We Are Generating Jobs...But We Have a Long Way to Go
Throughout the first part of 2010, each month when the Bureau of Labor Statistics has released employment statistics, I've found reasons to be optimistic, but also perspective on how far we have to go to get to a more tolerable level of unemployment. This month's release very much follows that vein.
As we've discussed in the past, the monthly release is actually two releases, one that surveys employers to look at job creation and one that targets workers to understand unemployment rate and participation rates in the workforce. The second survey, in my opinion, is the most critical, as it hits all workers, whereas the employer or "establishment" survey tends to miss small business hiring and firing, but both give clues to where the employment market is headed.
In the employer survey for March, there was a lot of good news. Total payrolls grew by 162,000. Of this, 48,000 where hires by the Census Bureau to facilitate execution of the 2010 census. That is a form of unintentional government stimulus, but it does still help get people back to work. But even excluding this number, private payrolls grew by 114,000, this first substantial gain since December 2007 and included gains in manufacturing, health care and temporary services. Construction employment was stable for the first time the recession began and the only major area to lose jobs was financial services. The average workweek, an indicator of future hiring and firing, was also positive, posting a 0.3% gain in the month. In short, this month was a real turning point in the establishment survey data.
In the more critical unemployment survey, the unemployment rate held steady at 9.7%, holding on to the modest gains that have brought the rate down from its peak of 10.1%. That would be modestly good news by itself, but there are more data just below the surface that provide reasons to be hopeful. The population of "underemployed", those working part time but seeking full time work increased from 8.8 million to 9.0 million but this was actually good news, because the "marginally attached" those not counted in the unemployed rate because they have stopped actively trying to find a job was down, from 2.5 million to 2.3 million, meaning that you likely had people who were previously discouraged who are now working, albeit part time, with the entire change coming from discouraged workers, who fell from 1.2 million to 0.9 million, an almost 25% decrease.
So, looking at the extended data, the "underemployment rate" was steady at 16.8%, but more of those 16.8% had jobs.
Now, for the bad news. Using 5% unemployment and 8% "underemployment" as a benchmark for a "normal" rate of unemployment, at the rate of job creation in March, it would take almost 7 years to get back to these "normal" rates. This is clearly unacceptable and if it happens, Obama and the Democrats would find themselves on the sidelines both in 2010 and 2012. But the momentum is positive and there is good reason to believe that the job gains will continue to accelerate in the coming months.
The other good news is that there is still plenty of umph left in the economic stimulus program, which was really a 3-year economic plan. The latest expenditures to date are as follows:
Tax Cuts: $99.1 billion out of $288 billion paid (34.4% spent)
Spending: $208.8 billion out of $499 billion paid (42.8% spent)
Total: $307.9 billion out of $787 billion paid (39.1% spent)
So, over three fifths of the impact of the stimulus is yet to come and to a large extent it is the portion of the expenditure that is likely to be most job-creating. A lot of the earlier spending did things like stabilize state governments to prevent layoffs of state workers and provide emergency entitlements to those in economic distress. Those things were necessary, but didn't create many new jobs. Now that we are into the phase of the bill, which essentially runs through 2011, which involves construction and infrastructure projects, we are likely to see a pick-up in the job-creating impact. The pace of spending has picked up as the cries over unemployment have become louder (note that the spending is now far outpacing the tax cuts, which was not the case earlier), but I would still argue that the money has gone out too slowly.
In other economic news, the government is continuing to retract the broad-reaching intervention in the economy that began with the financial crisis. As of now (April 1st), the Federal Reserve program of buying up mortgage-backed securities has ended. This program was artificially keeping mortgage rates low to stabilize home prices. Rates will now be allowed to drift to their natural market price, which will likely be higher. The Fed has also recently hiked its emergency lending rates to banks, which were essentially acting as a subsidy to provide liquidity to distressed banks.
The government still owns large stakes in 3 Fortune 500 corporations. It has substantial stakes in Citigroup and AIG and is the majority owner of General Motors, all three are products of conversion of debt the companies incurred on TARP money into equity positions.
On Citigroup, it appears the government is going to sell off its stake this year, and appears poised to make a good profit on its investment, as Citigroup shares have recovered a great deal as the economic criss has waned. With GM, the government is looking to make an Initial Public Offering of some of its shares as early as the end of the year, and there is optimism that the government will at least break even on this position. AIG is the most thorny and the most likely that the government will take a loss as well as the least clear as to how the government would exit, as unlike Citigroup and GM, AIG has not yet re-established a profitable business model.
But, AIG aside, the socialization of major institutions appears to be winding down and the economy largely returning to the way ti was.
What Happens When Congress Gets Back April 12th
Congress is on Easter break right now, but returns to business a week from Monday. The 111th Congress is set to adjourn October 8th and unlike last year, they will do everything that they can to stick to that date, being that it is an election year and incumbents will want to be back in their districts campaigning for re-election. So, with a little under 6 months to do work, what can we expect?
(1) The Fiscal 2011 Budgets
The appropriations process can be long and cumbersome, especially with sky-high deficits still persisting. Expect the bulk of the debate to focus on this essential function for the rest of the year.
(2) Financial Reform
Aside from the budgets, this is the only major piece of legislation that is likely to see floor votes in both houses of congress. There is chatter about willingness to work in a bi-partisan fashion on this bill, but don't count on a lot of GOP support, even if the Democrats incorporate a lot of their suggestions and ideas. The best-case scenario for the White House is probably to get a bill through with broad Democratic support and a few moderate GOP members, again targeting Olympia Snowe, Susan Collins and Scott Brown to try to establish a 60th vote against a GOP filibuster attempt (when does the GOP not filibuster at this point?)
But even building a liberal/moderate coalition will be tough as the liberals want a bill that goes much farther than the proposal that Sen. Chris Dodd (D-CT) took out of committee and the moderates still believe it went to far. Finding that "just right" compromise to keep all parties on board will be difficult and will likely lead to a pretty modest reform bill.
(3) Immigration
Don't even worry about it...won't make it to a vote this year.
(4) Cap and Trade
There is still a House-passed bill, but this won't make it through the Senate. Erstwhile bipartisan Sen. Lindsay Graham (R-SC) has sounded increasingly partisan since the health care vote and the DEMs really need him on board to push a bill through the Senate. This one will have to wait until 2011, or never, depending on how many seats the GOP gains.
(5) Don't Ask, Don't Tell
In an election year? Ha! Forget it.
(6) Jobs Bills
Probably some more little bills with hiring incentives and tax credits, but nothing that will have a major impact. The stimulus package will continue to be the economic program of 2010 and 2011.
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