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(What’s Left of) Our Economy: U.S. Private Sector Job Creation is Still Overstated, but its Comeback Continues

18 Thursday Oct 2018

Posted by Alan Tonelson in (What's Left of) Our Economy

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government, health care services, Jobs, private sector, recovery, subsidized private sector, {What's Left of) Our Economy

Since we get a breather till the last week of the month in the flow of major nation-wide U.S. economic data, why not revisit one of my favorite unofficial measures of the American economy’s health? That’s the share of job creation that’s accounted for by what I call the subsidized private sector – those parts of the economy – notably healthcare services – that are officially classified as private sector industries, but that don’t really deserve the label because they depend so heavily (including for employment levels) on massive government subsidies.

This distinction matters, or should matter, because nearly all Americans rightly believe that the private sector, not the government, is the economy’s best hope for productive, sustainable growth. In turn, genuine private sector job creation is a much better gauge of the economy’s health than private sector job creation whose numbers are inflated by including the subsidized industries’ performance.

So I’m glad to report that the results for the first three-quarters of this year (through September) show the continuation of a trend I’d spotted a while ago: The subsidized private sector’s share of new total jobs and new private sector jobs is considerably lower so far during the Trump years than during Barack Obama’s presidency. At the same time, the subsidized private sector is still punching above its weight in terms of job creation, which isn’t such good news.

Let’s start, as usual, with 2013, since it was a year by which time the current economic recovery (which began in mid-2009) was well established. Conveniently, it also permits examining progress over a five-year period.

Between January and September, 2013, the subsidized private sector generated 11.14 percent of the economy’s total net new jobs created, and 10.83 percent of all the such jobs credited to the private sector as conventionally defined. The “real private sector,” meanwhile, produced fully 91.79 percent of the economy’s new hires, and 89.17 percent of the employment improvement placed in the conventional private sector category. (A drop in government employment accounts for the failure of these percentages to add up to 100.)

But what a change by 2016 – the last year of the Obama administration. During the first nine months of that year, the subsidized private sector’s share of total payroll increases had more than doubled – to 23.04 percent. And its share of all the conventional private sector jobs added during this period rose even faster – to 27.92 percent. Largely as a result, the real private sector accounted for only 59.43 percent of all net new U.S. employment. And the real private sector’s share of job gains credited to the conventionally defined private sector dropped to 72.06 percent.

So far this year, the subsidized private sector’s share of all U.S. job creation is down to 19.73 percent. The real private sector share of this total bounced all the way back to 76.27 percent, and its share of conventional private sector job gains was up to 79.44 percent.

But between 2017 and 2018, progress along these lines was much slower than during the previous year. In fact, when examined on a stand-still basis (different from the dynamic basis represented by the above employment change numbers), the subsidized private sector’s share of total U.S. employment actually has edged up over the last year – from 15.85 percent to 15.89 percent, and these industries’ share of conventionally defined private sector employment remained at 18.69 percent. 

With the subsidized private sector’s share of total job-creation this year nearly four percentage points higher (the 19.73 percent referred to in the previous paragraph), it’s clear that these industries keep creating an outsized share of overall new U.S. hiring.   

As always, please remember that I’m not portraying the subsidized private sector as worthless or only marginally important. Of course we need healthcare services in particular, and as the American population continues to age, we’ll continue to need a lot more. All I’m saying is that the nation needs to define its terms properly, and recognize that, without immense government spending (and the consequently greater debts), many of the jobs we’ve come to consider private sector jobs simply wouldn’t exist.

(What’s Left of) Our Economy: Links Between Low U.S. Pay and Low U.S. Productivity Growth

12 Monday Sep 2016

Posted by Alan Tonelson in (What's Left of) Our Economy

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compensation, construction, finance, government, healthcare, manufacturing, productivity growth, restaurants, retail, services, {What's Left of) Our Economy

It’s long been clear to me that one big reason that Americans give lousy grades to the current economic recovery is that it’s been dominated by employment gains in lousy jobs. So it was great late last week to see strong confirmation provided by the Financial Times‘ Matthew Klein – who in the process showed that the problem has much deeper roots than my work has suggested. Klein also makes clear that this discouraging job creation pattern deserves much blame for lagging American productivity growth – which is crucial for the sustainable improvement in the nation’s living standards.

In a September 8 post, Klein demonstrated that since 2000, 94 percent of the net new jobs created by the U.S. economy came in education, healthcare, social assistance, bars, restaurants, and retail stores. When you weight these industries by their sizes, you find that their hourly pay has averaged 30 percent lower than in the rest of the economy – as per this chart he provides:

But the low-pay story hardly stops there. To add insult to injury, since jobs in retail, restaurants and bars typically involve shorter hours than in other sectors, weekly pay in these parts of the economy is fully 40 percent lower than in other industries. And these low-pay industries have been become such important American job creators that their relative growth has depressed the entire workforce’s weekly pay by three percent since 2000.

Further, in case you’re wondering, the employment trends have accelerated during the current recovery.

Even worse for the U.S. economy, especially over the longer term, the sectors producing all these lousy jobs have been sectors with big productivity problems. According to Klein, 96 percent of the net new jobs created in America since 1990 have come in industries known for low productivity (like construction, retail, and bars) or where low productivity is simply suspected, but understandably so, since they don’t feature much competition. (Healthcare, education, government, and finance fall into this category).

And of course, this evidence demonstrates the converse proposition, too – job creation has lagged during both these periods (and nosedived since 1990) in manufacturing, historically the economy’s productivity growth leader. And since it rebounded strongly after a recessionary crash dive, manufacturing output has stagnated at best.

As I’ve written, productivity is the subject economists generally regard as the most difficult to study, especially because it’s so hard to measure in services (which comprise most of the economy on a standstill basis), and especially when those services and their development are based on emerging technologies.

But one aspect of the productivity growth slump does seem to be rendered much less mysterious by Klein’s analysis: When an economy lets so much of its most productive sector stagnate at best, that’s sure not going to help its productivity.

(What’s Left of) Our Economy: Against Government and Off the Deep End

27 Tuesday Jan 2015

Posted by Alan Tonelson in (What's Left of) Our Economy

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basic research, drug discovery, FBN, Fox Business Network, government, Heritage Foundation, libertarians, National Institutes of Health, NIH, pharmaceuticals, Stephen Moore, Stuart Varney, {What's Left of) Our Economy

I really hate the growing tendency across the political spectrum to label ideological opponents as “stupid,” or something similar, but all too often, the shoe really does fit – as the Fox Business Network helpfully reminded us yesterday.

Fox Business anchor Stuart Varney decided to get worked up over a statement by Massachusetts Senator Elizabeth Warren arguing that “Drug companies make great contributions but so do taxpayers….In other words, we built those medical innovations together.” His objection? Warren’s position shows that she’s “a collectivist. She’s saying there’s no such thing as individual liberty and the pursuit of ideas on an individual basis. No, we’re collectivists.” And ostensibly for confirmation, he interviewed Heritage Foundation Chief Economist Stephen Moore. You decide who came off worse.

Was it Varney, who seemed totally incapable of processing Warren’s acknowledgment that “Drug companies make great contributions” to medical innovation? I’m not sure how else to explain his accusation that her position revealed that “Senator Warren is a collectivist. She’s saying there’s no such thing as individual liberty and the pursuit of ideas on an individual basis. No, we’re collectivists.”

Or did Moore give his mindless libertarianism more than a good run for its money? He responded that “It tells you a lot about the modern day Democratic Party that a nutcase like Elizabeth Warren is in first or second place in the early polling for these Democratic primaries. I mean, Elizabeth Warren is a member of the Sandinista wing of the Democratic party, right? She doesn’t believe in the free enterprise system.”

But since Varney is simply a journalist and, according to recent decades’ standards, doesn’t need to know what he’s talking about, I give the ignorance award here to Moore. The Heritage maven actually acknowledged that “the NIH [National Institute of Health] does participate in” the drug discovery process. But, he explained, “they do the basic research. The real blockbusters are developed by private pharmaceutical companies and bio-engineering companies that do incredible work.”

Moore’s clear implication: The basic research performed by NIH is not “incredible work.” Or at least not nearly so incredible. Apparently he has managed to climb the conservative think tank career ladder – and the Wall Street Journal editorial page ladder before – without learning that without enough basic research, the blockbuster flow, and those similar breakthroughs in other fields, dries up.

At one point, though, Moore suggested a less laughable argument. As he put it, “It costs sometimes a half a billion dollars in investment capital – private investment capital, Stewart – to develop these drugs. And for then Elizabeth Warren to come along and say oh, by the way, you know, if you hit a winner, we’re going to take the profits away from you – I think that’s not just bad economics. This is even more important, Stewart. It’s terrible for our our health, because if you delay or disrupt the development of these new drugs, you’re basically, you know, a death sentence for people who have Alzheimers or cancer or heart disease or others.”

Moore continued: “…If you tax something, you get less of it. It’s a very simple economic message. And by the way, the research that goes into these drugs – when I mention it costs half a billion dollars to bring a new drug to market, you know only one out of ten of these even succeeds. So the amount of risk capital that goes into these is gigantic. If you don’t give those investors a return, we’re not going to get any more medical progress in this country.”

In other words, Moore’s great fear is that the Warren (and presumably many other) Democrats so hate the private sector and so idolize government that they want to tax the vitality out of the American pharmaceutical industry to finance the (marginally important) NIH. Stripped of unconscionable exaggeration, it seems as if Moore is at least advancing a reasonable proposition here – that the U.S. political system hasn’t yet found the right tax policy balance between adequately fostering private sector medical innovation and adequately funding the kind of basic medical-related research that’s almost never undertaken by free enterprise.

If that’s the case, though, why didn’t Moore say so openly? Because he’s totally desperate to get TV time from a government-hating know-nothing like Stuart Varney?

(What’s Left of) Our Economy: How’s Private Sector Growth Doing?

23 Tuesday Dec 2014

Posted by Alan Tonelson in (What's Left of) Our Economy

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GDP, government, growth, private sector, {What's Left of) Our Economy

For an economy whose leaders (rightly) keep pounding the table about the importance of private sector-led growth, the United States does surprisingly little to keep track of it. Economists and politicians constantly look at the government’s share of the economy and its role in adding to or subtracting from growth.  But detailed, explicit information on the expansion (or contraction) of private business itself needs to be teased out of the existing data.

I just did a brief investigation into the subject, and it turned up some results that are especially surprising given this morning’s government figures on the economy’s strong after-inflation growth in the third quarter of this year. Breaking out the performance of the private sector doesn’t take much of the shine off the gross domestic product’s upwardly revised five percent real annualized expansion since the second quarter. But it does indicate that the economy may be farther from that so-called lift-off point – where it won’t need extraordinary support from the Federal Reserve to perform acceptably – than widely realized, especially given today’s numbers.

For example, the new five percent growth figure is indeed the economy’s best since the 6.90 percent annualized burst achieved in the third quarter of 2003. Look under the hood, though, and you find out that without the second straight good quarter of government spending growth (the best such stretch since the recovery began), the five percent shrinks a bit – to 4.99 percent.

That’s not much of a difference. But look what happens when you repeat the exercise for the last few years:

Overall annualized real GDP growth       Such real growth without government

2Q 14 4.60%                                                                 5.14%

1Q 14 -2.10% (winter!)                                                 -2.41%

4Q 13 3.50%                                                                 5.10%

3Q 13 4.50%                                                                 5.35%

2Q 13 1.80%                                                                 2.11%

1Q 13 2.70%                                                                 4.27%

4Q 12 0.10%                                                                 1.54%

3Q 12 2.50%                                                                 2.43%

2Q 12 1.60%                                                                 2.10%

1Q 12 2.30%                                                                 3.42%

4Q 11 4.60%                                                                 6.01%

And here, perhaps, is the kicker: In that third quarter of 2003, when the economy shot ahead at a 6.90 percent annualized rate, the private sector expanded by … 6.90 percent! There was no public sector growth whatever.

Private sector-led growth can be over-rated, and even dangerous. (See, “Financial Crisis” and “Housing Bubble.”) And the public sector can provide vital fuel, for example in the form of supporting scientific research and building and maintaining infrastructure. But since the private sector is where the big gains in innovation and productivity have always taken place, and will continue to emerge, that’s where the nation’s growth leadership ultimately needs to come from. Combine that with the six years of virtually free money made available to the U.S. economy by the Federal Reserve and global lenders, and the several quarters of real five-plus private sector growth that have come (and gone) during the current recovery, and real lift-off still seems somewhat more distant than the economy bulls have been proclaiming this morning.

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(What’s Left Of) Our Economy

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Our So-Called Foreign Policy

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Im-Politic

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Those Stubborn Facts

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  • Golden Oldies
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  • Housekeeping
  • Im-Politic
  • In the News
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  • Those Stubborn Facts
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The Snide World of Sports

  • (What's Left of) Our Economy
  • Following Up
  • Glad I Didn't Say That!
  • Golden Oldies
  • Guest Posts
  • Housekeeping
  • Housekeeping
  • Im-Politic
  • In the News
  • Making News
  • Our So-Called Foreign Policy
  • The Snide World of Sports
  • Those Stubborn Facts
  • Uncategorized

Guest Posts

  • (What's Left of) Our Economy
  • Following Up
  • Glad I Didn't Say That!
  • Golden Oldies
  • Guest Posts
  • Housekeeping
  • Housekeeping
  • Im-Politic
  • In the News
  • Making News
  • Our So-Called Foreign Policy
  • The Snide World of Sports
  • Those Stubborn Facts
  • Uncategorized

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Current Thoughts on Trade

Terence P. Stewart

Protecting U.S. Workers

Marc to Market

So Much Nonsense Out There, So Little Time....

Alastair Winter

Chief Economist at Daniel Stewart & Co - Trying to make sense of Global Markets, Macroeconomics & Politics

Smaulgld

Real Estate + Economics + Gold + Silver

Reclaim the American Dream

So Much Nonsense Out There, So Little Time....

Mickey Kaus

Kausfiles

David Stockman's Contra Corner

Washington Decoded

So Much Nonsense Out There, So Little Time....

Upon Closer inspection

Keep America At Work

Sober Look

So Much Nonsense Out There, So Little Time....

Credit Writedowns

Finance, Economics and Markets

GubbmintCheese

So Much Nonsense Out There, So Little Time....

VoxEU.org: Recent Articles

So Much Nonsense Out There, So Little Time....

Michael Pettis' CHINA FINANCIAL MARKETS

New Economic Populist

So Much Nonsense Out There, So Little Time....

George Magnus

So Much Nonsense Out There, So Little Time....

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