Commentaries

Reasons to be cheerful

By John M. Berry

John M. Berry, who has covered the economy for four decades for the Washington Post and other publications, is a guest columnist.

Doing more with less is a corporate mantra that some say bodes ill for job growth. Data last week showed that productivity at non-farm business jumped at an extraordinary 9.5 percent annual rate in the third quarter.

Yet the sharp gains in efficiency are helping drive corporate profits and that could be just what’s needed to convince employers that it’s safe to begin hiring again. (more…)

Not looking hot on the jobs front

Data just out shows the pace of joblessness picked up in September, snapping what had been a steady improvement from “really terrible” to “at least it’s not as terrible as the prior month.” The drop in non-farm payrolls was even worse than Goldman Sach’s downwardly revised -250K forecast, coming in at -263K. But also take a look at July: revised to -304 from -276k. August was revised to -201K from -216K.

The unemployment rate ticked up an expected 0.1 ppt to 9.8%.

Also average hours worked in a week slipped further to 33.0 from 33.1. I guess employers are cutting hours as well as jobs. Not exactly confidence inspiring for the nation’s shoppers.

This is not good news for those hoping for a consumer-led recovery. Sure inventory rebuilding will give GDP a nice pop over the next two quarters, but then what? And inflation? Not likely any time soon with numbers like these.

You can find the full report here.

Treasury market seems to be thinking along the same lines, as yield on the 10-Yr note falls even more to 3.12%. Dollar also getting hit.

Not the final word in GM’s Magnum Opel

So German Chancellor Angela Merkel has got her way. After months of pressure from the German government, General Motors has finally caved in and agreed to sell a majority stake in Opel to Canadian car parts maker Magna and Russian backer Sberbank.

It isn’t all over yet — GM is still attaching conditions to the sale of a 55 percent stake in “new” Opel — but the timing of the announcement and the apparently good news for Opel’s 25,000 German employees will be music to Merkel’s ears with just over two weeks to go before a Sept 27. general election.

Merkel says she doesn’t think the GM board’s decision is a delaying tactic, which says a lot about the way the talks have been conducted. But while GM and its chief negotiator John Smith have led Berlin and the various bidders a merry dance, the reality is that the once great U.S. car giant doesn’t really have much of a negotiating position: Opel needs 3.3 billion euros in loan guarantees to keep going. Only Germany is willing to come up with that kind of money.

So for now at least, GM has little choice but to keep Berlin and Opel’s unions happy by opting for Magna rather than Belgium-based financial buyer RHJ International’s bid.

But the fact that GM has not revealed any substantive details about the deal with Magna shows that all is not yet settled. The carmaker says several “key issues” will be finalised over the next few weeks.

Among these are bound to be GM’s deep-seated misgivings about the sanctity of its intellectual property rights under the Magna/Sberbank offer and the nitty-gritty of job cuts.

GM says it has the support of Opel’s unions for a restructuring and now expects a definitive agreement to be signed within a few weeks, with a deal closed in months.

Scavenging for good news in the jobs data

Interpreting the employment numbers has become an exercise in scavenging for good news. After a year of beefy job losses, any sign that the pace of deterioration is slowing is certainly welcome. Were it not for the Obama stimulus package, we would probably be continuing to see job declines of closer to half a million a month.

Even so, the data still don’t offer much hope of a vigorous recovery.

While layoffs are declining, there are precious few signs that companies are hiring. As a result the number of people without work for more than six months has reached an alarming 5 million.

In addition, the swelling of the U.S. population means that the nation needs to create about 130,000 jobs a month just to stand still. This helps explain why unemployment rose by 466,000.

The total number of employment casualties since the start of the recession (December 2007) is fast approaching 7 million. We may still have another year of falling employment ahead.

Where the job seekers aren’t

Even in weak employment markets, the United States has typically had a trump card to play. The nation’s workers are legendary for their willingness to travel across the country for new opportunities.

The result has been a speedier recovery of job growth than in Europe and possibly a higher productivity rate, since skilled workers are better matched to openings.

With the August employment report on Friday expected to show little improvement in the job market, America has never needed this flexibility more. Yet, at the risk of adding to the gloom, this advantage appears to be fading fast. The good news is that the United States still boasts one of the most dynamic labor markets of any rich nation. OECD rankings of its 30 wealthy member nations put the U.S. far ahead of other large countries. (It comes second only to Denmark, which has unmatched programs to help the unemployed back to work.)

On average, around a quarter of American workers change jobs each year, compared with 15 percent in Italy and 13 percent in Greece, says Stefano Scarpetta, head of employment research at the OECD.

Yet there has been a striking decline in U.S. mobility in recent years. Since 2000, the movement of Americans across state lines has halved to just 1.6 percent of the population this year — the lowest rate since records began in 1948. Even movement between counties is at historic lows.

(Click chart to enlarge in new window)

Americans may be becoming less adventurous because they are getting older. During the recession of the early 1980s the median age in the labor force was 35, according to the Bureau of Labor Statistics. Now it is 41.

ADP still showing steep job losses

The ADP national employment report showed job losses still huge in August, though better than July and the smallest decline it’s recorded since September 2008.

Though it came in worse than expected, markets aren’t doing a whole lot with the data, with Treasuries hovering around the unchanged mark and stocks down only slightly.

From the report:

Employment losses are clearly diminishing. Despite recent indications that overall economic activity is stabilizing, employment, which usually trails overall economic activity, is still likely to decline for at least several more months, albeit at a diminishing rate.

It’s starting to look like the markets are ignoring the data. Yesterday, it was ISM that got the cold shoulder, now jobs data. It could also be the time of year, which means just wait until after Labor Day for the fun to begin.

Turning point in jobs?

Sure they’re still cutting jobs, by nonfarm payrolls are shrinking at slower pace, down only 247K in July, and the unemployment rate actually fell to 9.4% from 9.5%. With other data showing a tentative turning point in housing and manufacturing moving toward expansion, this is starting to feel like the real deal.

Sure July is only one month, but the Treasury market isn’t waiting. The 10-year benchmark is down nearly a point to yield 3.88%, bringing the big 4.0% threshold back into focus. Question now will be whether investors start fearing a rise in yields will quash the economic growth.

Bracing for a glut of leisure time

The United States has been labeled “no vacation nation.” Americans are notoriously diligent compared with citizens of other rich nations — putting in long hours and often not even using the skimpy vacations to which they are entitled.

Now more Americans are being forced to take it easy. Even for those who are keeping their jobs, many companies are cutting hours and imposing “shotgun” vacations in an effort to economize.

Government data have shown the length of the average working week plunging faster than in previous recessions. Time devoted to work has already fallen twice as much as during the slump of the early 1990s. No improvement is expected from the payrolls report on Friday.

This is likely to be a double-edged sword. Behavioral economists believe the respite from the rat race may be good news for those who are financially stable enough to enjoy more spare time. But it is further bad news for the unemployed and may delay the day when companies actually need to start hiring again.

The silver lining, though faint, is worth considering. Behavioral economists have long complained that Americans work too hard for their own good. People typically overestimate the boost to happiness from the extra consumption that longer hours permit, and understate the “hedonic” fillip from leisure time. Americans rank among the most hard-working folk in the rich world, laboring for an average of almost 1,800 hours a year. The Dutch, by comparison, put in a puny 1,400 hours, according to OECD figures — a difference that is equivalent to an extra 10 weeks of holiday for a full time employee.

“Americans who are not in chronic financial stress and can cope with the emotional blow of a lower salary, may find themselves better off for the spare time,” says Dan Ariely, author of “Predictably Irrational”, a book on behavioral economics. Obviously these are big provisos.

Take the American worker off the psychologist’s couch and the news is not so good. The figures are now indicating huge slack in the labor market. Economists are increasingly preoccupied by U6 — a broad measure of unemployment that includes those working part time because they can’t find a full time position. This is now 16.5 percent of the workforce.

Just another record amount of Treasurys

I’m just getting a chance to look at the Treasury’s quarterly refunding announcement now, and no surprise here. It’s a record amount at $75 billion that will start to hit the market next week. All the details are here. Its decision to increase TIPs issuance also comes as no surprise after the Wall Street Journal flagged it here.

Given the gains in the Treasury market today on weaker-than-expected data on the service sector, it doesn’t look like the mountain of the supply, with much more to come, is weighing too heavily on the Treasury market. But like many things in the financial markets, it won’t matter until suddenly it does. Improving economic conditions will allow bond investors to narrow their focus back on the supply, but given today’s data, which also included a 371K decline in private sector jobs, and the looming monthly employment report from the BLS on Friday, fears about the economy still rule.

Update: Maybe it is time to worry about supply. Ah, the power of Goldman.

The danger of a lost generation

– Christopher Swann is a Reuters columnist. The views expressed are his own —

NEW YORK, July 24 (Reuters) – For the first time in three generations, Americans across the nation are facing the threat of long-term unemployment. Already more than one in four jobless Americans have now been out of work for more than six months, the highest level since records began in 1948.

For both individuals and national economies, long-term joblessness has proved to be extremely corrosive. Skills atrophy after extended periods of enforced indolence. Then, when an economy recovers, these workers are no longer in a position to fill new jobs.

As a result the potential maximum speed at which the economy can grow declines, and the workers themselves come to be seen as “damaged goods.” Those unlucky enough to be graduating in 2009 may find that their salaries never match those of similarly qualified peers who finished in 2006. To his great credit, President Obama has been quick to spot the danger. Under the administration’s stimulus package, the unemployed can now claim benefits well beyond the standard six months. In some badly afflicted states, insurance will last up to a year and a half.

The government is also offering $4 billion in funds to retrain workers. Tax breaks in the package aim to make it more affordable for young people to sit out the recession in school. Another $12 billion for community colleges has the same goal.

Yet even this heroic effort may be too little, too late for many Americans. The closest analogy to America’s current unemployment crisis is probably Japan. Here too was a nation accustomed to minimal long-term joblessness. In Japan the lost decade produced a lost generation.

Faced with a “hiring ice age,” graduates settled for lower status or temporary jobs. By the time companies were in the mood to hire again in bulk around 2007, they chose fresh graduates. Many of Japan’s thirtysomethings never caught up.