisis. Governor Brownback is still governor of Kansas and Governor Jindal was replaced by a Democrat who now has a huge mess on his hands.
As former Treasury Secretary and former Obama adviser, Larry Summers has been warning us about over the last couple of years, our economy is now in secular stagnation. What this means is that we can expect bubbles to form and burst, with each bubble being bigger than the one preceding it and the recovery being weaker and longer lasting than before. This, in essence, is what we’ve been experiencing since 2011, and why the wage-cost of living disparities look and feel the way they do, and we are seeing phenomena the likes of which we’ve not experienced before. The number of adults aged 18-35 living at home is one example.
We are now, most likely, just about to hit a recession wall. As I’ve written in several pieces over the past year, Paul Krugman all but stopped writing about jobs and the economy two years ago, as he’s been pivoting back to the center right, in anticipation of this election cycle. Writing about a less than stellar economy in critical terms just doesn’t lend itself to supporting an establishment candidate that isn’t well liked, or whose associations with the banking industry and financial regulations are problematic, as this primary season has demonstrated. The focus of Krugman’s writings over the last two years, for the most part, has been to play up the current administration’s accomplishments, mostly in the areas of healthcare and jobs.
Whereas Krugman, for years, commented on economic news on his blog, always covering jobs reports, his coverage has been very spotty in the last few months. Krugman has done very little opining on the two previous jobs reports, and none on the current one. His political columns have drawn the ire of his readership, with very bitter expressions of disappointment in the degree and level of partisanship with which he has approached the primary as expressed by his policy reversals since January 2016. At a time when the impact of generalized economic uncertainty being felt in the U.S. just as the Democratic primary is still unfolding and with the foreknowledge of a contested convention, what impact will a sudden economic downturn have on a public that was not prepared?
As I reported in a recent post, confidence in our institutions and politicians is at an all-time low:
In a newly released poll, Quinnipiac posted findings in which Hillary Clinton and Donald Trump both suffer from an almost complete lack of favorability:
“American voters do not believe Republican Donald Trump will build a wall on the Mexican border or expel 11 million illegal immigrants, if he’s elected president, and voters don’t believe Democrat Hillary Clinton will even try to limit secret money in politics or reign in the power of Wall Street, according to a Quinnipiac University National poll released today.”
In addition, Quinnipiac details:
“Hillary Clinton would not even try to remove secret money from politics, 63 percent of voters say, while 9 percent say she would succeed and 18 percent say she would try and fail.
She also would not try to curb the power of Wall Street, 56 percent of voters say, as 15 percent say she would succeed and 21 percent say she would try and fail.
“No matter which candidate you pick, you can cut the cynicism with a knife,” said Tim Malloy, assistant director of the Quinnipiac University Poll.”
This comes on the heels of yet another new poll, by the Associated Press and NORC, that finds that most voters feel helpless about this election and disconnected from their political parties:
“According to the poll released Monday, just 12 percent of Republicans think the GOP is very responsive to ordinary voters, and only 25 percent of Democrats think the same about their party.
Among all Americans, only 8 percent of respondents think the Republican Party is very or extremely responsive to what ordinary voters think, 29 percent think the GOP is moderately responsive and 62 percent think it’s only slightly or not at all responsive.
For the Democratic Party, 14 percent of Americans think the party is very or extremely responsive to ordinary voters, 38 percent think it’s moderately responsive and 46 percent say it’s only slightly or not at all responsive.”
Remember, for more than a year now, poll after poll has demonstrated that Hillary Clinton’s favorability has been the lowest of any Democratic candidate in a presidential election in recent memory.
With confidence so low, the anger level so high, and feelings of disaffection so clear, how destabilizing will news of economic trouble be? Will the press resume some modicum of responsibility and do its due diligence in reporting the economic news? Will Krugman resume the role he’s played all throughout the Great Recession and keep not only his paper’s readers informed, but the nation, as well?
“But as Mr. Summers said, the crisis “is not over until it is over” — and economic reality is what it is. And what that reality appears to be right now is one in which depression rules will apply for a very long time.”
Two years since writing this, that is still where we are, with no end in sight. I daresay, seven years after the start of the Great Recession, we need a chief executive with a bold, aggressive economic vision and not the timidity of incrementalism nor an allegiance to a past administration’s bent for centrist policy. What must come next is an undoing of the last two decades of centrist and conservative policy and a rethinking of the post-NAFTA American economy and a rewriting of its rules for the coming century. Such an ambitious vision must be accompanied by a dogged determination to unravel the web of corruption that is Citizens United from the fabric of American politics. While some states have begun moving in the direction of getting the money out of politics, only the next president of the United States can deal Citizens United its final coup de grace.
How likely is a reincarnation of the 1990’s establishment to completely reverse course on itself in order to push the precariat back into the middle class? Can Bernie Sanders’ political revolution force the establishment to remain on a leftward course?
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Pew Research Center:
The middle class lost ground in nearly nine-in-ten U.S. metropolitan areas examined
For First Time in Modern Era, Living With Parents Edges Out Other Living Arrangements for 18- to 34-Year-Olds
Share living with spouse or partner continues to fall