Now that American joy is unconfined at the ‘fall’ in its jobless rate, most of the financial MSM have switched (as in flicked a switch) this morning from eurofear to euphoria. Growth is on the move, we’re told, public jobs have been cut…and somehow gone straight into private sector work. The worst is over, it is a sign, we’re not out of the woods but etc etc blah blah blah.
But I am puzzled. I am puzzled because Ben Bernanke is puzzled. Because my own wealth managers are puzzled. And because almost all my US contacts are puzzled. Even the President is puzzled, but as Mr Obama never displays any genuine emotion, it’s impossible to tell; anyway, he’s busy on his next Al Green cover album.
The US Labor Department’s figures are really like coming upon planet Earth and calling it ‘blue, green and white planet’. The headline figures are, as often as not, a guide to very little worth knowing. Some drilling down is always necessary.
Take, for example, the so-called ‘broken community’ effect. This pertains when somewhere dedicated to one business – like Detroit – goes south. Almost everyone loses their job in the region, as the American global share of car sales plummets. The outlook appears to be hopeless, so many workers simply stop looking for a job. Stop looking, and you slip off the unemployment figures. You’re still jobless, but you’re not officially jobless.
Some folks in their 50s see the end approaching for their job or profession – and opt for early retirement. As there is no State pension system in the US, they too will disappear from the numbers. They would’ve become jobless, but now they’re just not working. And being neither 65 nor on welfare, they are counted as ‘in the workforce’.
Then there’s the question about whether the jobless rate is really the thing to be looking at. Some US economists have coined the fall in real wages there in the last twenty years ‘The China Syndrome’ – what Stiglitz suggests is the commonsense outcome of global competition between high wage and low wage economies: the high-wage economy’s workers see their pay rates slashed. In some ways, it’s good to see West-East equalisation getting started at long last, but that’s not the point at issue here: it’s very hard to kick-start a real economic recovery when the mass consumption army all had a massive pay cut. It’s even harder when the price of energy and food is rising – as a side-effect of geopolitics in the Middle East and market speculation respectively.
The things to look very closely at are growth and exports. Growth helps pay national debt, and exports contribute to national profitability. A ‘recovery’ that’s purely domestic retail in nature only makes things worse – especially if the majority of things on sale in Main Street are cheap Asian imports. All the western media without exception yesterday said that the US economy had created jobs – but this isn’t what the Labor Dept figures say: the ‘creation’ thing is an extrapolation from some totals. If the core of US industry has been damaged in broken communities, the jobless rate will ‘fall’ – but it falls out of sight, not out of increased work creation.
If the US economy really is creating jobs, then you’d expect the rate of creation to be up there with growth. But it isn’t. In the last quarter of 2011, American economic growth was recorded as 2.8%. In that period, roughly 145,000 jobs were ‘created’ according to the Labor stats. That adds up to a 0.3% growth in jobs. New technology to cut costs is gradually rendering more and more of middle class America unemployed. 243,000 jobs were ‘created’ in January alone – still only a 0.5% increase. A good time to look again at this will be the end of March, when Q1 economic performance can again be compared side-by-side with ‘new’ jobs.
As for American trading performance, the last data set in November showed its deficit to be widening again – imports rose 1.3% to a record $225.6bn, and exports dropped 0.9% to $177.8bn. Significantly, export performance continues to fall in the US goods heartlands: aircraft, cars and machinery. Fiscally, America’s position continues to get worse, not better.
In short, the structural problems in the US economy – poor innovation, poor blue-collar job creation, high wages and offshore manufacturing – remain exactly the same. The Obama Administration has addressed none of these. Nobody in power in Washington or Wall St knows what to do about it, beyond keeping the bonus-show on the road for as long as possible. A few visionaries like Ron Paul know precisely how to address the problem, but visionaries like Ron Paul don’t get elected to office under the American democratic process.
Ben Bernanke knows perfectly well that the data don’t add up – hence his reticence about popping champagne corks, and continuing ideas about QE3. In some ways, both the bankers and Obama are building an alibi here: “We were just getting back on our feet and then you Goddammed Yerpeens blew us over”. It’s only a matter of time before this becomes official history. But it’s bollocks: the US is going to get blown over because – pretty much since Reagan – it’s been (a) asleep at the fiscal wheel (b) run by mad MoUs and (c) suffering the effects of Chinese economic awakening. All that the eurocrisis will do is act as an accelerating catalyst.
I don’t buy this American recovery. It’s a mirage – and in Election Year, very convenient. If Mitt Romney wants to win the White House, then he’s going to have to explain to the voters why nothing’s changed. At the best of times, that’s an uphill struggle. I don’t see him as being up to it. Fact is, the Romney camp should be praying for blowback contagion from Europe.