May 08, 2010

The jobs report and where we move from here

Don't kid yourselves, yesterday's jobs number was a blowout. Expectations steadily ratcheted up Thursday from a 140k increase to a 190k increase and the number still blew it away by 100k jobs. Add that to the increase in the February and March numbers by 120k and we now have much stronger job growth coming into this recovery than anticipated. The even bigger news is the household report which was FAR higher.

Which means shit like this ain't gonna fly much longer...

"Companies are still using productivity growth and cost-cutting as a major part of their business plan," said Joshua Shapiro, chief U.S. economist at forecasting firm Maria Fiorini Ramirez. "They are still being very slow to bring back people. Labor costs won't be an issue."

Nowhere is this more evident than at small businesses such as AlphaGraphics, where Alcanter is one of eight full-time employees, down from 12 two years ago. For those who remain, the modern-day mantra of "doing more with less" has changed the rhythm and intensity of daily life.

Brenda Middleton, 40, has been with the company for seven years, long enough for it to feel like family. It hurt when she saw four co-workers leave last year, three of them in layoffs. That's when she noticed the change in workload.

"It was a little bit of whiplash effect — you got used to doing less and now you have to do more," Middleton said. "When we did have to downsize, the people that remained were the ones who could wear more than one hat."

A few weeks ago, a corporate adviser visited to offer tips on efficiency. Middleton said the consultant observed her from afar and then told her that she was quick.

"I have to be, to get my work done," she replied.

The most disturbing thing to me about this recession has been the unnecessary depth of the cuts made in employment. Companies went way overboard with downsizing and have managed to muddle through by making retained employees work dramatically more. While employers can still replace employees, it's expensive. Employees, however, are already finding it easier to tell employers that they want a better deal or they're leaving.

Now, since we still have a high unemployment rate, it's unlikely that any real wage growth will occur since existing workers are already maxed and a raise won't result in more work. So, employers will continue hiring new people but even that will drive economic growth and eventually (as long as tax policy changes) lead to the holy grail, wage growth.

Now everyone is going to freak out about inflation and demand that the Fed raise interest rates...those people could really do with a nice tall glass of STFU. Here's what I'm looking at:

1) There is a eurozone debt restructuring (not a crisis, despite the media BS) problem which is driving investors into US assets. This is driving the dollar up, relative to the euro, but relative to other economies it's staying stable so it shouldn't hurt exports. It is, however, helping out nicely with oil prices which have come down aggressively which puts a huge lid on potential inflation.

2) Employment is still slack between full and current which means no wage push.

3) While growth is increasing and accelerating, there are still massive restrictions on credit and the balance sheet in the US, on the consumer side especially, continues to delever.

In other words, until we reach 4-5% unemployment, there's no reason to even think about increasing rates to slow growth.

So what does all this mean? For starters, it should be obvious that Republicans who poopoo'd the stimulus and other job saving programs were, you know, wrong. Just like we knew they would be. We also know conclusively that yes, the stimulus was too small and has taken too long to get into the economy, which was exactly what I and others said a year ago when Democrats caved to the Republicans demands for tax cuts vs. spending (here, here, here, here, here and here). Even still, despite it's diminutive size, if we'd just concentrated the entire package into spending, we could have had the recovery in employment long ago. Just so we're crystal on this, Republicans played politics with the entire country and as a result, caused a lot of people to stay out of work longer than they should have. And the President and Democrats let it happen for bipartisanship. People suffered to two political parties could work together. Doesn't that make you feel good?

At last it seems like the D's have finally realized that working in any way with the Republicans is just doomed to failure which is good news for them going into November. It's also going to be real clear, real soon that Republicans have been full of shit on economic issues since Reagan.

Finally, since there's been so much BS about the deficit, it's worth noting that the majority of the non-war, non-stimulus deficit is nothing more than a loss in tax revenue as a result of people out of work and extended benefit claims. With people going back to work, tax revenues go up and benefit claims go down. In other words, we may not have a deficit too much longer. Maybe then we can start paying down some of the Republican debt that we accumulated during the Bush years.


Posted by mcblogger at May 8, 2010 03:49 PM

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