Employment Dynamics: No Quick or Durable Solutions

I have consistently written about jobs creation since my earliest articles on Seeking Alpha.  I believe job availability is the cornerstone of social order.  I continue to return to this subject as I am frustrated by low employment numbers, and the inability to find a cure.

There are no good options to creating jobs in the short term unless we hire people to spit at the moon (hat tip Mish).

Econintersect studies have concluded that employment pressures take 6 to 12 months to manifest from a trigger event.  As I write this the USA employment is definitely in a cyclical “less good” downtrend based on month-over-month employment trends.  There are no employment drivers coming from either government or private sectors.  Demand per capita is weak.

It is demand which creates jobs in an economy.

The USA is faced with a very large segment of the economy – the Boomers – not demanding “things” as they did 20 years ago.  Worse, the recent asset deflation cycle has wiped the net worth of many Boomers – and likely will cause a historically high number of aging Americans to work past the usual retirement age of 65.

This is the “dead man’s shoes” syndrome – you don’t get shoes until the person wearing those shoes dies  This does not bode well going forward for employment for the young entering the labor market.

Employment dynamics have changed – and comparisons to past situations, or past remedies are all suspect.   It has been obvious from the data since 2000 that there has been a problem with creating jobs.  This has been hidden by the silly way unemployment is calculated and defined.

Some want more infrastructure spending – but only 20% to 30% of infrastructure spending creates employment.  Infrastructure is NOT an efficient mechanism to create jobs, and unfortunately serious infrastructure takes many months years of planning before construction jobs are created.  Infrastructure spending and maintenance are very important – but not for creation of jobs.

In an optimum scenario, $200 billion of infrastructure spending per year creates 1 million direct jobs.  With so much economic slack, the normal multipliers for indirect jobs creation are inoperative – and most likely only 1 million additional jobs would be created.  It is real hard to spend $200 billion per year in infrastructure – and is equivalent to completing 20 nuclear plants every year, or completing 2,500 miles per year of new 4 lane highway.

Serious infrastructure planning / spending requires a long ramp up – and the effects would only be seen well after the 2012 elections.

So the question remains what to do?  How is demand created?  All solutions tabled so far target the symptom (low jobs growth) – and ignore demand creation.  Demand is constrained by the majority of Americans by demographics, loss of wealth, and low employment levels (Catch 22).

  • The lower demand caused by an aging population can only be mitigated – not solved.  By 2050, the Boomers will mostly be gone, and a new boom cycle underway with fresh blood.
  • For most Americans, the loss of wealth was caused by the housing crisis.  Approximately 25% of families have no or negative net worth.  Half of American families have a net worth under $50,000.  Demand is limited to available cash.  Demand can only rise if more disposable income is available.

The cheapest unproven solution for demand / jobs creation is to go back over every law and regulation.  Maybe, the best experiment is to allow the individual States to void Federal laws.  There would be 50 different experiments.  If it was a revenue producing law, it needs to be replaced by the States with a different scheme.

It boils down to this – there is no certainty what will work. Employment dynamics contains a myriad of forces, and attacking only one force likely will have unknown effects on others.  If the solution to employment was simple, it would have been solved long ago.

People tend to fall in love with their square box perceptions of the world, and the way they want the world to be.   Personally I do not care whether a solution is liberal or conservative or progressive or libertarian or provided by the Borg – the solution must work.

It is time to stop arguing dogmatic feces, using 10 second sound bites – and start getting around to finding real solutions.  It is over 10 years since the poor employment dynamic was evident even to the dumbest analyst.  Only an economist (or politician) could believe a quick and permanent solution could be found quickly.

Economic News this Week:

The Econintersect economic forecast for September 2011 predicted the economy will contract – but there is an indication that the economy may begin slight growth in the coming months. The the majority of the weighted elements were negative, but some key elements were showing positive growth.

This week the Weekly Leading Index (WLI) from ECRI slipped further into negative territory – from a downwardly revised -4.4% to -6.2.  A negative number implies the economy six months from today will be worse. This index has been eroding and has been in a four month overall downtrend. Please note this downward trend occurred one year ago and did not result in a recession.

Lakshman Achuthan, managing director of Economic Cycle Research Institute was quoted on CNN Money this week:

“When employment drops, incomes fall. When income falls, sales fall. When sales fall, production falls. When production falls, employment falls,” said Lakshman Achuthan, managing director of Economic Cycle Research Institute.

It’s a tough cycle to break.

“You can scream and shout, you can be the President, you can be the Congress, you can be the central bank, you’re not going to stop that once it gets going,” said Achuthan.

Even so, the economy is still technically creating jobs — albeit very slowly — and Achuthan thinks the economy would need to actually lose jobs before tipping back into recession.

Initial unemployment claims  rose 2,000 (from 412,000 which was revised up from a preliminary 409,000 last week) to 414,000.  Historically, claims exceeding 400,000 per week usually occurs when employment gains are less than the workforce growth, resulting in an increasing unemployment rate. The real gauge – the 4 week moving average – rose 3,750 to 414,750 because of the backward revision. Because of the noise (week-to-week movements), the 4-week average remains the reliable gauge.

The data released this week confirms the economic soft spot is continuing.  However, the real concern this week is the contraction of rail traffic.

Weekly Economic Release Scorecard:

Banking Failures:  Banks are Still Operating As Casinos
July Wholesale Trade: Significantly Less Good – Is it Commodity Prices?
July Consumer Credit: Now Expanding at 6% (much better than GDP)
July Trade Balance: Improved with no Recessionary Indicators
September Housing: Real Estate Slowdown Underway
Savings & Loan: Why was the S&L Crisis not a Systemic Economic Crisis?
July JOLTS: Reading JOLTS Tea Leaves – Employment Outlook Not Good
August ISM Non-Manufacturing:  Retreats From Recession Precipice
Obama Stimulus: Did it Just Shift Jobs Around?
Emerging Markets: Fiscal policy in developing countries: Escape from procyclicality
USA Housing Market: No Bottom in Sight
USA Banking: The Great Bank Robbery
Global Warming, Darwinism, Politics: No Irrefutable Evidence
BLS Employment Numbers: Government Cutbacks New Dynamic
Middle East: Democracy May Not Be In the Best Interests of the West
USA Political Parties: A Examination of Current Direction of the GOP
Europe: The Relationship between Current Accounts and Debt
Global Economies: Applying the Pyramid Theory to the Global Economy
Trading: Dissecting the Charts (Channels)
Global Markets: Market Red Ink Update 9/6/11
Euro: It’s Future Will Have Been Decided this Week
Investing Warning: Government Directions Now Influencing Market Directions
USA Markets: Predicting A Rally to the End of the Year
USA Corporate Earnings: Employment and Global Slowing to Depress Earnings
September Rail Transport: Danger – Current Data Shows Contraction
Nikkei 225 vs S&P 500: Real Returns

Bankruptcy this Week: NewPage

Failed Banks this Week: