US Unemployment Now Key to Future of the Global Economy

29 September 2009, By David Caploe PhD, Chief Political Economist. One of the great things about this gig, aside from the fabulous colleagues, is there are so many fascinating things in the world political economy – all of which are significant in any number of ways, and deserve attention, and to which my attention is constantly being pointed by the surprisingly large number of devoted readers of this site. [br]

29 September 2009, By David Caploe PhD, Chief Political Economist. One of the great things about this gig, aside from the fabulous colleagues, is there are so many fascinating things in the world political economy – all of which are significant in any number of ways, and deserve attention, and to which my attention is constantly being pointed by the surprisingly large number of devoted readers of this site. [br]

29 September 2009, By David Caploe PhD, Chief Political Economist. One of the great things about this gig, aside from the fabulous colleagues, is there are so many fascinating things in the world political economy – all of which are significant in any number of ways, and deserve attention, and to which my attention is constantly being pointed by the surprisingly large number of devoted readers of this site. [br]

Some have suggested I write about the surprising statements by World Bank President – and former US trade negotiator under both Clinton and Cheney / Bush – Robert Zoellick that the US should be prepared to see the disappearance of the US dollar’s role as the world’s reserve currency – something about which I have written in the past, and will again in the future.

Others want me to discuss this whole “re-balancing the global economy” theory, about which I am equally skeptical – the two items, of course being related, revolving around the central fact, uncomfortable or not, that the world economy has been since 1947, and will remain for the foreseeable future, US-centered.

Still others have sent me the link to a discussion I had already highlighted – and about which I AM going to write later in the week – in the increasingly worthwhile, although still uneven, New York Times feature “Room for Debate” on “Saving the World, Without US Consumers” -a proposition about which, again, I am more than skeptical, and an indication of the limited views of almost all conventional economists, who rely way too much on graphs and equations and not nearly enough on history.[br]

And lest we forget our own part of the world, there’s a riveting piece on Wu Jinglian, aka Market Wu, who was one of the first Chinese economists to promote the idea of a market economy, and suffered for it, and still today walks a tightrope between what he calls the “Maoists,” who want a return to the centrally-planned economy, and the “crony capitalists,” whom he finds equally inimical to the successful functioning of a market economy, as the current disastrous situation of the US all too clearly indicates, most recently by the problems of the FDIC, superbly analyzed in this New York Times editorial, on which still others think I should focus.

Nor should we forget the significant economic implications – as yet not totally clear – of the electoral victory of the center-right Christian Democrats and their new coalition partners, the “government out of the market / out of the bedroom” Free Democrats.

All this said, the most important piece of recent days without question to me is this piece from Sunday’s New York Times entitled “US Job Seekers Exceed Openings by Record Ratio.”

The reason is simple: as we pointed out in Friday’s post, the key to an overall American recovery – which remains the “real economic” root of the current US and, hence, despite what so many people seem to be wishing, global economic problems – is the ability of average Americans to buy a home, something which, as we also noted and quoted, is a bit difficult when you don’t have a job.

Now we’re not talking about the still-to-come financial sector-related disasters of credit cards and the big enchilada, derivatives – whose de-regulation by Clinton / Rubin / Geithner / Summers, and absolute indulgence thereafter by Cheney / Bush, remains the single biggest scandal in post-1973 US political economy, with who-knows-what future effects – but the “real economic” crux on the ground.

And in this context, the news is nothing short of disastrous – which means all this talk about “the end of the recession” should be taken with a barrelful of salt.

Despite signs that the economy has resumed growing, unemployed Americans now confront a job market that is bleaker than ever in the current recession, and employment prospects are still getting worse. Job seekers now outnumber openings six to one, the worst ratio since the government began tracking open positions in 2000. According to the Labor Department’s latest numbers, from July, only 2.4 million full-time permanent jobs were open, with 14.5 million people officially unemployed.

And, of course, as Americans know, but many others around the world don’t, US unemployment figures consistently under-estimate the actual number of jobless, since, once people’s unemployment payments run out, usually after six months, and occasionally after 9 to 12, they are no longer counted among as being without work, even if they still haven’t found a job – literally, only in America.

And even though the pace of layoffs is slowing, many companies remain anxious about growth prospects in the months ahead, making them reluctant to add to their payrolls. “There’s too much uncertainty out there,” said Thomas A. Kochan, a labor economist at M.I.T.’s Sloan School of Management. “There’s not going to be an upsurge in job openings for quite a while, not until employers feel confident the economy is really growing.” With unemployment at 9.7 percent nationwide, the shortage of paychecks is both a cause and an effect of weak hiring … Experts say that so many businesses have pared back working hours for people on their payrolls, while eliminating temporary workers, that many can increase output simply by increasing the workload on existing employees… Heidi Shierholz, an economist at the Economic Policy Institute Economist, [said] “for people who are out of work, we do not see signs of light at the end of the tunnel” … During the technology bubble of the late 1990s and again this decade, Cisco Systems – which makes Internet equipment – expanded rapidly. As the sense takes hold that the recession has passed, Cisco is again envisioning double-digit rates of sales growth, with plans to move aggressively into new markets … Yet even as Cisco pursues such designs, the company’s chief executive, John T. Chambers, said … he anticipated “slow hiring,” given concerns about the vigor of growth ahead. “We’ll be doing it selectively,” he said. Two recent surveys of newspaper help-wanted advertisements and of employers’ inclinations to add workers were at their lowest levels on record, noted Andrew Tilton, a Goldman Sachs economist.

And you know how carefully those folks at GS keep an eye on things.

Job placement companies say their customers are not yet wiling to hire large numbers of temporary workers, usually a precursor to hiring full-timers. “It’s going to take quite some time before we see robust job growth,” said Tig Gilliam, chief executive of Adecco North America, a major job placement and staffing company. During the last recession, in 2001, the number of jobless people reached little more than double the number of full-time job openings, according to the Labor Department data. By the beginning of this year, job seekers outnumbered jobs four-to-one, with the ratio growing ever more lopsided in recent months. Though layoffs have been both severe and prominent, the greatest source of distress is a predilection against hiring by many American businesses.

What a shock – not.

It’s clear the Obama administration is only interested in helping those who don’t need help – above all, the titans of Wall Street and elsewhere in the financial sector.

So unless and until that changes, it only makes sense to keep any new hiring to a minimum.

From the beginning of the recession in December 2007 through July of this year, job openings declined 45 percent in the West and the South, 36 percent in the Midwest and 23 percent in the Northeast. Shrinking job opportunities have assailed virtually every industry this year. Since the end of 2008, job openings have diminished 47 percent in manufacturing, 37 percent in construction and 22 percent in retail. Even in education and health services – faster-growing areas in which many unemployed people have trained for new careers – job openings have dropped 21 percent this year. Despite the passage of a stimulus spending package aimed at shoring up state and local coffers, government job openings have diminished 17 percent this year.

What more can you say ??? Ever since 1947 and the inception of the Marshall Plan, the basic dynamic of the world economy has been simple: countries either sell to the US, or they sell to countries that sell to the US – which is why I’m a bit skeptical about all this “re-balancing the world economy” and “end of the dollar as the global reserve currency” talk.

So until the US jobless scene radically improves, there seems little reason to suspect the overall global economy will either, which, in turn, means we’re likely to be confronting global recession – or at best, sluggish growth of the 1990s Japan variety – for the foreseeable future.

David Caploe PhD
Chief Political Economist, EconomyWatch.com
President, Minerva School / ACALAHA