Free Markets, Free People
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.
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.
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.
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.
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.
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.
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.
Just watch – and don’t try to tell me afterwards that it is due to “market failure”:
Giving the left the benefit of the doubt, maybe they didn’t know about this. Because I’m sure, just as they blasted Wall Street for paying bonuses after receiving bailout money and TARP funds, they’d be keen to be consistent and do the same to GM.
Less than two years after entering bankruptcy, General Motors will extend millions of dollars in bonuses to most of its 48,000 hourly workers as a reward for the company’s rapid turnaround after it was rescued by the government.
The payments, disclosed Monday in company documents, are similar to bonuses announced last week for white-collar employees. The bonuses to 76,000 American workers will probably total more than $400 million — an amount that suggests executives have increasing confidence in the automaker’s comeback.
But the comeback was and is still financed by taxpayers money and borrowing. What in the world is GM doing paying out bonuses when it still owes at least $40 billion in loans? That $400 million would be a nice chunk toward that payback, wouldn’t it?
But the bonuses drew criticism from an opponent of the auto industry bailout in Washington who said GM should repay its entire $49.5 billion loan before offering bonuses.
"Since the taxpayers helped these companies out of bankruptcy, the taxpayers should be repaid before bonuses go out," said Republican Sen. Charles Grassley of Iowa. "It sends a message that those in charge take shareholders, in this case the taxpayers, for a sucker."
Yeah, kind of hard to argue otherwise, isn’t it? And no, for you that believed all the hype, GM hasn’t paid back its loans despite the commercials it made claiming it had. It isn’t even close to paying them off.
That said, I’m sure, once the story gets out that the left will be just as consistent in slamming GM for paying bonuses without repaying its loans as it was with taking Wall Street (properly I might add) for precisely the same reason. (HT: Maggie’s Notebook).
Oh, and by the way:
Ford Motor Co. announced plans last month to pay its 40,600 U.S. factory workers $5,000 each, the first such checks since 1999. The Dearborn, Mich., company, which avoided bankruptcy and did not get a government bailout, made $6.6 billion last year.
Ford also plans to pay performance bonuses to white-collar workers in lieu of raises, but it would not reveal the amounts.
Good for them and congratulations.
The answer, partially, is unions. While the talent of a Broadway show may cost a pretty penny, many of the "aspiring" among them most likely aren’t making as much as the stagehands.
At Avery Fisher Hall and Alice Tully Hall in Lincoln Center, the average stagehand salary and benefits package is $290,000 a year.
To repeat, that is the average compensation of all the workers who move musicians’ chairs into place and hang lights, not the pay of the top five.
Across the plaza at the Metropolitan Opera, a spokesman said stagehands rarely broke into the top-five category. But a couple of years ago, one did. The props master, James Blumenfeld, got $334,000 at that time, including some vacation back pay.
Now I’m not one to begrudge high salaries, if they’ve been earned. And I’ll be the first to tell you that any CEO who earns a bonus when his or her company has a down year shouldn’t get one. However, that’s really not the point here. These are wages (the top paid stagehand at Carnegie Hall makes $422,599 a year in salary and $107,445 in benefits and deferred compensation) driven by unions. The first figure mentioned is the average salary at Lincoln Center. If I were a lefty, this would probably fall under the "corporate greed" category. The jobs are neither highly skilled nor technical. But they’re locked down and belong to only one entity – the union. The pay is at that level for one simple reason – power and the willingness to use it, even when it really isn’t necessary. And that power engenders fear:
How to account for all this munificence? The power of a union, Local 1 of the International Alliance of Theatrical Stage Employees. "Power," as in the capacity and willingness to close most Broadway theaters for 19 days two years ago when agreement on a new contract could not be reached.
Wakin reported that this power was palpable in the nervousness of theater administrators and performers who were asked to comment on the salary figures.
Kelly Hall-Tompkins, for one, said, "The last thing I want to do is upset the people at Carnegie Hall. I’d like to have a lifelong relationship with them." She is a violinist who recently presented a recital in Weill Hall, one of the smaller performance spaces in the building.
She said she begrudged the stagehands nothing: "Musicians should be so lucky to have a strong union like that."
Right – and musicians would be playing to empty venues if they did since the cost of their entertainment would be beyond what most wage earners can afford. Instead musicians exist in a much more competitive world where their earnings are tied to their talent. Ms. Hall-Tomkins, for one, would prefer the IATSE model, I’m sure.
But you’ll also notice that she, and apparently others, were afraid to comment on the story for fear of ruffling union feathers.
Unions had a place once – and I’ll even say that their existence today can be a good thing if they represent their members properly, that is make sure they’re paid a competitive wage and benefits as well as being treated fairly. However, in many cases, like that above, they end up demanding exorbitant salaries and benefits only because they can.
Where are the Bernie Sanders of the world yelling “when is enough enough”? As long as the theater owners, administrators and artists refuse to speak out about those sorts of salaries and benefits that drive up ticket prices, the union will continue to push. And some stagehands will earn more than the President of the United States (although I think our current President is more suited for the roll of stagehand than his present job).
In the world of leftist “fairness”, this would seem a prime target for those who like to go after CEOs and “greedy corporations”. But expect not a peep about this union, public sector unions or any union for that matter. After all, while they may be as “greedy” as any corporation the left could name, they’re “family” and thus exempt from such criticism.
Of course that’s the "official" number – as we’ve been pointing out for some time, the real number is well into double digits. But it again points out that markets are not at all happy with the business environment and consumers simply aren’t consuming at a level to push hiring even if it was settled.
In a significant setback to the recovery and market expectations, the United States economy added just 39,000 jobs in November, and the unemployment rate rose to 9.8 percent, the Department of Labor reported Friday. November’s numbers were far below the consensus forecast of close to 150,000 jobs added and an unemployment rate of 9.6 percent.
The increases tallied are mostly seasonal temporary work, meaning private companies aren’t creating many jobs at all (again, the economy has to generate around 125,000 new jobs a month just to stay even):
Private companies, which have been hiring since the beginning of the year, added 50,000 jobs in November. Most of those increases came from temporary help, where 40,000 jobs were added, and in health care, with an additional 19,000 jobs.
Retail jobs declined by 28,000 in November, while manufacturing, which had showed some strength earlier in the year, lost 13,000 jobs.
Government jobs dropped by 11,000 in the month.
Outlook? Bleak. Meanwhile the tax fight continues in the Congress. If you’re wondering why the business climate remains so unsettled, it is thinking like this which is typical of the majority party there:
Yeah, that’s right – this yahoo is claiming that small businessmen don’t ever make any decisions based on tax considerations. So they won’t mind a tax hike in the least.
How in the world does anyone take someone like that seriously? However, understanding that his thinking is most likely not uncommon there, it isn’t at all hard to imagine why Congress seems clueless as to how to stimulate the economy, is it?
As we near the mid-term elections and people start paying attention (and early voting begins), we’re naturally seeing some tightening of the races. However, one thing that hasn’t been tightening, per many polls, is independents going for the Democrats.
Anyone who has watched elections over the years knows full well that indies are the swing vote that, for the most part, determine the outcome of most elections. Some refer to them as the mushy middle. Others see them as voters truly independent of the 2 party system and not satisfied with either. And during each election, they pick the side which best represents the direction they’d prefer to see the country go on the often mistaken assumption that the winner will head that way.
All that being said, keep in mind as you hear stories about tightening races that one thing that hasn’t been tightening is the Democratic hold on independent voters – at least not in this election cycle. Why?
Remember, this is a Congressional election and as much as the GOP might like it to be a referendum on Obama (and to some degree it will be) it’s mostly about the Congress we have. Indies aren’t very enamored with it or its leadership (Nancy Pelosi is at 29% and Harry Reid is lower). A new poll makes the point:
The Hill 2010 Midterm Election Poll found that 61 percent of likely independent voters in 10 battleground House districts — a critical swing demographic — think the leadership under House Speaker Nancy Pelosi (D-Calif.) and Senate Majority Leader Harry Reid (D-Nev.) is more liberal than they are.
“That’s a very significant finding that tells you where independents are likely to go,” said Mark Penn, president of Penn Schoen Berland, which conducted the poll. “In terms of independents, Reid and Pelosi are viewed as out of step.”
And that feeling is likely to effect the independent vote, because it is strictly a numbers game that keeps the leadership in place. Change the numbers, i.e. vote for the other party’s candidate, and if the change is large enough, you change the leadership. Pelosi’s the most likely to lose her leadership job (and, rumor has it that even if Dems somehow hold on to the House, she may not be Speaker), but if Reid manages a win in Nevada, his power in the Senate may be neutralized by GOP gains in that chamber.
I got a bit of a chuckle with this quote:
“The inability to define Boehner and McConnell as out of touch with mainstream values was a strategic failure of the Democrats in the election,” said Simon Rosenberg, a veteran of the 1992 Clinton war room and president of NDN, a center-left think tank and advocacy group.
“The Democrats have done a bad job this election cycle defining the Republican Party as out of touch with American values,” he said.
It is hard to define the other side as “out of touch with American values” when the Democrats were proving every day and in every way how out of touch they were. The GOP does indeed have it’s ‘out of touch’ problems, but they’re insignificant in comparison (at least at the moment) to the Democrats.
Jim Kessler, vice president for policy at Third Way, a centrist Democratic think tank, said many Democrats have played into the Republican strategy by attacking business.
“A lot of the Democrats are resorting to economic populism, and the polling shows that voters aren’t buying it,” he said. “ ‘Corporate America’ is a Washington term. Outside Washington, that’s business and the people who employ you.”
The anti-business, government union party – is that really how the Democrats want to be identified? Is it any wonder independents are deserting them in droves?