The Bureau of Labor Statistics has released its monthly assessment of the employment situation and the news is not good:
In October, the number of unemployed persons increased by 558,000 to 15.7 million. The unemployment rate rose by 0.4 percentage point to 10.2 percent, the highest rate since April 1983. Since the start of the recession in December 2007, the number of unemployed persons has risen by 8.2 million, and the unemployment rate has grown by 5.3 percentage points. (See table A-1.)
Among the major worker groups, the unemployment rates for adult men (10.7 percent) and whites (9.5 percent) rose in October. The jobless rates for adult women (8.1 percent), teenagers (27.6 percent), blacks (15.7 percent), and Hispanics (13.1 percent) were little changed over the month. The unemployment
rate for Asians was 7.5 percent, not seasonally adjusted. (See tables A-1, A-2, and A-3.)
When combined with the data from yesterday showing that even as employment falls and unemployment rises, productivity is rising, too, in the absence of a strong surge in demand I see few prospects for the sort of job growth that would be needed to turn the situation around. However, as people lose their jobs or fear for their jobs it’s hard to see where that demand might come from other than government spending. I’m sure the voices calling for another round of stimulus will grow louder (especially as the 2010 mid-term elections near).
As I see it a number of things will need to happen to foster the sort of growth that will lead to a reduction in unemployment. They’re nearly all things I’ve mentioned here before: improved regulatory environment, incentives for capital investment, reduced costs of labor, predictable economic and regulatory environment. The federal government is doing very nearly the opposite.
Update
The U.S. economy expanded in the third quarter for the first time in more than a year, growing an annual 3.5% as the government’s stimulus boosted consumer spending. The productivity of U.S. workers surged over the same period.
However, weakness in the labor market is expected to weigh on the recovery. The usual pattern in economic recoveries is that productivity rises first, then employment follows.
Friday’s report showed that average hourly earnings rose by 0.3%, or $0.05, to $18.72.
Employment in the service sector — the main source of U.S. jobs — fell 61,000 in October. Business and professional services companies shed 18,000 jobs. Retail trade cut 40,000 jobs and leisure and hospitality employment fell by 37,000.
Employment in government was unchanged last month from September.
Also, from comments is something to reflect on:
One of the primary avenues that private equity firms use to generate investment opportunities (that meaning, acquisition of middle market businesses) is to speak with intermediaries – investment bankers, who in turn are constantly developing relationships with the owners of those middle market businesses. Well, I’ve just completed a two week tour of NY, Boston, Chicago and Milwaukee, while my partner has canvassed Atlanta and Charlotte. Probably 60 meetings in total.
The overwhelming theme (not “a†theme, or a trend, I mean overwhelming) is that small to medium sized business owners have absolutely shut down their intent to invest and expand – and that’s what GDP and employment are all about. They believe that this is perhaps the most business unfriendly environment they have experienced in their lives. Current taxes (payroll, sales, property, utilities etc), potential income tax hikes, rising costs of employing – particularly health care costs – high credit costs and the general economic environment are all cited.
As I’ve said before, we need a lot more people who’ve run businesses, particularly small businesses, and a lot fewer lawyers, career bureaucrats, and party apparatchiks in the Congress.
“The federal government is doing very nearly the opposite.”
Quite right. One of the primary avenues that private equity firms use to generate investment opportunities (that meaning, acquisition of middle market businesses) is to speak with intermediaries – investment bankers, who in turn are constantly developing relationships with the owners of those middle market businesses. Well, I’ve just completed a two week tour of NY, Boston, Chicago and Milwaukee, while my partner has canvassed Atlanta and Charlotte. Probably 60 meetings in total.
The overwhelming theme (not “a” theme, or a trend, I mean overwhelming) is that small to medium sized business owners have absolutely shut down their intent to invest and expand – and that’s what GDP and employment are all about. They believe that this is perhaps the most business unfriendly environment they have experienced in their lives. Current taxes (payroll, sales, property, utilities etc), potential income tax hikes, rising costs of employing – particularly health care costs – high credit costs and the general economic environment are all cited.
And as you note, I see almost no evidence that Washington understands this, cares, or is prepared to do something about it. In fact, it seems the opposite. Blind ideology appears to have triumphed.
Some might might observe that on, say health care costs, the historical rising cost trend is in no way the fault of President Obama, or the current crop of Democrats. Fine. However, any business owner watching the bizarre quality of the debate, the proposed legislation and the arrogance of the Democrats rightfully concludes that whatever employment cost headaches they suffer today, they are about to shift into high gear.
Similarly, the economic environment may have been slipping since early 2008, but the taxing/regulating/interventionist/unionist bent of the current President and Congress leads these owners to conclude that the economic environment, and hence the demand for their products, has only a small probability of improving materially. As I have noted previously, these business owners are almost all already rich. They have no need or desire to take on uneconomic risks and are not tolerant of being milked by a parasitic government or their constituents. They will crawl into their shell and instead work on their tans or their golf handicaps. The left just never seems to understand this.
My prediction this summer that unemployment would ultimately breach the 11% mark is looking more likely these days. I’d really, really like to be wrong.
Reducing labor costs could be accomplished by removing the employer’s contribution for social security. Also, mandate a cut in health care benefits instead of an increase like current proposed legislation is seeking.
Then there is all the environmental stuff with global warming. That is making for an uncertain and likely more expensive regulatory picture. And it will make investing more problematic not less. Now you’ll have to worry about whether or not your investment will be wiped out by passage of new legislation.
It sort of reminds me of the Great Depression. Things are bad, so a politician who promises to fix things is elected. He then does some of the most boneheaded policies to try and fix things. Like creating national oligopolies that fix prices and raise them so long as wages are increased. Great, reduce output, raise prices for consumers already struggling, and increase wages inducing more people to enter labor markets (i.e. increase unemployment). Or like Japan. Fling money at zombie banks, engage in dubious government projects to try and revive demand and raise employment, and spend 10+ years doing with damn little to show for it.
You’re right we are going in precisely the wrong direction. But I guess that is the change we can believe in. I have to ask, all those who voted for Obama…how do you feel now?
You mean other than preventing possibly the largest stock market crash in Japan’s history (and a collapse in real estate values) from turning into a full-on recession? Japan spent 10 years in stagnation, but that’s a damn sight better than what could have happened (and the nature of their stimulus bears a lot of the blame – they blew almost the whole thing for years on construction projects in rural areas designed to buy votes for the LDP).
“It sort of reminds me of the Great Depression. Things are bad, so a politician who promises to fix things is elected. He then does some of the most boneheaded policies to try and fix things.”
Bingo.
Also, nice straw man, Brett.
Brett,
So that was the only answer, and if there were multiple policy options it was the best? If so, then that is really depressing.
Hint:
http://www.nytimes.com/2008/09/23/business/worldbusiness/23krona.html
And just for laughs and to be snarky,
In other words, I’m right.
Oh, and that never happens in the U.S.?
“However, any business owner watching the bizarre quality of the debate, the proposed legislation and the arrogance of the Democrats rightfully concludes that whatever employment cost headaches they suffer today, they are about to shift into high gear.”
Could you be specific? A tax increase from to a top rate of 39.6% for income above 250k is the end of the world? Please see Bartlett’s recent posts. Financial regulation? I favor breaking up the banks. I suppose you favor total deregulation? Health care? We are facing increasing costs whether or not we get health care reform. We are just talking degree. On the entrepreneurial side it may be a plus. Deficits/debt? These guys dont realize that we needed to work down debt anyway?
TBH, I am surprised that a free market guy does not recognize that the business cycle is not influenced as heavily by government as most people think.
” incentives for capital investment,”
Such as? Then, after they make these investments, who will buy? With what?
Steve
I would think Drew is referencing the proposed legislation on health care expansion. There are employer mandates in those bills, and that is a cost of employing people. If you currently don’t offer insurance benefits, but now have to, it will mean a huge increase in employment costs, and it is unlikely that many employers will be able to shift all the costs to either employees or customers. So, if that reduces your profits sufficiently (i.e. you have no profits or even a loss) you shut down. That simple really.
Steve – (not Steve V, or even SRV)
You make a wide set of inquiries…
1. Taxes: “the end of the world” comment is simplistic and renders your inquiry light. The real question is: will people making incomes over $250K change their behavior in the face of marginal tax rate increases. (Further, I was focused on cap gains). The academic evidence is “yes.” My personal experience with the people I cite is “yes.” Of course it depends on how much. The increases I see batted about suggest they will be big enough; further, the UNCERTAINTY has people of means frozen. If you listen to current political discourse on the left, marginal rates of 70% are not out of the question. That’s called economic suicide, and current paralysis.
2. I prefer NO regulation? Please, Steve, don’t insult my intelligence. That statement reflects more on YOUR intelligence.
3. We are facing increasing costs whether or not we get health care reform. We are just talking degree.
That is exactly correct. So……..1) we need to deal with the issue, 2) we don’t need to make it worse than it is with boneheaded “reforms.” This, of course, is the debate, and what business owners are watching…………and they don’t like what they see.
4. “These guys dont realize that we needed to work down debt anyway? ”
If I understand it correctly, this was the most bizarre part of your post. I do not know a more reliable “debt reduction” contingent than private business owners. None.
5. “I am surprised that a free market guy does not recognize that the business cycle is not influenced as heavily by government as most people think.”
That’s an assertion that in my opinion fails miserably under the weight of scrutiny. Let’s start with the Great Depression. (Do your own homework.)
Let’s also consider, more recently, the role of government and financial markets. Eeeeeeeewwwwwwwww. Like sausage production.
Most importantly. You are a company exec. You are 40 years old. You hate large corporate. You have amassed $400K in savings. You can start a small business, but you need to deploy $200K of your savings to cover equipment, start up and linitial losses. You need a loan that incurs personal guarantees, including a pledge of your house.
You talk to your friends who own their own businesses. They tell you the horror stories about employee cost escalation, litigation worries…..product and employee…….the banks, regulation paperwork, environmental paperwork………………..and on it goes. Many just say”no thanks.”
And the left says “where are the jobs?” Well……..
And then you ask, and you are correct: “who will buy?” Well……..who is employed under an anti-business regime?
Thank you Obama, Pelosi and Reid.
Have you ever considered that businessmen are not the devil? Nor are they golden geese to be slaughtered?
Dave,
Thought you might be interested in this visualization which I ran across today.