Im-Politic: In Case You Doubt Biden’s Immigration Plans Will Hammer U.S. Wages

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Biden, Biden border crisis, Breitbart.com, budget reconciliation, chain migration, Council of Economic Advisers, demand, economics, Im-Politic, Immigration, Jobs, labor market, labor shortage, migrants, Neil Munro, supply, wages, workers

We’ve just gotten a bright, flashing sign that, despite some recent stopgap steps (like this and this) obviously meant to convey the impression that the Biden administration hasn’t completely and dangerously lost control of America’s southern border, the President is just as determined as ever to open the floodgates to seemingly unlimited numbers of foreigners.

Worse, the development I’m writing about also makes clear that the President cares not a whit about the likely economic harm his policies will inflict on workers legally in the country at present – too many of whom haven’t exactly been killing it economically for decades now.

That sign consists of a post on the White House’s website by the Chair of the President’s Council of Economic Advisers (CEA) and three other government economists touting “The Economic Benefits of Extending Permanent Legal Status to Unauthorized Immigrants.” Just so we’re totally clear on their intent, in plain English, the title would read, “The Economic Benefits of Giving Amnesty to Illegal Aliens.” And the strength of the administration’s Open Borders ambitions is clearest from the utterly threadbare manner in which the authors deal with a central question: whether amnesty would drive down the wages of workers who live in America legally now.

This question of course is especially salient now because, due to the labor market turmoil generated by the CCP Virus pandemic and resulting behavior changes and official responses, U.S. employers are experiencing problems hiring enough workers, and consequently, these workers are enjoying major new leverage in bargaining for higher wages.

As pointed out in the CEA post, “Permanent legal status is likely to increase the effective labor supply of unauthorized immigrants” and that, “Given that providing legal status to unauthorized immigrants would increase their effective labor supply, critics of legalization argue there could be adverse labor market consequences for native and other immigrant workers.”

Here of course is where you’d expect the highly credentialed experts who wrote this post to respond with reams of evidence (or at least citations of scholarly works), decisively proving that, however commonsensical it seems to conclude that increasing the supply of anything (including labor) all else equal will reduce the supply of that thing, it ain’t so in the case of illegal aliens.

But as initially (at least to me) pointed out by Breitbart.com‘s Neil Munro, nothing of the kind happened. Here’s what the CEA said:

“While there is not a large economics literature on the labor market effects of legalization on other workers, in a well-cited National Academies report on the economic and fiscal impact of immigration, a distinguished group of experts concludes that in the longer run, the effect of immigration on wages overall is very small.”

I could write an entire blog post on what’s jaw-droppingly wrong with this sentence’s methodology. Chiefly, it’s not only an appeal to authority – which logically is an implicit confession that the appealers don’t know much themselves about the subject they’re writing about. It’s an appeal to authorities who themselves don’t seem to know much about their subject, or can’t cite any evidence. Therefore they can only offer an evidently unsupported conclusion.

But what’s most important to me about this CEA point is that it never challenges the wages claim made by those “critics of legalization.” All the authors can counter with is a contention that, at some unknown point, the wage depression resulting from amnesty will become “very small.” That’s some comfort to Americans workers today. And for possibly decades.   

Also crucial to point out is how narrow and thus misleading the post’s analytical framework is. It clearly assumes that amnesty won’t stimulate ever greater inflows of foreign laborers who compete against the domestic worker cohort that exists at any given time – which would include the millions of amnestied illegals. Yet everything known about the impact of looser immigration policies – and even official announcements thereof – demonstrates that they exert a powerful magnet effect on other foreigners. Nor do you need to take my word for it. That’s what many migrants themselves have said about the Biden administration’s approach. (See, e.g., here and here.)

The so-called magnet effect of the Biden roll-back of its predecessor’s immigration policies isn’t the only reason to expect the White House’s current approach to supercharge the supply of American workers. To mention just one example, his immigration reform bill and budget reconciliation bill would ease Trump-era limits on “chain migration” – a policy that enables immigrants into the country legally if a spouse, parent, child, or sibling already lives here legally. Further, once these chain migrants arrive, their own relatives receive the same easy entry. And so on. Special bonus: The restrictions on chain migration-related visas granted for employment reasons will be eased even further.

If a better way to keep a huge share of American workers underpaid (especially those in low-wage portions of the economy, which heavily rely on the kinds of low-skill employees who dominate the illegal alien population), let me know. And of course in the cruelest irony of all, as the CEA post shows, among the leading advocates of these wage-hammering measures are the very liberals and progressives that have for decades claimed to be champions of Americans left behind. 

(What’s Left of) Our Economy: Will Government Keep (Indirectly) Driving U.S. Job Creation?

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Employment, healthcare, Jobs, Labor Department, Occupational Outlook Handbook, private sector, social assistance, subsidized private sector, {What's Left of) Our Economy

Predicting almost anything about the economy ten years or so out is a pretty risky business – which is why I rarely make such forecasts and don’t obsessively follow those made by others. But for many years, I’ve been tracking the growth of what I call the subsidized private sector in the U.S. employment picture. And the U.S. government just came out with a study taking the story out to 2030. So my curiosity was piqued, and because the ever greater importance of such employment speaks volumes about the strengths and weaknesses of the American economy, its workers, and their prospects, I hope yours will be, too.

The big takeaway? According to the U.S. Labor Department’s new Occupational Outlook Handbook, jobs in the healthcare and social assistance sectors will keep rising through the end of the decade as a share of all U.S. jobs – and this shouldn’t be seen as good news.

As I’ve pointed out repeatedly (e.g., here), this isn’t to say that healthcare or social assistance aren’t important for any number of reasons that should be obvious. Economically speaking, however, they’re problematic for two related reasons. First, although they’re technically classified as private sector jobs, their employment levels are largely determined by decisions made by politicians to provide funding, not market forces.

And that funding – or subsidization – is massive. A think tank called the Tax Policy Center pegged federal spending on healthcare alone (by far the biggest industry in the subsidized private sector) at $1.2 trillion in fiscal year 2019. A related research organization, the Urban Institute, reported that state and local governments poured $301 billion into health and hospitals during the previous fiscal year. (That’s the latest such data I could find.) If the state and local figure stayed the same in 2019, this public spending would have added up to just over seven percent of the entire U.S. economy and more than 40 percent of all government outlays that year.

The second reason to be concerned about outsized job growth in this subsidized private sector is that typically, the real private sector is the economy’s main source of innovation and productivity growth, which in turn area major foundations of sustainable prosperity – and therefore of the ability to pay for government in a financially responsible way, as opposed to more and more borrowing. A subsidized private sector punching above its job-creation weight is a sign that the real private sector’s economic role is shrinking in relative terms.

And the Occupational Outlook Handbook says that these trends will continue through 2030. Specifically, whereas other Labor Department data show that subsidized private sector jobs accounted for 16.11 percent of all U.S. non-farm jobs (the Labor Department’s definition of the American employment universe, which includes government jobs at all levels as such) in February, 2020 (just before the CCP Virus pandemic arrived in force), the Handbook‘s figures indicate that this figure will rise to 16.86 percent by the end of the decade.

In addition, subsidized private sector jobs will have climbed from 18.94 percent of all real private sector jobs in February, 2020 to 19.80 percent in 2030.

For some perspective, in June, 2009 (the end of the Great Recession that followed the global financial crisis), the subsidized private sector represented only 14.97 percent of jobs in the non-farm sector and 18.09 percent of those in the real private sector.

Conseqently, it should be no surprise that the Handbook‘s projections indicate that real private sector jobs will have fallen from 68.92 percent of all non-farm jobs in February, 2020 to 68.29 percent.

These shifts may look like small beans. But economies and workforces as massive as America’s don’t change much overnight (unless they’re hit by an outside shock like the pandemic). Also, the Labor Department could be wrong, even if the next few years are relatively tranquil. Yet its predictions track well with recent (pre-CCP Virus) trends.

So even though I haven’t been monitoring subsidized private employment developments during the virus period (because like pretty much all other economic statistics, they’ve been so distorted), I’ll resume checking them periodically again and hoping the trend lines start moving in different directions.

(What’s Left of) Our Economy: U.S. Manufacturing Hiring’s Sloughing Off Delta – For Now

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aerospace, aircraft, aircraft engines, aircraft parts, appliances, automotive, Boeing, CCP Virus, China, coronavirus, COVID 19, Delta variant, electrical equipment, Employment, fabricated metal products, food products, healthcare goods, Jobs, logistics, machinery, manufacturing, medical equipment, metals, non-farm payrolls, pharmaceuticals, plastics and rubber products, PPE, private sector, semiconductor shortage, supply chains, tariffs, transportation, vaccines, {What's Left of) Our Economy

This morning’s official monthly U.S. jobs report (for August) brought a notable departure from recent trends. Athough the overall results were lousy (as total employment rose by just 235,000 during the month), manufacturing hiring soared by 37,000.

It’s true that nearly two-thirds of these gains (24,100) came from the automotive sector, which has been roiled recently by a shortage of semiconductors that’s wreaked havoc on the output of today’s increasingly electronics-stuffed vehicles. It’s also true that this progress might be snuffed out soon by the still widening spread of the CCP Virus’ highly infectious Delta variant and whatever new curbs on economic activity and consumer behavior it might keep prompting.

But it’s also true that domestic industry’s strong hiring in August came during a month when Delta had already become front-page news – which surely expains much of the much-weaker-than expected rise last month in overall non-farm payrolls (NFP – the U.S. jobs universe of the Labor Department that produces the employment data).

And it’s true as well that the major upward revision revealed to the July manufacturing jobs increase (all the way from 27,000 to 52,000 – the best such performance since last August’s 55,000) entailed much more than the vehicles and parts sectors (where the hiring advance was judged to be 10,500 instead of merely 800).

For example, July’s machinery jobs gains were upgraded from 6,800 to 9,100 (its strongest monthly result since last September’s 12,200); those for electrical equipment and appliances was estimated at 1,500 instead of 200; and employment in the plastics and rubber sectors was pegged at 2,300, not 300.

Despite its last excellent two months, U.S.-based manufacturing remained a job-creation laggard during the pandemic period as of August. But it became less of a laggard. Since the deep CCP Virus- and lockdowns-induced downturn of March and April, 2020, when manufacturers shed 1.385 million jobs, these companies have boosted employment by 1.007 million – erasing 72.71 percent of those losses. That share of regained jobs is up from the 68.74 percent level it reached in July.

That’s faster improvement than registered by the private sector, whose regained job percentage rose from 76.96 to 78.72, and by the total non-farm economy, where the advance rose from 74.50 percent to 76.60 percent.

Moreover, it’s important to remember that during the economy’s spring, 2020 woes, manufacturing employment suffered less than payrolls in the rest of the economy. Its job levels fell by 10.82 percent, compared with 16.46 percent for the private sector and 14.66 for the entire non-farm economy.

As with the July revisions, the list of significant manufacturing employment winners in August was hardly confined to the automotive industry. Among the major industry categories used by the U.S. government, fabricated metal products payrolls increased by 6,600 on month (the highest sequential boost since March’s 10,100); plastics and rubber products by 3,100 (its best such performance since February’s 4,500); and food manufacturing (1.600).

The biggest July jobs losers were electrical equipment and appliances (down 3,100, for its worst hiring month since January, when its payrolls fell by 3,400) and miscellaneous durable goods (a category containing personal protective equipment – PPE – and other medical supplies crucial for fighting the CCP Virus), whose 1,800 jobs lost were the worst such total since the entire economy’s spring, 2020 meltdown.

Also somewhat discouraging – job creation in the machinery sector, whose products are used elsewhere in manufacturing and throughout the rest of the economy, flatlined in August following its big 9,100 July spike.

The most detailed employment data for pandemic-related industries is one month behind those in the broader categories, but their July job-creation performance was decidedly mixed. In surgical appliances and supplies (the sector containing PPE and similar goods), May’s previously reported payroll decline of 900 is now judged to be a drop of 1,900, but June’s 500 jobs increase remained intact and was followed by an identical improvement in July. As a result, employment in this crucial national health security sector is now 9.22 percent above immediate pre-pandemic levels.

The overall pharmaceuticals and medicines industry saw hiring slow down notably in July – from a downwardly revised 2,300 in June to 400. May’s downwardly revised loss of 300 jobs stayed intact. These changes left payrolls in the sector 4.72 percent above February, 2020’s immediate pre-pandemic levels.

The story was little better in the pharmaceuticals subsector containing.vaccines. Its May and June employment gains are still judged to be 1,000 each, and no jobs at all were added in July. But its workforce is still 10.21 percent higher than just before the pandemic.

The July results showed that aircraft industry employment is still on a roller coaster, since Boeing is still struggling to overcome the manufacturing and safety issues it’s faced in recent years, along with the CCP Virus-related slump in business and leisure travel. May’s 5,500 monthly plunge in employment was unrevised in this morning’s figures, June’s 4,500 increase was upgraded to 4,700, but payrolls retreated again in July – by 1,500. Due to all these fluctuations, aircraft employment fell to 8.08 percent below its levels just before the pandemic arrived in force in the United States.

The aircraft engines and parts industries added 200 employees on month in July, but June’s previously reported increase of 500 was downgraded to 400. As a result, payrolls are down fully 14.80 percent since immediate pre-pandemic February, 2020.

It’s still possible that the Delta, or some other, CCP Virus variant will lower the boom on domestic manufacturing employment going forward – both because economic activity and therefore demand for manufactured goods will stagnate or drop not only in the United States, but in industry’s important foreign markets. Supply chain snags are no sure bet to clear up any time soon, either.

Nonetheless, U.S.-based manufacturing is still clearly benefiting from the Trump tariffs continued by President Biden that are pricing huge amounts of metals and Chinese-made goods out of the domestic market. Vast amounts of economic stimulus are still pouring into the American and foreign economies. And there remains tremendous pent-up demand among U.S. consumers and businesses alike, due to the lofty heights that household savings have reached and to clogged logistics systems. (A “hard” infrastructure bill will help U.S.-based manufacturers, too. But despite efforts to speed up the permitting process, regulations that can long delay the launch of new projects still may mean that the much of the new work will take months and even years before they’re “shovel ready.”)

And as I keep pointing out, those with the most skin in this game – domestic manufacturers themselves – keep professing optimism. (See, e.g., here and here.) That last consideration still tilts the balance toward manufacturing bullishness for me.

(What’s Left of) Our Economy: Blaming Extra Unemployment Benefits for U.S. Labor Shortages Just Got a Lot Harder

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CCP Virus, coronavirus, COVID 19, Employment, Jobs, labor markets, labor shortages, recession, unemployment, unemployment benefits, workers, {What's Left of) Our Economy

If you’ve been following the economic news for the last few months, you know that one of the most heated policy debates that’s broken out concerns the impact of the supplemental federal unemployment claims that America’s jobless became eligible for due to the CCP Virus- and lockdowns-induced recession and its continuing aftermath.

Specifically, opponents of these payments – which will end for all states on September 6 (unless they don’t?) – charge that they’ve needlessly enabled many workers to avoid or delay returning to businesses, and thereby greatly worsened labor shortages reported by so many employers. Supporters insist that they’ve been a minor contributor, and that the shortages stem from many more important factors, like ongoing health concerns or childcare issues or the apparent decision of many Baby Boomers and near-Boomers that the pandemic created a convenient time to retire.

I’ve believed for months that the biggest truth has been “all of the above,” but have been frustrated by the lack of statistics that could at least start providing reasonably convincing answers. And unfortunately, this post’s appearance doesn’t mean that terrific data has been found. But what I’ve gone over in the last few days seems reasonably informative, and what it tells me is that the extra federal benefits haven’t been a significant deal at all in the U.S. jobs picture.

What I did was compare four indicators of employment for the states that announced that they’d stop paying those extra benefits by the end of June (along with Louisiana, which announced a July 31 cutoff) and for the states that have decided to continue them as long as Washington was sending the funds. The indicators are unemployment rates, numbers of people employed, first-time jobless claims filed, and levels of continuing jobless claims. And recent Labor Department reports make possible comparing the unemployment rates between June and July, and both sets of claims numbers between the week ending June 26 and the week ending July 24. So they should provide some information on whether the announcement of imminent cutoffs led the jobless to secure reemployment faster.

These data can’t provide definitive answers for numerous reasons. For example, as this article makes clear, the $300 extra federal benefits on which I concentrated haven’t been the only extra benefits provided during the pandemic, and even six of the “early cutoff” states have continued to provide some combination of the others. In addition, two of the early cutoff states have been under court orders to continue the benefits (Indiana and Maryland), and lawsuits are pending in three others (Ohio, Oklahoma, and Texas.) Moreover, state benefit levels vary tremendously, both in terms of payment amounts and eligibility periods. So depending on where they live, unemployed Americans could have lost various extended benefits and still received benefits from their state governments (for varying timeframes) generous enough to affect their need or desire to return to work.

But what follows is a pretty good start to the search for answers. And analysts do get one break: The states plus Puerto Rico and the District of Columbia to be examined divide evenly into two groups of 26.

First, the jobless rate comparisons. As widely known, these aren’t perfect measures of the national employment situation because they leave out big categories of distressed workers like those too discouraged to even search for a job, and those employed part-time because they have no other choice. And as suggested above, they shed no light on changes in the numbers of retirees.

Be that as it may, of the 26 cutoff states, between June and July, unemployment rates fell in 19, rose in three, and held steady in four. And of the twenty cutoff states where no litigation was either affecting payment policies or coming down the pike, and excluding tardy Louisiana, jobless rates fell in 16, rose in two, and remained unchanged in two.

How does that compare with the unemployment rates in the non-cutoff states? They fell in 18 of the 26 states between June and July, rose in four, and held steady in four. So I don’t see a big difference there.

Turning to employment levels, of the 26 total cutoff states, from June to July, they rose in 23 and fell in three. Of the twenty facing no litigation issues and, again, also excepting Louisiana, employment levels rose in 19 and fell in one. Those results actually slightly lag the performance of the non-cutoff states, where employment levels rose in 25 of the 26 between June and July.

It’s much the same story for initial jobless claims from the week ending June 26 and the week ending July 24. For the 26 total cutoff states, initial claims between these two weeks rose in six and fell in 20. Of the 20 facing no legal issues, and excepting Louisiana, claims rose in five and fell in 15.

That’s almost identical to the results for the non-cutoff states, where initial claims between those two weeks rose in five states and fell in 21. In fact, a slight edge goes to these states on this score, too.

Finally, for continuing claims, in the 26 total cutoff states, these fell in 21 and rose in five between the weeks in question. And of the 20 with no litigation existing or pending, and excluding tardy Louisiana, continuing claims fell in 15 and rose in five.

In this group of 26, 22 saw continuing claims fall and four saw the rise.

Again, I’m not contending that these numbers are definitive. More detailed analysis accounting for more of the aforementioned differences among states would help a lot. Nor do I doubt that labor shortages have emerged in some parts of the economy. But if there’s proof out there that the extended unemployment benefits had much impact, it hasn’t emerged yet – and let’s hope it emerges before the economy runs aground for an extended period again.  

Making News: Back on National Radio on Headline Economic Issues

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infrastructure, Jobs, Making News, manufacturing, Market Wrap with Moe Ansari, productivity, tariffs, Trade

Sorry this is a little late, but I’m pleased to announce that I appeared on Tuesday, August 3, on Moe Ansari’s nationally syndicated “Market Wrap” radio program.

Click here and scroll down till you see my name for the podcast of the segment –  which dealt with leading economic issues ranging from the latest developments in U.S. trade policy to the health of our domestic manufacturing base to the prospects for major new federal infrastructure spending and what kind of boost it may give to the nation’s growth rate, its job creation, and its productivity.

The interview begins at about the 21:40 mark of the August 3 program.

And keep checking in with RealityChek for news of upcoming media appearances and other developments

(What’s Left of) Our Economy: The Revisions Outshone the New U.S. Manufacturing Jobs Gains

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aircraft, aircraft engines, aircraft parts, appliances, automotive, Boeing, CCP Virus, China, coronavirus, COVID 19, Delta variant, electrical equipment, Employment, fabricated metals products, Jobs, Labor Department, machinery, manufacturing, medicines, metals, miscellaneous durable goods, NFP, non-farm payrolls, personal protective equipment, pharmaceuticals, PPE, recovery, tariffs, Trade, vaccines, Wuhan virus, {What's Left of) Our Economy

Although U.S. manufacturers grew their payrolls by a solid net 27,000 in July, according to the Labor Department’s new jobs report for the month, the big story for industry lies in the June revisions. As often the case during the CCP Virus era, moreover, these were dominated by the automotive sector.

Specifically, June’s initially reported monthly 15,000 manufacturing jobs increase was boosted all the way up to 39,000. And the automotive numbers for June executed a stunning turnabout – from an estimated loss of 12,300 to a gain of 2,700. By contrast, net hiring in the vehicles and parts sectors for July was a quiet 800.

The May manufacturing employment revisions were less dramatic – from an increase 39,000 to one of 36,000. But that month had already witnessed its own huge revision – from an initially reported 23,000 to that 39,000.

Outside automotive, the June revisions were widespread through manufacturing, led by electrical equipment and appliances, whose employment increase that month was upgraded from 1,700 to 3,600. (Its July net job creation was a mere 200.)

Even with the strong revisions, though, manufacturing’s recent status as a U.S. recovery employment laggard continued. As of July, domestic industry had regained 952,000 (68.74 percent) of the 1.385 million net jobs lost in March and April of 2020. The numbers for the private sector overall are 76.96 percent of the 21.353 million lost jobs that have been recovered, and for the total non-farm economy (the definition of the American employment universe used by the U.S. government, which includes government jobs) 74.50 percent of the 22.362 million jobs lost.

One reason, of course, is that manufacturing employment suffered less than payrolls in the rest of the economy in the early spring of 2020. Its job levels fell by 10.82 percent, compared with 16.46 percent for the private sector and 14.66 for the entire non-farm economy.

At the same time, U.S.-based industry is still benefiting from stiff tariffs on metals and goods from China, and like the entire economy, is being supported by massive government stimulus along with skyrocketing vaccine production. This puzzle may be explained by the bottlenecks and resulting shortages plaguing all industries, and by the introduction of labor-saving equipment and other restructuring to substitute for the workers so many manufacturers claim are so hard to find. But as I wrote in last month’s examination of the June jobs report, I’m not completely convinced yet by either explanation.

The biggest July manufacturing employment winners by far of the major industry categories used by the U.S. government were machinery (6,800), miscellaneous durable goods (5,500), and fabricated metals products (4,500).

The performance of the first two is especially encouraging, since machinery’s products are used so widely throughout the entire economy (and since robust hiring therefore signals widespread overall strength and healthy capital spending); and since miscellaneous durable goods includes the personal protective equipment (PPE) and other medical supplies whose importance has been underscored by the pandemic.

Indeed, as a result of their July jobs gains, machinery employment has risen to within 3.30 percent of its immediate pre-pandemic level (in February, 2020), and the comparable figure for miscellaneous durable goods is 1.09 percent higher. (More on the performance of its PPE-including category will be presented below.) Both figures are better than that for manufacturing overall, whose payrolls are still 3.38 percent lower than just before the CCP Virus began significantly affecting the economy.

The only July manufacturing jobs losers suffered overwhelmingly fractional sequential setbacks, led by transportation equipment overall (the category containing automotive, where employment sank by 1,500) and semiconductors and electronic components, where global shortages undoubtedly had much to do with its job loss of 800.

Returning to the pandemic-related industries, where the data are one month behind, the picture in surgical appliances and supplies (the sector containing PPE) is dominated by a big downgrade in the May numbers – from a gain of 1,700 to a loss of 900. And in June, 500 more positions were shed. As a result, employment in this crucial national health security sector has fallen to 7.60 percent above immediate pre-pandemic levels.

In the overall pharmaceuticals and medicines industry, a slightly upgrade of May’s originally reported 400 job loss (to a drop of 300) was followed by a June rise of 2,700 – the biggest monthly advance since September, 2019’s 3,500 (well before the CCP Virus arrived). Its employment levels have consequently climbed to 4.72 percent above their February, 2020 figure.

The pharmaceuticals subsector containing vaccines showed continued good job growth, with May’s unrevised 1,000 improvement followed by an identical June increase. This industry now employs 10.20 percent more workers than just before the pandemic.

Aircraft employment levels have fluctuated wildly recently, due surely to the constant barrage of news both good and bad about Boeing. May’s 5,500 job plunge – the worst such performance since June, 2020’s 5,800 shrinkage – was followed by a June gain of 4,500. That’s its best hiring month since the same number of workers was added in July, 2012. But aircraft employment is still 7.55 percent less than in February, 2020, when the pandemic’s spread globally decimated air travel worldwide. On a more positive note, however, Boeing seems to believe the worst is over.

Aircraft engines and parts employment has been much more stable than aircraft’s, and these industries added 500 workers in total in June. But their payrolls are 14.91 percent smaller than in February, 2020 – nearly twice as big a proportional drop as in aircraft.

What’s next for domestic manufacturing employment? Last month I saw plenty of sources of uncertainty, ranging from bottlenecks to the infrastructure legislation to China tariff policy. Now there’s the virus’ hyper-contagious (but so far less harmful) Delta variant to contend with, and all the resumed lockdowns and other economic activity restrictions it could portend – along with the related likelihood of continued strong and even greater vaccine demand (though the sector isn’t big enough to move the national manufacturing jobs needle much).

I’m still most impressed by how all the national and regional surveys keep showing that manufacturers themselves see a still-brightening future ahead. (See, e.g., here and here.) After all, they’re the ones with skin in the game. Let’s hope they’re right. 

(What’s Left of) Our Economy: A “Gentleman’s C” for the New Manufacturing Jobs Numbers

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aircraft, aircraft engines, aircraft parts, automotive, Boeing, CCP Virus, electronics, Employment, fabricated metals products, facemasks, food products, furniture, housing, Jobs, Labor Department, manufacturing, masks, metals, pharmaceuticals, ports, PPE, printing, productivity, protective gear, recession, recovery, reopening, semiconductor shortage, tariffs, vaccines, {What's Left of) Our Economy

June’s gains weren’t nearly enough to overcome the latest trend in U.S. manufacturing employment: From a job growth leader earlier during the CCP Virus pandemic, domestic industry has turned into a laggard. It’s not lagging by a big margin, but given significant net headwinds it should still be enjoying, recent results are clearly disappointing.

This morning, the Labor Department reported that U.S.-based manufacturers created 15,000 net new jobs in June – a modest number given the 662,000 increase in total private sector employment on month. At least revisions were positive. May’s initially reported 23,000 monthly improvement is now judged to be 39,000, but April’s already downwardly revised 32,000 sequential job loss is now pegged at 35,000.

In many of the nation’s supposedly prestige colleges, the grade earned by this kind of result would be called a “Gentleman’s C.”

As a result, domestic manufacturing has now regained 904,000 (66.32 percent) of the 1.363 million jobs lost during the pandemic. The numbers for the private sector overall are 72.98 percent of the 21.353 million lost jobs that have been recovered, and for the total non-farm economy (the definition of the American employment universe used by the U.S. government, which includes government jobs) 69.75 percent of the 22.362 million jobs lost.

A manufacturing optimist (and I’ve been one of them) can note that industry took less of an employment hit during the pandemic-loss months of March and April, 2020. Manufacturing employment sank by 10.65 percent, versus 16.46 percent for the private sector and 14.66 percent for the whole non-farm economy.

But nowadays, domestic manufacturers are still benefiting from major tariffs plus massive government stimulus on both the fiscal and monetary fronts, and from the huge ramp up in vaccine production. Reopening-related bottlenecks clearly are causing problems, but according to the major national surveys that measure how manufacturers themselves believe they’re faring, production and new orders for their products keep growing strongly. (For the newest ones, see here and here.) Even given equally widespread reports that new workers are hard to find, I expected hiring to remain much more robust than it has.

One explanation may be higher productivity, which enables businesses to turn out more goods with fewer workers. But given the longstanding difficulties of gauging this measure of efficiency, and undoubted pandemic-era distortions, I’m reluctant to put too much stock in this argument.

The shortages issues have been once again illustrated by the dominance of the automotive sector in the June manufacturing jobs picture. Payrolls of vehicles and parts companies fell by 12,300 – the biggest individual sector decreases by far – and surely stem from the continuing global shortage of the computer chips that have become ever more important parts of cars and trucks of all kinds.

One small bright spot in the June figures – the 300 jobs increase in the machinery sector. It’s an important indicator of the overall state of industrial hiring, since its products are used throughout industry (as well as in non-manufacturing sectors like agriculture and construction). At the same time, these new positions represented machinery’s weakest sequential performance since January’s 3,200 employment decrease.

Other big June manufacturing net hiring winners were furniture and related products (up 8,500, no doubt reflecting still strong home sales and remodeling activity), fabricated metals products (up 5,700, which is noteworthy given still widespread whining about the ongoing U.S. tariffs on metals), and miscellaneous durable goods manufacturing (up 3,300 – encouraging since this category includes many pandemic-related medical supplies).

The biggest losers other than automotive were food products (down 4,100 and continuing an employment slump that began in January), electronic instruments (down 2,100 and possibly related to the semiconductor shortage), and printing and related activities (down 1,400).

Pandemic-related industries turned in a mixed hiring performance, according to the latest jobs report. Job creation accelerated significantly in the surgical appliances and supply sector, which contains protective gear like face masks, gloves and surgical goans. Its payrolls grew by 1,700 on month in May (its data are one month behind, as is the case with the other sectors examined below), up from April’s 1,200 and its best monthly total since last July’s 3,000. This surgical category’s workforce is now 11.50 percent bigger than in February, 2020 – the last pre-pandemic month.

But the May figures revealed a job creation setback in the overall pharmaceuticals and medicines industry. April’s hiring was revised down slightly, from 2,700 to 2,500, but the number was still solid. In May, however, its payrolls shrank by 400, its worst such performance since pandemicky April, 2020. And its workforce is only 3.82 percent greater than in February, 2020.

Better news came out of the pharmaceuticals subsector containing vaccines, but not that much better. This industry added one thousand workers on net in May, but April’s initially reported 1,300 jobs increase was revised down to 1,100. Still, this vaccines-heavy sector now employs 9.20 percent more workers than just before the pandemic.

And in aircraft, Boeing’s continuing manufacturing and safety issues surely helped produce this industry’s worst jobs month – consisting of a 5,500 payroll decrease – since June, 2020’s 5,800. This sector has now lost 9.39 percent of its jobs since the final pre-pandemic month.

Interestingly, the aircraft engines and parts, and non-engine parts categories weren’t nearly as hard-hit job-wise in May. (The former even maintained employment levels.) But payrolls in each are down since February, 2020, by roughly twice as much proportionately as in aircraft.

Major uncertainties still hang over the domestic manufacturing jobs scene, and in one important respect – big new backups in Chinese ports – they’ve become murkier. Nor do Boeing’s problems seem ready to end any time soon. I’m still bullish on U.S.-based manufacturing’s employment outlook, at least in the short and medium terms mainly because American policy remains so overwhelmingly stimulative and its effects are still coursing through the economy. But I’m getting a little impatient for the numbers to start backing me up once again.

Making News: Back on National Radio…& More!

Tags

Airbus, Biden, Biden border crisis, Boeing, Central America, China, Dominic Gates, G7 Summit, Gordon Chang, Immigration, IndustryToday.com, Iran nuclear deal, JCPOA, Jobs, Making News, Market Wrap, migrants, Moe Ansari, Seattle Times, The Epoch Times, The Hill, Trade, trade policy, wage inflation, wages

Time to catch up with the updates on recent media appearances – in reverse chronological order!

It was great to return this past Wednesday to Moe Ansari’s nationally syndicated “Market Wrap” radio program. Click here for the podcast of an exceptionally wide-ranging segment covering topics from the recent summit meeting of the world’s leading economies to the future of the Iran nuclear deal.

On June 16, leading China policy analyst Gordon Chang quoted me in an op-ed for The Epoch Times explaining how some features of President Biden’s economic proposals might backfire and promote employment in China, not the United States. Here’s the link.

On June 15, the Seattle Times‘ Dominic Gates featured my views in his coverage of the recent settlement of a long-running trade dispute between Europe’s Airbus and America’s Boeing. Incidentally, if there’s a U.S. journalist more knowledgeable than Dominic about the aerospace industry, I’ve never met him or her. So it was especially flattering that he sought out my perspective. Click here to read. In addition, the article was widely distributed throughout the country via the Tribune News Service syndicate.

On June 10, Chang again highlighted some of my opinions – this time in an op-ed for The Hill some of my thoughts on using U.S. trade policy more effectively to help foster prosperity in Central America and thereby stem the flow of migrants, and why previous such efforts have failed. Here’s the link.

Finally, on June 2, IndustryToday.com re-posted (with permission!) my RealityChek essay arguing that, despite numerous alarm bells, wage inflation overall in the United States seems pretty unexceptional. Click here to read.

And keep checking in with RealityChek for news of upcoming media appearances and other developments.

(What’s Left of) Our Economy: Can the U.S. Really Eliminate All Its Lousy Jobs?

Tags

automation, CCP Virus, coronavirus, COVID 19, Daniel Alpert, elder care, Ezra Klein, hospitality, hotels, Jobs, low-wage jobs, productivity, restaurants, seniors, technology, The New York Times, wages, workers, Wuhan virus, {What's Left of) Our Economy

Over the last month, two noted and anything-but-radical economics commentators have voiced an idea that’s really radical. How radical? It could produce much more fundamental change in the U.S. economy than any actual or even potential effects of the CCP Virus if its policy implications (which they may not be fully aware of) are acted on.

The idea is that the pre-virus economy (they didn’t specify for how long, but there’s no reason to believe the development began recently) was highly dependent on creating huge numbers of crappy, dead end, low-wage jobs, and that a combination of labor cost-boosting factors – like worker shortages created largely by sudden economic reopening, higher minimum wage requirements, and mandates for businesses to adopt more family-friendly practices – is bringing that era to an end.

The implications: Enormous numbers of the companies and even critical masses of entire industries relying on such jobs may go under, and that nothing should be done to restore the previous status quo because in economic terms (which are also reflecting the public’s non-economic preferences) those exploitative business models are simply becoming thoroughly uncompetitive.

In other words, especially in sectors like restaurants, retail, hospitality, and elder care, where the quality of personal service is valued by customers (not that they always get the quality they want), many and even most employers simply may find significantly higher labor costs unaffordable. And many may not be able to persuade enough customers to pay the higher prices they’d need to charge to stay afloat. So they wouldn’t – and good riddance.

The analyst who first led me to these thoughts was Daniel Alpert, a Cornell University Law School fellow, economist, and Wall Street investor. In a June 1 New York Times op-ed article, he argued that:

“The chronic problem we face as we put Covid-19 in the rearview mirror is that the U.S. economy before the pandemic was incredibly dependent on an abundance of low-wage, low-hours jobs. It was a combo that yielded low prices for comfortably middle-class and wealthier customers and low labor costs for bosses, but spectacularly low incomes for tens of millions of others.”

Less than two weeks later, The Times published another article, by columnist Ezra Klein, that similarly contended:

“The American economy runs on poverty, or at least the constant threat of it. Americans like their goods cheap and their services plentiful and the two of them, together, require a sprawling labor force willing to work tough jobs at crummy wages….We discuss the poor as a pity or a blight, but we rarely admit that America’s high rate of poverty is a policy choice, and there are reasons we choose it over and over again.”

Klein also wrote about some of the likely tradeoffs of mandates that created higher labor costs: “[S]ome small businesses would shutter if they had to pay their workers more. There are services many of us enjoy now that would become rarer or costlier if workers had more bargaining power.” But this prediction seems greatly to low ball the downsides and the collateral damage.

For example, according to this normally reliable source, the number of restaurants in the United States numbered about 660,000 in 2018. That’s more than 18 percent of all the 3,618,550 businesses with more than five employees that the Census Bureau says existed in the United States as of 2019 (the last pre-pandemic year). Since some dining establishments are very small and employ between one and five staff, the percentage of all U.S. businesses that are restaurants is probably somewhat lower. And surely not all of these would close their doors if labor costs rose meaningfully. But it should be obvious that lots of nationwide economic disruption would surely result.

As I’ve repeatedly written, (e.g., here) there’s an alternative to employers offsetting these higher labor costs. Rather than raise their prices significantly (a tactic that may not accomplish all or most of is goal), they could increase productivity. After all, many of these labor-intensive industries are labor-intensive because they’ve been such laggards on the productivity front. For example, between 1987 (the first year such data are available) and 2019 (the last pre-pandemic year), overall labor productivity in U.S. businesses outside the financial sector grew by 71.74 percent, in non-casino hotels and motels by just 51.33 percent, and in restaurants and other eating places, a mere 18.34 percent. And as known by RealityChek regulars, this period hasn’t exactly been a bang-up time for U.S. productivity growth.

There’s no doubt that more automation in particular would wind up displacing jobs – which certainly wouldn’t leave many workers better off on net. It’s entirely possible, though, that even greater net national employment opportunities could be created by these more efficient companies’ greater ability to service more customers affordably, thereby spurring the need to hire to staff expanded operations in other capacities. And in theory, anyway, more automation and use of new technologies could create entire new industries – and impressive employment opportunities. That’s certainly been the case with the internet. But there’s a big rub: Not all the displaced workers might possess the skills or other qualifications to handle any of these new positions.

Moreover, as suggested by my reference to the quality of service, for non-economic reasons, boosting productivity may not be enough to save many of these businesses. For many customers might be turned off by the prospect of dealing with machines rather than courteous and personable human beings, and decide not to patronize these businesses even if automation etc restored affordability.

And in fields such a elder care, it’s doubtful that machines could safely replace humans in quality terms for many years – and that seniors and their family members would find them acceptable on any grounds for many more years. Given America’s aging population, that of course portends a problem transcending economics. One way out: Much greater government subsidies for elder care businesses, or even outright nationalization of this sector. But don’t expect such proposals to uncontroversial.

Another possible way out of this dilemma for business owners generally in low-pay sectors where wages are surging is to accept much lower profits. But any industries that experience such a shift seem doomed to stagnation and even gradual extinction. For how many would want to invest their capital and effort in sectors where the best or even likeliest possible return is scraping by?

The cumulative effect of all these developments on society, as opposed to the economy, wouldn’t be trivial, either. For example, before the CCP Virus’ arrival, dining out and taking out in particular had surged in popularity in the United States for decades. One indication: “In 1955, 25 cents of every $1 spent on food went to restaurants. Today, it’s more than half.” One reason of course is the rise of the two-income household, and the resulting decrease in hours available for food preparation.

In addition, though, as more Americans patronized dine-in restaurants in particular, more surely came to value their particular pleasures. Could they find an adequate substitute if they needed to? And how would such a shift change the rest of their home and work lives? As for society itself, what would the impact be of the disappearance or great scaling back of one major form of communal activity?

The situation is potentially even more dire for the nation’s bars. Between 1987 and 2019, their labor productivity actually plunged by 14.50 percent. Will elevated labor costs spell the end, at least in America, of an institution that’s been around and central to human life for…how many centuries? Millennia? Or will customers get used to robot bar-tenders?

The answers to all the questions posed here are definitely above my pay grade. But something I do know: Despite the pressing need to improve the earnings and lives of low-wage workers, some significant and possibly unprecedented tradeoffs will emerge. And it will be far from easy to make sure that a genuinely New Normal is better on net for these workers and the country at large than the Old.

(What’s Left of) Our Economy: Progress!

Tags

American Affairs, antitrust, Barack Obama, competition, Financial Times, free trade, Jobs, John Maynard Keynes, Martin Wolf, production, Project Syndicate, Robert Skidelsky, stimulus, stimulus package, tariffs, The New York Times, Trade, trade deficit, {What's Left of) Our Economy

I hope you’ll all forgive me for an exercise in self back-patting that (I hope) you’ll read through the end. But the two instances described here of leading economics commentators expressing support for highly unconventional trade policy positions I’ve taken for years are simply too striking to pass up. Even more eye-opening: They appeared within a week of each other!

In chronological order, the first came courtesy of Martin Wolf, the Financial Times columnist who’s more-than-the-average pundit because he boasts both considerable policymaking experience and serious academic chops. As those two bios make clear, he’s also been a strong (though not completely uncritical) supporter of the standard free trade and globalization policies that decisively shaped the entire world economy, including America’s positions, for decades until the CCP Virus’ breakout. (Or did the turning point come with the financial crisis of 2007-08? Oh, well – no need to settle that question right now.)

That’s why I was so amazed to see in his column this past Tuesday the observation that the United States “gains many of the benefits of trade through internal specialisation” essentially because it’s “a large country with a sophisticated economy and diverse resources….”

Wolf’s point may not sound like much. But it not only contradicts the long-standing conventional wisdom – and rationale for supporting the freest possible global trade flows – that emphasizes (1) the centrality of international specialization for maximizing the prosperity of all individual countries and indeed the entire world, and (2) the imperative of exposing national economic activity to global competition in order to force domestic industries continually to improve quality and lower costs.

Wolf has also echoed (unwittingly, no doubt) my own argument that, whatever the validity of these ideas for most countries, there’s no reason for Americans to place any special value on them.

The reason? As I explained in an article in the Summer, 2019 issue of the journal American Affairs, the greatest possible degree of international specialization is advantageous and even crucial for the prosperity of most individual countries because they lack the ability to provide for a critical mass of their essential needs at affordable cost, let alone generate progress.

Any number of reasons or combination of reasons could be responsible. They might lack vital raw materials. Even if they’re wealthy and/or technologically advanced, their domestic market alone might be too small for most forms of economic activity aside from subsistence farming to achieve the scale needed for efficient and therefore relatively low-cost production. Alternatively, this domestic market could be inadequate because most of their people are too poor to be satisfactory customers.

In addition, because they’re so small, inadequate domestic markets have been considered incapable of generating enough competitive pressure needed to force their own producers to keep improving quality, innovating, and to maintain reasonable prices.

Conventional trade thinking has held that these problems could be overcome by individual countries (1) focusing on turning out the goods and services they could provide most efficiently (interestingly, whether in world-leading fashion or not), and (2) selling them where they were in greatest demand (because of other countries’ shortcomings) in exchange for what they themselves required.

Even better, such free trade would continually maximize the efficiency, and therefore the wealth, of all countries, as well as create the conditions for sustainable progress by requiring efforts to enter new, more promising industries to meet global competitive standards.

My own article, however, emphasized that the United States isn’t like most other countries. In fact, it’s uniquely blessed with both the size, the variety of resources, and the economic and social dynamism to supply nearly all its needs and wants from within. In the words of that 1980s inspirational song, in economic term, the United States “is the world.’

As a result, Americans have no inherent need to keep their home markets open, or open them wider, in order to secure adequate supplies of goods and services. And if they’re unhappy with the levels of competition their companies face, because of the country’s gargantuan scale, their best bet for maximizing such competition is resuming the vigorous enforcement of antitrust laws – which, as I documented, had long been largely neglected.

Wolf didn’t accept the policy implications I drew concerning these insights about America’s economic distinctiveness. But since he evidently accepts the basic proposition, it’s legitimate to ask why not.

The second example of a leading economic authority making one of my central points came yesterday on the Project Syndicate website. That in itself is pretty remarkable because, as I’ve previously suggested, Project Syndicate is best described as a digital op-ed page for globalist elites. Just as remarkable, and gratifying, the author of the post in question is Robert Skidelsky, a veteran British politician and venerable academic who’s best known for a highly acclaimed three-volume biography of John Maynard Keynes, the most influential economist of the 20^th century and a scholar whose work still shapes much global economic thought and policy.

According to Skidelsky, one of two major gaps in President Biden’s economic proposals – and especially his stated desire to rebuild manufacturing in America – is its failure to impose tight curbs on imports. Without a plan that Skidelsky (and its originator) calls “compensated free trade,” the author writes that domestic industry won’t be “built back better.”

That’s already nearly identical to arguments I make all the time. But what I found most intriguing was Skidelsky’s principal rationale: America’s still towering trade deficits are bound to permit too many of the job- and production-creating benefits of Mr. Biden’s stimulus spending to drain overseas.

That’s virtually identical to the case that I and a colleague made early during the recovery from the previous U.S. recession. Unfortunately, then President Barack Obama apparently didn’t see our New York Times article, because he ignored the continuing growth of the deficit, and partly as a result, the rebound he presided over was the weakest in American history.

I’m hardly above wishing to have gotten some credit for these ideas.  But progress on the economics of trade (as opposed to the ongoing U.S. policy departures from free trade absolutism bemoaned by Wolf) has been so slow to develop that I’ll take it in whatever form it comes – and of course be keeping an eye out for more.