August 12, 2010
On July 29, I discussed the fact that for over a year, many pundits have been anticipating a “jobless recovery”. In other words: don’t be concerned about the fact that so many people can’t find jobs – the economy will recover anyway. Recent economic reports have exposed how the widespread corporate tactic of cost-cutting by mass layoffs (to gin-up the bottom line in time for earnings reports) has finally taken its toll. Although this tactic has helped to inflate stock prices and produce the illusion that the broader economy is experiencing a sustained recovery, we are finding out that the opposite is true. The “jobless recovery” advocates ignore the fact the American economy is 70 percent consumer-driven. If those consumers don’t have jobs, they aren’t going to be spending money. Timothy Homan and Alex Tanzi of Bloomberg News gave us the ugly truth on Wednesday:
A lack of jobs will shackle consumer spending and restrain the U.S. recovery more than previously estimated, according to economists polled by Bloomberg News.
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“Simply put, job growth in the private sector hasn’t improved as we would’ve expected,” said John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “The consumer continues to contribute to growth but at a subpar pace.”
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Purchases, which rose 3 percent on average over the past three decades, dropped 1.2 percent last year, the biggest decrease since 1942.
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Joblessness will be slow to fall, signaling it will take years for the economy to recover the more than 8 million jobs lost during the recession that began in December 2007. Unemployment will average 9.6 percent in 2010 and 9.1 percent next year, according to the survey.
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“We need a stronger economy, job creation and better consumer confidence,” Richard Dugas, chief executive officer of Pulte Group Inc., said in an Aug. 4 conference call. “Our industry continues to face incredibly low demand.”
The August 10 press release from the Federal Open Market Committee (FOMC) began this way:
Information received since the Federal Open Market Committee met in June indicates that the pace of recovery in output and employment has slowed in recent months. Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising; however, investment in nonresidential structures continues to be weak and employers remain reluctant to add to payrolls. Housing starts remain at a depressed level. Bank lending has continued to contract.
Steve Goldstein of MarketWatch recently wrote a piece entitled, “The jobless recovery won’t go further without jobs”. Mr. Goldstein explains that the corporations relying on layoffs to juice their earnings reports are running out of people to sacrifice for their bottom line:
Earnings per share grew 43% for the 450 members of the S&P 500 that have reported second-quarter results, according to FactSet Research data.
So what these productivity figures may be showing is that, as the Great Recession blew into town, companies stretched their employees to the limit.
The data suggest companies won’t be able to job-cut their way to continued profit growth — and, at some point, if companies want to expand, they will need to start offering jobs to the pool of 14.6 million out of work in July.
Business consultant Matthew C. Keegan wrote an essay for the SayEducate website entitled, “Jobless Recovery & Other Illusions”. He began the piece with this thought:
The economic numbers continue to pour in with very few people believing that they offer a promise of a sustained recovery. That’s bad news for America, because high unemployment (9.5 percent in July 2010) means that every sector of the economy will remain depressed longer than some imagined it would.
Steve Goldstein’s MarketWatch article raised the possibility that this cloud may have a silver lining:
The productivity report isn’t great news, but at least it shows that the jobless recovery won’t be able to recover much further without employment making a significant contribution.
Another myth bites the dust.
Bogus Editorial Gets Exposed
August 16, 2010
One of my favorite commentators, Bill Fleckenstein, wrote an interesting piece calling attention to the fact that the Patent Office is underfunded to the tune of about $1 billion. The good news is that fixing this problem might create as many as 2.5 million new jobs over the next three years. Fleck based his article on a New York Times essay by Paul Michel (former Chief Judge of the United States Court of Appeals for the District of Columbia Circuit) and Henry Nothhaft, co-author of the upcoming book, Great Again.
Bill Fleckenstein began his discussion by noting another letdown by our Disappointer-In-Chief:
Unfortunately, Fleck decided to support his perspective with an editorial from the August 9 Wall Street Journal entitled, “Why I’m Not Hiring” by Michael Fleischer. Fleischer whined about how President Obama has made things difficult for his “little company in New Jersey, where we provide audio systems for use in educational, commercial and industrial settings.” Fleischer concluded the piece with this lament:
Bill Fleckenstein was not the only commentator who was apparently “taken in” by this editorial. It has been getting re-blogged all over the Web.
What most people don’t realize is that the author of the Wall Street Journal editorial, Michael Fleischer, is the brother of Ari Fleischer, the former press secretary to President George W. Bush.
Kevin Drum wrote a piece for Mother Jones, which began with his criticism of the Journal for not admitting that the aforementioned editorial was written by Ari Fleischer’s brother. Beyond that, Mr. Drum provided us with a little more information about Michael Fleischer’s background:
Drum then quoted this reader’s comment, posted at the Outside The Beltway blog, concerning the Fleischer editorial:
Another blogger had some fun digging into the truth about Fleischer’s Bogen Communications and hanging out the dirty laundry on the Internet:
It’s always funny when a political hatchet job gets exposed. It’s even funnier when the perpetrators are too dumb to realize that — in what Marshall McLuhan used to call “the electronic information environment” (back in the 1960s) — it’s pretty easy to dig up the truth.
Anyone trying to ascertain the truth about why companies aren’t hiring would be better served to peruse websites such as MarketWatch or Bloomberg, rather than the Wall Street Journal’s editorial page. Bill Fleckenstein should have known better.