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The growth of the regulatory state

While President Obama vacations on Martha’s Vineyard, he is supposedly committing to paper a plan to boost employment.  During the recession unemployment has remained high, near 10%, and with the economy slowing again, that number is likely to go higher.

One area that hasn’t suffered jobs losses during Obama’s time in office is the government regulatory regime.  In fact, it has managed to add a significant number of jobs, all, unfortunately, at the expense of business.  While most Americans feel some level of regulation is necessary by the Federal government, over-regulation is always a danger.  When that danger is realized, it is businesses who bear the brunt of the cost of compliance.  And, of course, businesses pass their costs on to consumers in the price of their goods.   So regulation compliance costs drive the price of goods up.

In the past three years of the Obama administration we’ve seen an explosion of regulations.  Investors Business Daily brings you the gory details:

Regulatory agencies have seen their combined budgets grow a healthy 16% since 2008, topping $54 billion, according to the annual "Regulator’s Budget," compiled by George Washington University and Washington University in St. Louis.

That’s at a time when the overall economy grew a paltry 5%.

Meanwhile, employment at these agencies has climbed 13% since Obama took office to more than 281,000, while private-sector jobs shrank by 5.6%.

Michael Mandel, chief economic strategist at the Progressive Policy Institute, found that between March 2010 and March 2011 federal regulatory jobs climbed faster than either private jobs or overall government jobs.

Those agencies have churned out new regulations and rules at an amazing rate:

The Obama administration imposed 75 new major rules in its first 26 months, costing the private sector more than $40 billion, according to a Heritage Foundation study. "No other president has imposed as high a number or cost in a comparable time period," noted the study’s author, James Gattuso.

The number of pages in the Federal Register — where all new rules must be published and which serves as proxy of regulatory activity — jumped 18% in 2010.

This July, regulators imposed a total of 379 new rules that will cost more than $9.5 billion, according to an analysis by Sen. John Barrasso, R-Wyo.

And much more is on the way. The Federal Register notes that more than 4,200 regulations are in the pipeline. That doesn’t count impending clean air rules from the EPA, new derivative rules, or the FCC’s net neutrality rule. Nor does that include recently announced fuel economy mandates or eventual ObamaCare and Dodd-Frank regulations.

As mentioned above, regulations and rules impose a significant cost on businesses which must comply with them.  In a time when the economy is staggering, these increases in costs delivers another body blow to any recovery.  And most of them have been imposed via the Executive Branch through its various Departments and not Congress.  The agenda brought to the White House by Barack Obama is being serviced by regulators and the legislators are being left out

"Our economy is continuing to sink," Sen. Barrasso said, "and it’s being weighed down by regulations coming out of this administration."

By 2008, the cost of complying with federal rules and regulations already exceeded $1.75 trillion a year, according to a 2010 study issued by the Small Business Administration.

Worse, the SBA found that small companies — which account for most of America’s new jobs — spend 36% more per employee to comply with these rules than larger firms.

Of course the administration flatly denies what the reports above tell us is happening:

Cass Sunstein, who runs the White House Office of Information and Regulatory Affairs, denies the regulatory upsurge, writing recently that "there has been no increase in rule making in this administration." He also notes Obama ordered a comprehensive regulatory review in January that uncovered $1 billion worth of needless red tape.

As is always the case, never believe what the administration tells you, always look behind the curtain at the facts.   And the facts are that 379 new rules have been imposed under this administration and it has 4,200 new regulations “in the pipeline” not counting the exceptions to that count noted in the IBD article.  So, as usual, the numbers tell a different story.

If President Obama is serious about creating job opportunities, this is an area in which he obviously exercises direct control via the federal government and the executive branch.  Rolling back the regulator regime, suspending all new rules until a comprehensive study can be made of their economic impact and generally getting regulators out of the way of businesses would be a very good start.

Somehow I doubt any of that will find its way into the jobs plan Mr. Obama presents after his vacation.

~McQ

Twitter: @McQandO


Green jobs? There’s just no market

If you don’t believe me, look at the California experience to this point.   If there’s any state in the union more amenable to and focused on providing green jobs, it has to be the Golden State.   Governor Jerry Brown pledged to create 500,000 of them by the end of the decade.

But as often the case when the central planners make their pledges, they are woefully ignorant of what the market wants.  And so rarely does what they envision ever come to fruition.  Green jobs in CA is a good example.

Remember Van Jones?  Well, when Jones left the Obama cabinet as his “Green Jobs Czar” he landed in California and has been what the NY Times calls an “Oakland activist” apparently pushing for the creation of green jobs.   And it’s not like California hasn’t tried.   It has simply failed.

For example:

A study released in July by the non-partisan Brookings Institution found clean-technology jobs accounted for just 2 percent of employment nationwide and only slightly more — 2.2 percent — in Silicon Valley. Rather than adding jobs, the study found, the sector actually lost 492 positions from 2003 to 2010 in the South Bay, where the unemployment rate in June was 10.5 percent.

Federal and state efforts to stimulate creation of green jobs have largely failed, government records show. Two years after it was awarded $186 million in federal stimulus money to weatherize drafty homes, California has spent only a little over half that sum and has so far created the equivalent of just 538 full-time jobs in the last quarter, according to the State Department of Community Services and Development.

So a “stimulus” program that spent over $93 million dollars to create 538 jobs.  Why so little in terms of takers?  Well it seems the market wasn’t interested.

The weatherization program was initially delayed for seven months while the federal Department of Labor determined prevailing wage standards for the industry. Even after that issue was resolved, the program never really caught on as homeowners balked at the upfront costs.

“Companies and public policy officials really overestimated how much consumers care about energy efficiency,” said Sheeraz Haji, chief executive of the Cleantech Group, a market research firm. “People care about their wallet and the comfort of their home, but it’s not a sexy thing.”

You don’t say … the government didn’t have a clue at what the market potential of their boondoggle actually had, so they ended up spending $172,862 for each job.  And you wonder where the money goes?

Example two:

Job training programs intended for the clean economy have also failed to generate big numbers. The Economic Development Department in California reports that $59 million in state, federal and private money dedicated to green jobs training and apprenticeship has led to only 719 job placements — the equivalent of an $82,000 subsidy for each one.

“The demand’s just not there to take this to scale,” said Fred Lucero, project manager atRichmond BUILD, which teaches students the basics of carpentry and electrical work in addition to specifically “green” trades like solar installation.

Richmond BUILD has found jobs for 159 of the 221 students who have entered its clean-energy program — but only 35 graduates are employed with solar and energy efficiency companies, with the balance doing more traditional building trades work. Mr. Lucero said he considered each placement a success because his primary mission was to steer residents of the city’s most violent neighborhoods  away from a life of crime.

You see you can fund all the job training centers in the world and run umpthy-thousands through it.  But if there is no market for the jobs, you end up spending a whole lot of money for nothing.   Again, ignorance of the market and its demands means expensive mistakes.  Of course Mr. Lucero thinks the program is a success – he got to spend free money, was employed and it didn’t cost him squat.  It cost you.

Example three:

At Asian Neighborhood Design, a 38-year old nonprofit in the South of Market neighborhood of San Francisco, training programs for green construction jobs have remained small because the number of available jobs is small. The group accepted just 16 of 200 applicants for the most recent 14-week cycle, making it harder to get into than the University of California. The group’s training director, Jamie Brewster, said he was able to find jobs for 10 trainees within two weeks of their completing the program.

Mr. Brewster said huge job losses in construction had made it nearly impossible to place large numbers of young people in the trades. Because green construction is a large component of the green economy, the moribund housing market and associated weakness in all types of building are clearly important factors in explaining the weak creation of green jobs.

Market timing is pretty important too, isn’t it?  If you introduce a product into a market in the middle of a market downturn, chances are slim you are going to be successful.  While it may all look good on paper and sound good in the conference room, the “buy” decision is still made in the market place, and in this case it is obvious that the market has no room for these workers.  Something which should have been, well, obvious.  In fact, there is precious little market for traditional construction jobs in a “moribund housing market”.   Yet there they are spending money we don’t have on job skills that are simply not in demand.

Finally there’s this bit of word salad to feast upon:

Advocates and entrepreneurs also blame Washington for the slow growth. Mr. Jones cited the failure of so-called cap and trade legislation, which would have cut carbon pollution and increased the cost of using fossil fuel, making alternative energy more competitive. Congressional Republicans have staunchly opposed cap-and-trade.

Mr. Haji of the Cleantech Group agrees. “Having a market mechanism that helps drive these new technologies would have made a significant difference,” he said. “Without that, the industry muddles along.”

You have to admire someone who tries to cloak central planning jargon in “market speak”.  Imposing a tax on thin air to drive, from above, a behavior government wants is not a “market mechanism”.  And beside, California passed it’s own version of this “market mechanism” with AB 32 in 2006.  How’s that working out?

This is how:

A SolFocus spokeswoman, Nancy Hartsoch, said the company was willing to pay a premium for the highly-skilled physicists, chemists and mechanical engineers who will work at the campus on Zanker Road, although the solar panels themselves will continue being made in China. Mayor Reed said he continued to hope that San Jose would attract manufacturing and assembly jobs, but Ms. Hartsoch said that was unlikely because “taxes and labor rates” were too high to merit investment in a factory in Northern California.

Irony … central planning fails in CA while jobs end up in increasingly capitalistic China.  Again, ignorance of the market causes disappointing results.  Somehow I feel this came as a surprise to Mayor Reed … after he’d spent whatever of your money he’d committed to this project.

~McQ

Twitter: @McQandO


Global markets off after US credit downgrade

As expected global market reaction to the US credit downgrade has been anything but positive.

Global stock markets sank again Monday as worries over the downgrade of U.S. debt outweighed relief at a European Central Bank pledge to buy up Italian and Spanish bonds to help the two countries avoid devastating defaults.

European markets shed their early momentum and losses were heavy in Asia. Most stocks were trading sharply lower amid mounting fears over the opening of U.S. markets, when traders will have their first chance to respond to Standard & Poor’s momentous decision to lower its triple A rating for the U.S.

"The reverberations from S&P’s downgrade are still being felt across the globe," said David Jones, chief market strategist at IG Index.

The European Central Bank’s buy of Italian and Spanish bonds – two Euro countries in deep financial trouble – at first seemed to allay the expected downturn.  However that was later reversed and global markets saw a sharp downturn.

At this time one can only speculate what will happen in US markets, but the global sell off is not a good sign.

Monday’s trading came after one of the worst market weeks since the collapse of U.S. investment bank Lehman Brothers in 2008 – around $2.5 trillion was wiped off global stocks last week.

In Europe, Britain’s FTSE 100 index of leading British shares was down 1.7 percent at 5,157 while France’s CAC-40 fell 1.6 percent to 3,227. Germany’s DAX was 2.3 percent lower at 6,091.

Sentiment in Europe was hurt by an expected sell-off at the U.S. open – Dow futures were down 1.8 percent at 11,196 while the broader Standard & Poor’s 500 futures fell 2.1 percent to 1,173.

The one bright spot in an otherwise dismal picture is the US Treasuries market.  And “bright spot” is a relative term considering the rest of the markets:

So far, the S&P downgrade doesn’t seem to be having too much of an impact on U.S. government bonds, known as Treasuries. The worry has been that the downgrade would prompt investors to demand more, but the yield on ten-year Treasuries has actually fallen.

"Early market reactions suggest that the treasury market will remain well supported," said Jane Foley, an analyst at Rabobank International. "Even though there may be no sharp sell-off in treasuries this week, S&P’s decision should at least provide a signal to the U.S. government that it may be foolhardy to continue to take its creditors for granted indefinitely."

Two points.  One – yes, it should provide such a signal.  However, if that signal isn’t acted upon and acted upon swiftly, then two – the treasury market will not remain well supported.  Interest rates will rise on demand by investors and servicing our debt will cost more and more.

To add more fuel to the fire, there’s this:

"Investors are concerned about a rising risk of global recession, credit downgrades especially now in the eurozone, such as France, the threat of a major bank bust and a global liquidity trap as investors stay in cash," said Neil MacKinnon, global macro strategist at VTB Capital.

So much to watch and consider.   While this may not be the most interesting news to read about, none is more vital.  The problems in both Europe and the US have a far reaching effect on global markets.  And they will have an effect, at some point, on everyone’s wallet.  We’re in uncharted territory here, and unfortunately, there are no easy and painless ways to solve these problems.

~McQ

Twitter: @McQandO


Is Atlas shrugging?

Of course what I’m about to cite is an anecdote.  It is hard to claim there’s a trend.   And we don’t even know if the threat was carried out.  On the other hand, we also don’t know how many times the thought process and decision voiced here have been silently made by people who have the ability to hire and expand, but just don’t see the hassle being worth it.   And, of course, it doesn’t help that what they’re trying to do is demonized at every step.

The story told below takes place in Birmingham, AL.  I love B’ham – spent years and years doing business there.  It’s like a second home.  Birmingham was once the “Pittsburg” of the South, with a huge and flourishing steel business.   Of course that’s gone now, at least most of it.   One of the reasons Birmingham was the Pittsburg of the South was because the state had both iron ore and coal deposits.   And one of the major coal mining regions is a county just north of Birmingham named Walker County.

Here, from the David McElroy blog (via The Conservatory) is Ronnie Bryant:

He operates coal mines in Alabama. I’d never heard of him until this morning, but after what I saw and heard from him, I’d say he’s a bit like a southern version of Ellis Wyatt from Ayn Rand’s novel. What I saw made an impression on me.

I was at a public hearing in an inner-city Birmingham neighborhood for various government officials to get public input on some local environmental issues. There are several hot topics, but one of the highest-profile disputes is over a proposal for a coal mine near a river that serves as a source of drinking water for parts of the Birmingham metro area. Mine operators and state environmental officials say the mine can be operated without threatening the water supply. Environmentalists claim it will be a threat.

I’m not going to take sides on that environmental issue, because I don’t know enough to stake out an informed opinion. (With most of the people I listened to today, facts didn’t seem to matter as much as emotional implications.) But Ronnie Bryant wasn’t there to talk about that particular mine. As a mine operator in a nearby area, he was attending the meeting to listen to what residents and government officials were saying. He listened to close to two hours of people trashing companies of all types and blaming pollution for random cases of cancer in their families. Several speakers clearly believe that all of the cancer and other deaths they see in their families and communities must be caused by pollution. Why? Who knows? Maybe just because it makes for an emotional story to blame big bad business. It’s hard to say.

After Bryant listened to all of the business-bashing, he finally stood to speak. He sounded a little bit shellshocked, a little bit angry — and a lot frustrated.

My name’s Ronnie Bryant, and I’m a mine operator…. I’ve been issued a [state] permit in the recent past for [waste water] discharge, and after standing in this room today listening to the comments being made by the people…. [pause] Nearly every day without fail — I have a different perspective — men stream to these [mining] operations looking for work in Walker County. They can’t pay their mortgage. They can’t pay their car note. They can’t feed their families. They don’t have health insurance. And as I stand here today, I just … you know … what’s the use?

I got a permit to open up an underground coal mine that would employ probably 125 people. They’d be paid wages from $50,000 to $150,000 a year. We would consume probably $50 million to $60 million in consumables a year, putting more men to work. And my only idea today is to go home. What’s the use? I don’t know. I mean, I see these guys — I see them with tears in their eyes — looking for work. And if there’s so much opposition to these guys making a living, I feel like there’s no need in me putting out the effort to provide work for them. So as I stood against the wall here today, basically what I’ve decided is not to open the mine. I’m just quitting.Thank you.

Whether Ronnie Bryant actually did what he said isn’t known – but his frustration is clear and his decision as stated, warranted.

The question is how many Ronnie Bryant’s are out there right now?   How many are tired of the demonization, the taxes, the hassles, the bars government and environmental groups erect that make business difficult if not impossible to conduct?  How many have faced men and women with tears in their eyes because they can’t pay the mortgage or feed their family, but know that hiring them would actually be more difficult and costly than just continuing as they are now, or, as Bryant claims, just decide not to open a business because of the intrusion, over-regulation, demonization and the increasing level of obstacles put in the way of business?

That story, at least to me, is a stunning and telling example of the anti-business culture that has been created and nurtured within this country.   This isn’t some apocryphal or fictional example to demonstrate a point.   This is a man listening and deciding that it just isn’t worth it to open a business that would bring in 125 jobs, consume 50 to 60 million in consumables a year (downstream jobs) and, of course, mean tax revenue to both the city, county and state. 

But coal is unpopular.  It is demon coal.   So an industry that powers the nation and generates the electricity that the complainers in the audience and the government bureaucrats there will use when they go home is trashed in a meeting along with business in general.  And a man who could offer something critically needed – jobs – makes the decision that in the climate he observed, it’s just not worth it to open a business up.

How many times in how many local meetings like the one described in Birmingham is there a Ronnie Bryant who just says, after listening to all the trash talk, ‘screw it, I’m not going to bother to open a business’?

Atlas Shrugging – something our lefty friends said was fiction.  

Given today’s business climate, it seems more like a self-fulfilling prophesy, doesn’t it?

~McQ

Twitter: @McQandO


The economy–between a rock and a hard place

The latest reports on the economy is due out this week and it doesn’t appear they will contain much good news:

Economists have been insisting for months that the economy is poised to lift off into a self-sustaining orbit, only to be forced to scrub the launch date several times.

Thus the repeated “unexpected”. 

The way the economy works is that it takes growth higher than a 3% rate before good things, like a sustained decline in unemployment, even start to happen. Anything in the 2.5%-to-3% range is just treading water.

Growth has averaged 2.8% over the past seven quarters. And at this point, economists would welcome a 2.5% growth rate.

Economists polled by MarketWatch now expect growth to actually decelerate to a 1.6% annual rate in the second quarter from a tepid 1.9% rate in the first quarter.

Those are some pretty shocking numbers when you consider all the political hype that’s been flying around lately about the “vastly improved” economy.   I’ve put in bold type the numbers you need to know to be able to analyze the numbers thrown around as these reports come out.   As you can tell, we’ve been in the treading water stage for quite some time.

We’ve covered many of the reasons.   One is the administration’s war on carbon-based fuels – an sector that could be creating hundreds of thousands of jobs, revenue and growth if not essentially shut down by bureaucratic foot-dragging and stifling regulation.  ObamaCare is another reason we see blamed because it has thrown thousands of new regulations about health care at businesses.

Those and other factors have led to extraordinary caution on the part of business about expansion and hiring.  So where are the profits these companies are enjoying coming from? 

The sluggish pace of hiring may be hobbling the US economy, but it’s not been holding back big US companies’ profits thanks to growth overseas and cost controls at home. And that’s bad news for the more than 14 million Americans without jobs.

Big businesses would normally be desperate for surging job growth as it would feed into domestic demand but these aren’t normal times. Massive growth opportunities overseas, especially in China and other buoyant Asian economies, have some of the largest American companies on track for record profits, even if they’re businesses are mostly treading water in the US.

The message last week from the chief financial officer of one of the nation’s industrial giants couldn’t be clearer.

"We’ve driven all this cost out. Sales have come back, but people have not," said Greg Haynes, chief financial officer at United Technologies Corp. "It’s the structural cost reductions that we have done over the past few years that have allowed us to see strong bottom-line results."

The company, the world’s largest maker of air conditioners and elevators, said second-quarter profit rose 19 percent, and it is doing most of its hiring in emerging markets where demand for its products is growing fastest. It isn’t alone in seeing profits climb in the current earnings reporting season.

They’ve learned to do more with less, thus their cost cutting measures in the really bad times are now beginning to pay off.  The easiest and quickest way to cut costs, of course, is reduced headcount.  They’ve also identified new markets that aren’t as onerous or unsettled to do business in – so their hiring – what hiring they’re doing – is overseas.  And given all that, it’s unlikely to change anytime soon:

Employers added fewer jobs in June than at any time in the past nine months, and the jobless rate rose to 9.2 percent, higher than when the recession ended in early 2009.

"We’ve never seen the kind of shedding of jobs that we saw in this recession. America’s corporations have never been running so efficiently," said Ellen Zentner, senior US economist at Nomura Securities in New York.

An example of that is the car industry:

With the economy still struggling to regain momentum after the financial crisis of 2007-09 and 14 million Americans out of work, the planners at GM and a host of corporations across America are in no rush to make big new investments to ramp up output and hiring.

The world’s second-biggest carmaker has not re-opened its idled plants or built new ones as Americans rein in spending.

Like many US manufacturers, it is squeezing more from existing factories and using time-honoured efficiency boosts such as adding to overtime and eliminating plant bottlenecks.

‘Our manufacturing folks have been tremendous at squeaking out extra units through improving line rates, adding on extra shifts,’ GM’s US sales chief Don Johnson said.

That, of course, means a long recovery period for employment.   Here’s a rather startling “did you know” fact for you:

Has anyone in Washington noticed that 20% of American men are not working? That’s right. One out of five men in this country are collecting unemployment, in prison, on disability, operating in the underground economy, or getting by on the paychecks of wives or girlfriends or parents. The equivalent number in 1970, according to the McKinsey Global Institute, was 7%.

That’s neither a good cultural or economic trend and certainly not a trend that we want to see continued into the future.  It has a tendency to have a negative effect that can be profound.  It also tends to see incidents of criminal activity rise. 

So what is government to do?   Follow policies that will encourage businesses to expand and hire.   Exploit those sectors that have low hanging fruit like the carbon-based energy sector.

Instead, what do we get?  Thousands of pages of new regulations and laws.   More and more government intrusion.   A further and artificial stifling of the economy.

Result?

Well read those bold numbers again and ask yourself if that’s what you’re willing to live with – because as it is going now, despite its rhetoric to the contrary, it is that with which this administration seems to be content to live.

And that is unacceptable – or should be.  

~McQ

Twitter: @McQandO


Chrysler cost taxpayers much more than the reported 1.3 billion loss

CNN Money headlines an article “US loses 1.3 billion exiting Chrysler” and then says:

U.S. taxpayers likely lost $1.3 billion in the government bailout of Chrysler, the Treasury Department announced Thursday.

The government recently sold its remaining 6% stake in the company to Italian automaker Fiat. It wrapped up the 2009 bailout that was part of the Troubled Asset Relief Program six years early.

"The fact that the company has done so well — that they were able to go out and raise private capital to repay us the loan so quickly, is really the big story," said Tim Massad, Treasury assistant secretary for financial stability.

If the company has done so well, why are taxpayers out $1.3 billion?

Well apparently because the government couldn’t wait to sell their shares to a foreign company, Fiat, giving the Italian automaker a majority share in Chrysler:

Fiat paid the Treasury a total of $560 million for the remaining shares, as well as rights to shares held by the United Auto Workers retiree trust. Fiat now owns a 53.5% stake in the company.

And CNN continues to propagate the myth that Chrysler paid back its loans early:

Originally, the government committed a total of $12.5 billion to the struggling automaker, Old Chrysler, and the company’s newly formed Chrysler Group. Of those funds, $11.2 billion have been returned through principal repayments, interest and cancelled commitments, the Treasury said. The new Chrysler Group paid back $5.1 billion in loans in May.

Actually that’s not at all the case:

The Obama administration already forgave more than $4 billion of that debt when the company filed for bankruptcy in 2009. Taxpayers are never getting that money back.

[…]

The Obama administration’s bailout agreement with Fiat gave the Italian car company a “Incremental Call Option” that allows it to buy up to 16% of Chrysler stock at a reduced price. But in order to exercise the option, Fiat had to first pay back at least $3.5 billion of its loan to the Treasury Department. But Fiat was having trouble getting private banks to lend it the money. Enter Obama Energy Secretary Steven Chu who has signaled that he will approve a fuel-efficient vehicle loan to Chrysler for … wait for it … $3.5 billion.

[…]

So, to recap, the Obama Energy Department is loaning a foreign car company $3.5 billion so that it can pay the Treasury Department $7.6 billion even though American taxpayers spent $13 billion to save an American car company that is currently only worth $5 billion.

There’s your story.   Taxpayers mugged again by the Obama administration.  Film at 11.

~McQ

Twitter: @McQandO


Blunt talk from Bernie Marcus about Obama and economy

This has been a week for CEOs speaking out against the Obama administration.   This time it’s someone I actually admire.  Bernie Marcus, co-founder and CEO of Home Depot, has given an interview to Investors Business Daily and it is a pretty frank denunciation of the policies this administration has followed since coming into power.  It’s one of the things I admire about Marcus – he pulls no punches:

IBD: What’s the single biggest impediment to job growth today?

Marcus: The U.S. government. Having built a small business into a big one, I can tell you that today the impediments that the government imposes are impossible to deal with. Home Depot would never have succeeded if we’d tried to start it today. Every day you see rules and regulations from a group of Washington bureaucrats who know nothing about running a business. And I mean every day. It’s become stifling.

If you’re a small businessman, the only way to deal with it is to work harder, put in more hours, and let people go. When you consider that something like 70% of the American people work for small businesses, you are talking about a big economic impact.

Remember that Home Depot was launched during the then worst recession in 40 years and Marcus took it public 3 years later.   He’s built a business from the ground up and created thousands of jobs.   He actually understands what it takes.  He also clearly understands what will kill it. 

Here is one of the key points one has to understand about this administration and Marcus is on it:

IBD: President Obama has promised to streamline and eliminate regulations. What’s your take?

Marcus: His speeches are wonderful. His output is absolutely, incredibly bad. As he speaks about cutting out regulations, they are now producing thousands of pages of new ones. With just ObamaCare by itself, you have a 2,000 page bill that’s probably going end up being 150,000 pages of regulations.

We’ve been warning you from the beginning  to pay no attention to the man’s words and instead scrutinize his deeds.  Often they are the opposite of what he has said he’d do.  For example:

In January, however, he issued an executive order requiring federal agencies to review their regulations, looking for rules that are inefficient or outdated. His aim, he explained on The Wall Street Journal‘s op-ed page, was to "root out regulations that conflict, that are not worth the cost, or that are just plain dumb."

But there’s a catch: All those new regulations Obama put in place will not be subject to review. Just days after the president issued his order, an anonymous administration official conceded to the Journal that "new regulations will not be priorities for the look back." Meanwhile, more than a dozen federal bureaucracies—including the Securities and Exchange Commission, the Federal Communications Commission, and the National Labor Relations Board—are exempt from the review because they are independent agencies.

That’s another in a long list of many examples of him saying one thing and doing something else.  His speeches are politically driven and designed to give him political cover while his actions are ideologically driven and part of an agenda.

Marcus is then asked about the debt talks:

IBD: Washington has been consumed with debt talks. Is this the right focus now?

Marcus: They are all tied together. If we don’t lower spending and if we don’t deal with paying down the debt, we are going to have to raise taxes. Even brain-dead economists understand that when you raise taxes, you cost jobs.

With all the talk about tax increases it means we have a lot of zombie politicians who haven’t a clue, unfortunately.  I mean how difficult is this?   When you raise taxes in a recession, many businesses are going to have to make a decision aren’t they?  Use the money to pay the tax or hire.   Any guess which will win out?  You can’t go to jail for not hiring.

Finally, and this one is devastating in its forthrightness, Marcus is asked what he’d tell Obama if he could sit down with him and talk about job creation.   His answer is a classic:

IBD: If you could sit down with Obama and talk to him about job creation, what would you say?

Marcus: I’m not sure Obama would understand anything that I’d say, because he’s never really worked a day outside the political or legal area. He doesn’t know how to make a payroll, he doesn’t understand the problems businesses face. I would try to explain that the plight of the businessman is very reactive to Washington. As Washington piles on regulations and mandates, the impact is tremendous. I don’t think he’s a bad guy. I just think he has no knowledge of this.

One can only wish Contessa Brewer was around to ask about economic degrees.  Marcus is right about Obama’s lack of knowledge.  He’s surrounded by a lack of knowledge in this area if his policies are any indication.  As has been pointed out repeatedly, a president who was really concerned about jobs would be green lighting oil and gas exploration as fast as he could make it happen.  And he’s certainly made speeches about doing just that, but as usual, his actions betray his words.

Marcus has got a bead on this administration and this president.  As long as they are in power and continue with the course of their regulatory policies,  the economic malaise that has settled over this country will continue.  

~McQ

Twitter: @McQandO


Temporary worker hiring outlook dismal

One of the things economists watch to try to gauge the job market is how the temporary worker market is doing.   Many times a rise in temp workers signals businesses are gearing up for more permanent hiring as the economy gains steam.  The opposite is many times also true.   And, unfortunately, it appears that this particular indicator isn’t giving us the warm fuzzy feeling  we hoped it would:

Last month’s fall in the number of temporary workers could herald continued weakness in the job market.

The total number of temporary employees placed by staffing agencies dipped by 12,000 last month and is down 19,000 the past three months, the Bureau of Labor Statistics reported Friday.

Now perhaps 3 months can’t be considered a “trend”, but it is pretty darn close.  And it parallels the news we’ve been getting about unemployment and the economy in general.

Temporary workers, however, could be the most telling signal. The number of contingent workers started growing in fall 2009, about six months before the broader job market began to emerge from the recession. From September 2009 to March, employers added nearly 500,000 temporary workers.

Roy Krause, CEO of SFN Group, a top staffing agency, says temporary placements for white-collar jobs in accounting, computers and legal remain strong. But those for lower-skilled light industrial, clerical and certain call-center jobs — which accounted for most of last year’s growth — have slowed. "They tend to be more sensitive to economic conditions," he says.

An example:

Chemical maker Arkema of Philadelphia employed about 150 temporary workers earlier this year. But it trimmed that total by about 50 in April and May as the weak economy prompted it to cut its 2011 forecast, Vice President Chris Giangrasso says. Arkema, he says, will likely not add this year to its permanent staff of about 2,500 in North America.

Key point – “weak economy”.  He had enough growth last year to warrant hiring temp workers but not full time staff.   Now he doesn’t even have enough business to warrant 2/3rds of the temps he hired and had to let them go.

That weakness in the economy continues to linger because, as we’ve noted any number of times, of the unsettled business climate.  And that’s something government could do to help the situation – back off regulation, taxes and interference (*cough* NLRB/Boeing*cough*) and stay out of the way.   It seems, though, that doing so is just not in this administration’s genes.

And so the negative indicators continue to pile up while the President of the United States and a complicit media attempt to make bad guys out of the GOP as they hold the line against economy crippling tax increases.

Go figure.

~McQ

Twitter: @McQandO


So why aren’t businesses hiring?

For a number of reasons actually.  Some numbers tell the story:

Two years into the recovery, hiring is still painfully slow. The economy is producing as much as it was before the downturn, but with seven million fewer jobs. Since the recovery began, businesses’ spending on employees has grown 2 percent as equipment and software spending has swelled 26 percent, according to the Commerce Department. A capital rebound that sharp and a labor rebound that slow have been recorded only once before — after the 1982 recession.

Demand has increased enough that business is producing at least as much as it was before the recession, according to the NYT, but businesses aren’t hiring.  Why?

Well, in lean times, headcount is the first casualty.  Layoffs are the rule.  That’s the fastest way to reduce the bottom line and either cut the losses being suffered to a manageable level or eek out a profit.

But, you say, once the recession is over, shouldn’t they rehire?   Well, like all markets, not if the cost of the commodity is too high (labor) and an acceptable alternative is available (equipment).  In this case that appears to be software in many cases.  

So – business cuts back during bad times, finds it can either get along without the extra headcount or finds a technological alternative (equipment) and when a level of prosperity returns, doesn’t hire (although I’m not sure I’d agree a proper level of prosperity has returned at this point, but I think it is clear that much more employment was expected by now, which is why we see the word “unexpected” appended to every down employment report).

Why is this happening?  Well in addition to the above, there’s an added problem that is often ignored or not mentioned.  Government tax policies.  In the case of equipment buying, the government has incentivized such purchases to the detriment of another – namely employment (labor).

With equipment prices dropping, and tax incentives to subsidize capital investments, these trends seem likely to continue.

“Firms are just responding to incentives,” said Dean Maki, chief United States economist at Barclays Capital. “And capital has gotten much cheaper relative to labor.”

Indeed, equipment and software prices have dipped 2.4 percent since the recovery began, thanks largely to foreign manufacturing. Labor costs, on the other hand, have risen 6.7 percent, according to the Labor Department. The rising compensation costs are driven in large part by costlier health care benefits, so those lucky workers who do have jobs do not exactly feel richer.

There’s your choice as a business – lower prices and tax incentives to purchase software and equipment or higher labor costs for workers.  If the machine can do the job, the business doesn’t have to pay healthcare, payroll, payroll taxes, etc.  In fact, the machine gives them a bottom line write off on their tax bill.  It’s a no-brainer.

~McQ

Twitter: @McQandO

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