From the December 6, 2009 Sunday Times (London)
December 6, 2009
by Irwin Stelzer
Modestly, moderately, jobs. These are the three words that cover just about everything that is going on in America’s political economy. The latest summary prepared by the Federal Reserve Bank of New York reports that “economic conditions have generally improved modestly;... consumer spending ... picked up moderately; ... manufacturing conditions [are] ... moderately improving across the country”.
Perhaps most important, the report noted that goods inventories are lean, so lean that one-third of all manufacturers report that their customers’ inventory levels are too low, and only 7% that they are too high. If the White House economist Larry Summers is right that the level of inventories is among the more important indicators of future economic activity, the bare shelves and warehouses will produce a pick-up in orders and in economic growth.
It is certainly true that car showrooms have been so denuded of vehicles that manufacturers are upping next year’s production schedules. Ford plans to make 58% more vehicles in the first quarter of 2010 than it did in the same period this year, and GM plans a 75% boost from the depressed level earlier this year. One cheer only: these increases are from last year’s very depressed levels.
The moderate improvement includes an increase in manufacturing activity in November for the fourth consecutive month; a rebound in new orders; a rise in pending home sales (contracts out, but not completed) for the ninth consecutive month to the highest level since March 2006; and sales of jewellery, not a necessity in most homes, have risen in each of the past three months.
So much for “moderate”. Friday’s jobs report was hardly that. After months in which hundreds of thousands of jobs have gone, such lay-offs totalled a mere 11,000 in November, the lowest level in two years. The unemployment rate dropped from 10.2% in October to 10.0% last month, the working week lengthened and the job-loss figures for September and October were revised down by 159,000. Good news for President Barack Obama.
However, the president knows three things. First, one month does not make a trend. Second, 38% of the unemployed have been out of work for more than six months. Third, the 15.4m workers classified as unemployed do not include those so discouraged they have dropped out of the workforce, and those involuntarily working only part-time. Add those in, and the total comes to 26.5m direct victims of the recession, or 17.2% of the total workforce (down from 17.5% last month). Throw in their families, and their still-employed but nervous neighbours, and you have a block of voters unlikely to smile on those of his party colleagues who will be seeking their votes next year.
So the president “pivoted”, to use the new Washington buzz word. He has been concentrating on healthcare and Afghanistan, but voters tell pollsters their biggest concerns are jobs and the deficit. Obama will now concentrate on those issues, with jobs top of his new agenda, and the deficit to be shuttled off to a bipartisan commission for study.
As for jobs, last week he invited union leaders, economists, businessmen and others to a “jobs creation” summit. Since he already knows what he is going to recommend when he addresses the nation on Tuesday, this was a public-relations stunt.
The liberals in attendance favoured more government spending, perhaps $200 billion more, on a variety of programmes, including grants to states to stall planned lay-offs of bureaucrats, the hiring of workers to build bridges and other infrastructure, and subsidies to encourage homeowners to hire workers to weather-proof their homes — cash-for-caulkers. They also want the banks’ repayments of bailout funds to be used to extend unemployment benefits.
The businessmen have a different prescription for what ails the jobs market. They favour a mix of less regulation, lower corporate taxes, granting more visas to immigrants who want to start businesses, and some certainty as to what the president is planning to do in the coming months.
Small businesses create most of the jobs in an economy such as ours. But they find it impossible to plan on expanding because they do not know what it will cost to take on more staff. What they do know is that if the healthcare bill passes in anything like its current version, their healthcare costs will rise. They know, too, that if the pledges the president is about to make at the Copenhagen climate-change seminar are ratified by Congress, their energy costs will shoot up. And that both of the above mean higher taxes for them.
This is not exactly a setting in which businessmen, especially those running small firms, see a bright future. Uncertainty about some things, certainty about even worse things — so hunker down, don’t hire just yet, wait and see if things turn out as badly as it now seems likely they will.
It is fashionable these days to talk about “take aways”, what attendees take away from a conference. My guess is that Obama’s “take away” is consistent with his view that activist government cannot leave job creation to the private sector, but also that he must dispel the notion that he is hostile to the private sector. So a mix of spending and incentives for small businesses to hire will be laid out in Tuesday’s speech.
Obama’s goal will be to keep the unemployment rate heading down, even if he has to create government-funded jobs to do it. My Hudson Institute colleague, Diana Furchtgott-Roth, points out in a recent column that in 1850 Frederich Bastiat noted that jobs provided by the government are seen, those displaced by higher taxes or snatched from private-sector firms are not — at least, not in the short run.
The president’s congressional allies have no interest in the long run — in which they will be dead, electorally, if the economy suffers a relapse. They want action this day. Which is just what their president intends to give them.
Irwin Stelzer is a Senior Fellow and Director of Economic Policy Studies for the Hudson Institute. He is also the U.S. economist and political columnist for The Sunday Times (London) and The Courier Mail (Australia), a columnist for The New York Post, and an honorary fellow of the Centre for Socio-Legal Studies for Wolfson College at Oxford University. He is the founder and former president of National Economic Research Associates and a consultant to several U.S. and United Kingdom industries on a variety of commercial and policy issues. He has a doctorate in economics from Cornell University and has taught at institutions such as Cornell, the University of Connecticut, New York University, and Nuffield College, Oxford.
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