Happy Labour Day!


Location Date: 
September 2, 2011
Content: 

Well, sort of anyways. In Canada, we are in decent but not great shape given our unemployment rate is sitting at 7.2%. However, after this morning’s U.S. jobs’ report, we cannot say the same about our friends to the south of our border where the unemployment rate (U3) stands stubbornly high at 9.1%. Effectively, the economy added 0 net new jobs in August (although you should add back +45,000 associated with the Verizon strike).  This is not confidence-inspiring and neither is the fact the U6 (a broader measure of employment) actually went up to 16.2%.  The U.S. needs to add net +200,000 jobs per month to make a dent in the unemployment rate going forward.
 

Despite the gains in economic growth and the stunning rebound in corporate profits since the start of the quantitative easing and fiscal stimulus programs, employment in the U.S. has not shown much sign of life. The two graphs below suggest that there is possibly a structural unemployment issue at work, as the labour force participation rate stands at levels not seen since the early 80s and the average duration of unemployment is hitting post-WWII highs.

 

 


 

In fact, as TD Bank notes this morning, this post-recovery period has been horrible for employment when compared with past recoveries.

 

 

The stark reality is that the post-bubble shock in real estate and the associated deleveraging that we have discussed at length has manifested itself in higher unemployment. Job destruction, particularly in the construction and housing industries, has been the fallout. Many commentators are lamenting the lack of job creation from the largest U.S. corporations given their profitability. As we have noted, though, the S&P 500-types are growing outside the U.S., not inside. Coca Cola’s CEO Muhtar Kent recently stated his company was going to add thousands of jobs over the next 12 months but only a small fraction would be in the U.S.  Profits generated outside of the U.S. are growing, which has been a trend for quite some time. The real engine of labour growth are SMEs, as they are more closely tied to domestic consumer and local government spending. We know that these are in the firing line of both consumer deleveraging and cuts in local government spending (including August’s 20,000 local government layoffs). Tax breaks and targeted programs aimed at this area are critical - inviting Jeffrey Immelt to the White House for coffee and a photo op does nothing for jobs.

It is very easy to state the obvious that things are bad out there for many Americans seeking employment), but quite another to suggest concrete suggestions on how to address the problem. Next week, President Obama will offer up his ideas. I want to be optimistic, but I fear that we will get the same poor policy response we got the last time. The graph below shows that the President and Congress will have to do a better job at both programs and forecasting – no wonder the approval rating of the President is sinking so fast:

 

The President’s speech will likely include a call for the renewal of the extended unemployment benefits (99 weeks – that is a long time) along with the standard job retraining initiatives, infrastructure spending, transfers to state and local governments, reductions in payroll taxes for companies etc. all wrapped up in a lot of ‘let me be clear’ and republican-bashing sound bites!! What I hope to hear is concrete action on the mortgage and foreclosure issue and an infrastructure program aimed at reducing America’s dependency on foreign oil and improving efficiencies.  I also hope to see an effort at removing all of the red tape and bureaucracy, especially with respect to trade and homeland security.

 

TGIF - Enjoy the long weekend!!  

Jim McGovern