Blogs: Kathleen M. Packard
After a difficult first quarter, the Dow Jones continues to stagger upward – mollified regularly by soothing reports from the Federal Reserve that the QE taper will be gentle.
What staggers but does not grow apace are employment numbers. William Galston wrote in the Wall Street Journal: “Today, 75 months after the Great Recession begain, 57 months after it ended ,and 32 months after real gross domestic product surpassed its previous high, fewer Americans have jobs than in December 2007.
Before the recession, the average duration of unemployment was about 16 weeks. It then surged to more than 40 weeks in 2011 and still stands at 37 weeks today. The long-term unemployed (27 weeks or more) constitute 37% of the total, and research by Princeton's Alan Krueger, Judd Cramer and David Cho suggests that the odds of these Americans ever regaining permanent full-time jobs are dismal.
During the recession, 60% of job losses occurred in middle-wage occupations paying between $13.83 and $21.13 per hour, while 21% of losses involved jobs paying less than $13.83 hourly. During the recovery, however, only 22% of new jobs paid middle wages while fully 58% were at the lower-wage end of the scale. In other words, millions of re-employed workers have experienced downward mobility.
Stanford economist Edward P. Lazear, who was chair of the Council of Economic Advisors under President George W. Bush, wrote in a different Wall Street Journal op-ed that “the key statistic for understanding the labor market is the length of the average workweek. Small changes in the average workweek imply large changes in total hours worked. The average workweek in the U.S. has fallen to 34.2 hours in February from 34.5 hours in September 2013, according to the Bureau of Labor Statistics. That decline, coupled with mediocre job creation, implies that the total hours of employment have decreased over the period.
Job creation rose from an initial 113,000 in January (later revised to 129,000) to 175,000 in February. The January number frightened many, while the February number was cheered—even though it was below the prior 12-month average of 189,000.
The labor market's strength and economic activity are better measured by the number of total hours worked than by the number of people employed. An employer who replaces 100 40-hour-per-week workers with 120 20-hour-per-week workers is contracting, not expanding operations. The same is true at the national level.
He went on to note that the falling work week numbers translate into bad news: “The decline of 1/10th of an hour in the average workweek—say, to 34.2 from 34.3, as occurred between January and February—is like losing about 340,000 private nonfarm jobs, which is approximately 80% greater than the average monthly job gain during the past year.”
It is perhaps no wonder that consumers have been slow to spend. Those who have jobs don’t have sufficient disposable income. Too often, it is American workers who have themselves seemed disposable.
If dismal economic news and spousal upheaval did not shake up the French government, lousy election results in mayoral elections did. And so French President François Hollande appointed Manuel Valls to replace Jean-Marc Ayrault as prime minister. And with former presidential partner Valérie Trierweiler in eclipse, former pre-presidential partner Ségolène Royal has returned to government as minister of ecology, energy and sustainable development. Royal had been the 2007 Socialist candidate for president; to Hollande’s relief, she lost.
This apparently is the French version of “shock and awe” or as Valls calls it, “combat government.” There is plenty to combat in the world’s fifth largest economy as the country combats high unemployment and low foreign investment.
The Financial Times Hugh Carnegy has observed: ”For years, [France’s] lumbering resistance to the kind of boom and bust experienced by other European countries – coupled with deeply embedded domestic political resistance to change – undermined repeated warnings that the country must face up to an underlying loss of competitiveness that bodes ill for the longer term.”
Moran Zhang noted in International Business Times: “France is now seen as the new ‘sick man of Europe.’ At a time when many other European countries are tackling their own competitiveness issues, the single currency bloc’s second-largest economy is struggling to revive its moribund economy. Over the past three years, France’s economic growth has averaged only 0.8 percent, half of Germany’s 1.6 percent. In recent months, France’s recovery has even fallen behind that of some peripheral countries such as Spain.”
There have been some improvement in France’s number, as the New York Times noted in March: “The economy of the euro zone continues to expand, with a surprisingly strong improvement in France and signs of recovery in the region’s depressed labor market, according to a private sector survey.” Latest figures for the final quarter of 2013 show that the French economy grew 0.3%.
Still, Hollande’s popularity has not improved. Carney noted that President Francois “Hollande, who won power promising to raise taxes, is now fiercely criticised for adding billions in taxes on both business and households, following previous increasing under Mr Sarkozy.”
So Hollande needs to undo some of what he did. The new finance minister is Michel Sapin, a close friend and ally of Hollande who previously served as labor minister. As future the prospect of French government deficits expand, the government will need more than Royal help to succeed....and to lure back rich French men and women who have fled abroad.
The Yuan is falling. How far will it drop?
The Wall Street Journal’s Shen Hong and Wynne Wang reported: “Growing pessimism about the country’s economy and evidence of distress in its property sector and broader financial system have compounded the effect of the government effort, which is intended to discourage speculators from channeling money into China in hopes of benefiting when the currency rises. The yuan has gained more than 30% since 2005, when China revalued it, ending a peg to the dollar.”
They noted: “Some analysts say Beijing’s yuan weakening also is meant to spur the economy by boosting sagging exports. Weaker-than-expected indicators in recent weeks – from industrial production to fixed-asset investment to foreign trade – have led major banks to cut their projections for this year’s growth in China’s gross domestic product.”
Speculation about the slowdown in the Chinese economy is a continuing parlor game. “It has become something of a routine for the Chinese economy: a sluggish start to the year fuels market concerns before more supportive policies from Beijing put growth back on track by the year’s end,” wrote the Financial Times’ Simon Rabinovitch. “The slowdown in China is in large part a product of the government’s own efforts to contain financial risks after a surge in debt levels over the past five years.”
China’s government promises to keep growth on track. But worries continues that China’s future is being built on the foundations of a phoney building boom. “It might be a humble third-tier city in one of the poorest parts of China, but by next year Guiyang will boast a seven-star hotel centred on a 67-storey, 400-metre-tall skyscraper,” reported Philip Wen for Fairfax Media. “It will be home to new 'world-standard' amusement parks, a water world and an opera house. Not content with having one Petronas Towers lookalike, Guiyang is building two sets of twin towers. And what city would be complete without its very own monorail humming through its skyline? Guiyang is building one of those, too.”
Wen noted that “with China already grappling with the risks presented by its extensive shadow banking sector and surging local government debts, analysts are warning that the biggest demons lurk in its overheated property market.”
“There is still a downward pressure on the Chinese economy going forward," Liu Shijin, vice president of China's State Council Development Research Center, said at a recent Beijing conference. "But, I would hope that you would not bother yourself about such downward pressure because the Chinese economy has conditions ready for stabilizing itself."
Perhaps Liu has a skyscraper in Guiyang to sell.
Central bankers of the world, take note.
“When Portugal accepted an international bailout three years ago, its rescue lenders pushed an orthodox strategy for digging out of recession. Cut wages and prices, they instructed, and exports will become more competitive, wrote Patrician Kowsmann in the Wall Street Journal. “Shoemakers here in the country's footwear capital did just the opposite—and they are thriving. They have boosted wages to keep their workers motivated. They have invested in technology and brand promotion. And they have pushed the prices of their shoes past France's to become the most expensive in the world after Italy's.”
Kowsmann acknowledged that “modernizing enough industries to save Southern Europe from long-term stagnation – and low salaries - would be difficult.”
It is however, always encouraging when the central bankers are wrong. Portugal is a weak bright light in a dreary world.
“Portugal passed the penultimate review on Friday of its fiscal and economic performance under an EU/IMF bailout, and the government raised its forecast for economic growth in an encouraging sign for the country's post-bailout future,” reported Reuters at the end of February. “The economy is now expected to grow 1.2 percent this year, up from the previous projection of 0.8 percent growth. Portuguese GDP began to recover from its worst recession since the 1970s last year, but it has yet to register a full year of growth.”
Still, the road back is tough...and probably long. As Bloomberg Businesweek noted: “Deputy Prime Minister Paulo Portas announced last month the recession was over and that “Portugal is back.” The country’s 1.6 percent year-on-year growth in the fourth quarter was higher than anywhere else in the euro region. Its 10-year borrowing costs have tumbled by a percentage point this year and Lisbon’s benchmark stock index has jumped 12 percent.”
“Yet behind the curtain there remains a debt mountain still bigger than the economy,” Henrique Almeida wrote. “To convince investors Portugal’s debt is sustainable, the economy has to expand 1.5 percent to 2 percent a year in real terms, former Finance Minister Fernando Teixeira dos Santos said in an interview on Feb. 21.”
The mood on the street, noted Almeida, is even more cautious. Portugal still needs to sell a lot of shoes to travel the road to recovery.
Actually, the madness started before March. It began accelerating in February long before college basketball’s top team laced up their sneakers.
At the end of last year, the Economist editorialized about the state of the world a century ago (at the beginning of World War I) and now. “The most troubling similarity between 1914 and now is complacency. Businesspeople today are like businesspeople then: too busy making money to notice the serpents flicking at the bottom of their trading screens. Politicians are playing with nationalism just as they did 100 years ago. China’s leaders ship Japanophobia, using it as cover for economic reforms, while Shinzo Abe stirs Japanese nationalism for similar reasons.”
Madness spread to all corners of the world. In early January, Johnny Araya, scion of an important Costa Rican family and of the ruling Partido Liberacion Nacional, dropped out of the presidential runoff election. A low-key professor, Luis Guillermo Solís, had emerged from the first round as the leading candidate and agent of change. Voters had tired of political corruption and economic anemia. Araya read the polls and the dismal fundraising tallies and left the race in early March. Araya, who long had been the clear frontrunner, had fallen to 44 points behind Solis.
In Venezuela and the Ukraine, March Madness seems a year-round phenomenon. In Japan, Mount Gox collapsed in late February and along with it collapsed whatever credibility Bitcoin possessed. Then a week later, Japan decided that Bitcoin was not a currency. Apparently, it is a commodity – perhaps an increasingly useless commodity.
Then on March 21, the New York Times published “Weekend Reading: March Madness, Wall St. Edition” with a brackets reflecting the Street rather than the foul line.
And, the National Law Review published an online article by Richard Greenberg
John A. Snyder on “Making the Most Out of March Madness.” The article noted: “Gambling is not covered by the Americans with Disabilities Act (ADA). However, an employee with a gambling addiction may suffer from other disabilities that are covered by federal, state or local law, including anxiety, depression or other mental conditions. Employers that allow brackets and office pools need to be sensitive to these issues as well.”
Such is the madness that afflicts the world. And then of course there is the Federal Reserve. As James Grant recently observed in an interview on moneycontrol.com: “Federal Reserve is in the business of imposing its will on the market. If from on high comes the word of how interest rates should be aligned, what level they should be, whether the stock market should go up, the Federal Reserve has arrogated to itself the functions of the discredited business called central planning.
Grant added: “the Fed is responsible in good measure for last half dozen years now of near stagnation. The real economy of America, the financial economy in America has been going gang busters but there is a most uncharacteristic – not exactly stagnation but a most uncharacteristic lack of dynamism in America's economy. The Fed I think bears no small measure of blame for this.
As LadyViolet Crawley, the Dowager, tells her granddaughter that: “you have told me the truth. But I would like to hear it enunciated more clearly.”
BY KATHLEEN M. PACKARD: