(What’s Left of) Our Economy: The State of the Union’s Productivity is Still Gloomy

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Labor Department, labor productivity, manufacturing, productivity, State of the Union, Trump, {What's Left of) Our Economy

Hooray! Americans and the world just got a new batch of productivity data. You know – those statistics that everyone knowing anything about economics calls a key to sustainable national prosperity, but that are usually ignored when they’re issued even when impeachments and State of the Union speeches and presidential primaries aren’t dominating the headlines.

But as often been the case recently, the news on the whole discouraging. Non-farm businesses (the national economic universe as defined by the Labor Department, which tracks productivity) registered a better performance according to these preliminary figures for the fourth quarter of last year than for the third quarter. Yet the rate of year-on-year improvement slowed. Manufacturing’s figures, moreover, worsened over both time frames.

No better is the big picture revealed by these results: The U.S. economy remains smack in the middle of a major productivity slowdown, which augurs poorly for its ability to keep growing in a healthy (as opposed to a bubble-ized) way.

This productivity report measures labor productivity – the amount of output any sector of the economy or the entire economy can generate for each hour worked by each of its employees. It’s a narrower gauge of business efficiency than multi-factor productivity – which, as suggested by its name, records production as a function of a wide variety of inputs. But the labor number is reported on a timelier basis, and therefore tends to attract the most attention – when it attracts any attention at all!

According to the new release, labor productivity during the last three months of 2019 advanced by 1.40 percent at an annual rate. The final third quarter figure (which went un-revised)? A 0.20 percent annualized drop.

Moreover, on an annual basis, non-farm business labor productivity rose between 2018 and 2019 by 1.79 percent. That’s considerably faster than the 1.01 percent advance during the previous year.

Unfortunately, that’s where the good news stops. Labor productivity in domestic manufacturing – once the economy’s leader on this score (see the table below) – dropped sequentially for the third straight quarter. And this 1.20 percent annualized decrease was worse than the third quarter’s 0.26 percent annualized decline – which itself was revised down from a 0.10 percent increase.

Even worse is the latest year-on-year comparison. Between 2017 and 2018, manufacturing’s labor productivity rose by 0.60 percent – not terrific, but at least an improvement. Last year, it tumbled by 0.68 percent. That’s its worst such performance since 2014-2015’s 1.45 percent dive.

But if you really want to be bummed, check out the trends over the last three economic recoveries (including the current expansion, whose length, at least, keeps setting records). The ever weaker growth rates are troubling enough. Worse still is the slowdown’s acceleration (even in non-farm businesses if you take into account the length of the ongoing recovery.

                                                                         Non-farm business   Manufacturing

1990s expansion (2Q 91-1Q 01):                       +23.74 percent      +45.86 percent

bubble expansion (4Q 01-4Q 07):                      +16.59 percent     +30.23 percent

current expansion (2Q 09 thru prelim 4Q 19):   +13.19 percent      +5.98 percent

President Trump’s State of the Union address Tuesday night boasted about numerous economic achievement during his administration, and as noted in my analysis of yesterday’s U.S. trade figures, on some scores, he’s entitled to do so. But the speech never mentioned productivity, and given today’s new numbers, it’s easy to understand why.

Making News: A Border Crisis Interview, with Piscopo in the Morning…& More!

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AM 970 The Answer, border security, caravans, Henry George School of Social Science, Immigration, IndustryToday.com, Jobs, Joe Piscopo, Jorge Castaneda, Making News, manufacturing, Mexico, New York Knicks, Smart Talk, State of the Union, wages

What with the State of the Union address and the ongoing Border Wall/government shutdown showdown and the Virginia political scandals, it’s been a more amazing last week or so than usual to be administering RealityCheks to the national scene.  As a result, I’ve fallen behind on tracking media appearances, so in this posting I’ll be catching up.

I’m especially pleased to report that an interview I was recently privileged to conduct with former Mexican Foreign Minister Jorge Castaneda has just gone on-line at the Henry George School of Social Sciences website.  As some of you may know, I’m a Trustee of the School, and the session was the latest in its “Smart Talk” sessions with some of the world’s leading economic thinkers.

The interview was conducted in late November, but trust me when I say that clicking on this link will bring you to a great conversation about numerous issues still in the headlines – especially concerning the continuing immigration crisis along the U.S.-Mexico border.

Last Friday, I appeared on Joe Piscopo’s morning drive-time radio talk show on New York City’s AM 970 The Answer to preview the State of the Union and discuss the state of the economy.  Special bonus:  We also briefly reviewed the big New York Knicks trade of injured star Kristaps Porzingis that was announced the day before!  Here’s the link.  My segment begins just past the 35-minute mark.

Finally, on January 22, IndustryToday.com published an detailed analysis of mine on which American manufacturing industries fared the best and worst last year in terms of job and wage growth.  Click here to read.

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

Im-Politic: Out of the Mouths of Globalists – A Case for the Wall

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Afghanistan, America First, border security, border wall, foreign policy, globalism, government shutdown, Im-Politic, Immigration, jihadism, Middle East, State of the Union, terrorism, The New York Times, Trump

With the possibility of another Border Wall-related government shutdown hanging over tonight’s State of the Union – and all of American politics – it’s pretty astonishing to recognize that The New York Times editorial board, which strongly opposes the wall, and which has long championed a globalist approach to foreign policy issues, has just unwittingly endorsed a Trump-ian, America First-style approach to border security.

The endorsement came in The Times‘ recent editorial calling for a prompt U.S. military pullout from Afghanistan – a position that’s also decidedly Trump-ian.

According to Times editorial writers, the main rationale originally cited for fighting in Afghanistan was flawed from the start. It focused too tightly on

“the idea that war abroad could prevent bloodshed at home. As [then President George W. Bush] explained in 2004: ‘We are fighting these terrorists with our military in Afghanistan and Iraq and beyond so we do not have to face them in the streets of our own cities.’”

Globalists well to the left of Bush endorsed this rationale as well, notably former President Barack Obama. His first bid for the White House stressed that Afghanistan was a “good war” and a conflict that “had to be won” in order to “take the fight to the terrorists” – in stark contrast to Mr. Bush’s “dumb” war in Iraq.

But The Times – which admirably recognizes that it bought this line as well – now suggests that this argument never made much sense. Although acknowledging that “since 9/11, no foreign terrorist group has conducted a deadly attack inside the United States,” it adds that

“there have been more than 200 deadly terrorist attacks during that period, most often at the hands of Americans radicalized by ideologies that such groups spread. Half of those attacks were motivated by radical Islam, while 86 came at the hands of far-right extremists.”

The Times doesn’t draw the obvious implication, but it couldn’t be clearer even to a minimally perceptive observer: The kinds of terrorist threats the paper spotlights have appeared in the United States in large measure because border security has been so shoddy for so long. In particular, American immigration authorities have never adequately screened newcomers from countries where radical Islam has taken root, and who are therefore unusually vulnerable to radicalization.

It’s conceivable that border security could effectively address these challenges without the kind of physical barriers now sought by President Trump – and demonized by most of Congress’ Democrats. But at the least, The Times‘ rationale strongly militates for other Trump-ian, America First-style border security measures, like applying travel bans against countries that are known hotbeds of terrorism and strict limits on admitting refugees and asylum-seekers from these same points of origin.

And barriers look especially important given the extensive legal/due process protections now automatically awarded to anyone who sets foot on American soil, including from countries whose threadbare (at best) governments lack the capacity to document the identity of their residents satisfactorily. Therefore, adequate vetting by the U.S. government will be excruciatingly difficult, to put it mildly.

But if The Times wants to clinch the case for withdrawing promptly from Afghanistan, it should make a point I’ve made repeatedly: It will be far easier to protect against terrorist threats by relying mainly on border security because access to the country is something Washington can reasonably hope to control. Protecting against terrorist threats mainly by chasing jihadists around a completely dysfunctional region of the world whose greatest strength is spawning extremism would base American strategy on something Washington can’t reasonably hope to control.

And of course, connecting an end to massive American military involvement in the Middle East with the need for more secure borders could only bolster President Trump’s position, too.

(What’s Left of) Our Economy: State of the Union Fakeonomics on Immigration

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demand, economics, free trade agreements, Gillian B. White, Goldman Sachs, illegal immigration, Immigration, Jan Hatzius, Jobs, Obama, offshoring, State of the Union, supply, The Atlantic, TPP, Trade, Trans-Pacific Partnership, wages, workers, {What's Left of) Our Economy

The more I go over the economic thinking behind President Obama’s final State of the Union address, and some of the commentary it’s generated, the weirder both get. Here are two especially noteworthy examples, and they both flow from the president’s claim that: “Immigrants aren’t the principal reason wages haven’t gone up; those decisions are made in the boardrooms that all too often put quarterly earnings over long-term returns.”

Actually, Mr. Obama’s starting point is a straw man. I don’t know of anyone whose views have attracted significant attention who solely blames immigrants for wage stagnation. I don’t even know anyone who blames illegal immigrants. I do know lots of folks who believe that the levels (too high) and mix (too many uneducated and unskilled) of legal and illegal immigration have contributed meaningfully to this problem. But I guess States of the Union are no place for nuance.

Even stranger about the president’s contention, though, was his defense of mass immigration’s role in the American employment picture was its contrast with his treatment of trade deals like his Trans-Pacific Partnership and their own destructive impact on jobs and pay. This issue went unmentioned.

No one blames these agreements and related policies for the entire wage problem, either. But does the president genuinely suppose that trade deals, and the job and production offshoring to very low-wage countries they’ve encouraged, have been totally unrelated to the pursuit of those “quarterly earnings over long-term returns,” and by extension to wage woes? In fact, can he or anyone else reasonably doubt that these same shortsighted boardroom denizens have lobbied so hard to push these deals through Congress precisely because they help maximize short-term earnings so effectively at American workers’ expense?

Just askin’.

The second example of State of the Union-related economic weirdness comes from an Atlantic post making the case for the president’s views on immigration and wages. It was perfectly conventional – to the point of predictability – for Atlantic staffer Gillian B. White to trot out the usual studies showing that most economists strongly deny any immigration responsibility for U.S. wage stagnation.

What was a lot less conventional was her neglect of the obvious immigration- (and trade-) related implications of this point from another leading economist that she quoted and then paraphrased:

“‘The weakness of wages and the resulting strength of profits are telling signs that the US labor market is still far from full employment’” Jan Hatzius, the chief U.S. economist at Goldman Sachs wrote in a 2014 research note. That’s because many companies have learned to be leaner, they hire fewer employees, and still benefit from continually growing productivity. And because the country is still not at full employment, they can keep paying workers less. All of this serves to boost the company’s bottom line, while workers are unable to participate in those benefits.”

It’s clear to any thinking person that Corporate America has gotten much leaner (although this greater efficiency isn’t showing up in the productivity data any more). And it should be equally clear, as Hatzius notes, that this development has increased the supply of labor more than the demand for workers (the ultimate reason full employment hasn’t been reached), and therefore reduced the price of labor (as over-supply will do for anything in a reasonably free market, human or otherwise, that’s in surplus).

Hatzius wasn’t quoted on the link between this labor market mismatch and American immigration flows, but White is confident that “Obama is right” (about immigration – not trade, which she also ignores) and that “the level of wage dampening that immigration is actually responsible for in the broader scope of the problem pales in comparison to the wage suppression that has occurred since multi-billion dollar companies decided to prioritize rewarding shareholders first and workers last.”

Indeed, she states, the immigration effects are so slight compared with the supposedly entirely separate corporate governance and strategy changes that discussing the former is “a bit beside the point.”

But by definition, if she’s right, here’s what’s a bit beside the point, too: At a time of subpar employment levels that themselves are undermining workers’ bargaining power, the United States keeps admitting roughly one million legal immigrants each year. Moreover, it has enforced its borders so poorly that the illegal population stands at more than 11 million.

In turn, White’s reasoning implies, significantly reducing either the illegal population, or the legal flow (or both), and accordingly improving the labor supply-demand balance, would leave the bargaining power and wages of current, legal workers virtually the same.

It sounds like White doesn’t really believe that the laws of supply and demand apply to labor markets at all, or at least not to those with significant immigrant participation rates. Same for that majority of economists she cites. Who’s to say “No”? After all, economics isn’t a real science. But if this is the case, couldn’t these analysts declare their heresy openly, or at least tell the rest of us where supply and demand still matters, where it doesn’t, and why? While they’re at it, of course, they could let the rest of us in on what other venerable maxims of economics they’ve now decided we can do without – and when.

Those Stubborn Facts: Trade Deals MIA in Obama State of the Union Follow-Ups

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fast track, Obama, State of the Union, Those Stubborn Facts, TPA, TPP. Trans-Pacific Partnership, Trade, Trade Promotion Authority, TTIP

# of words on trade, TPP, fast track in Obama State of the Union: 191

# of words on trade, TPP, fast track in Obama State of the Union follow-ups in Idaho, Kansas, and on radio: 0

(Sources: “Remarks by the President on Middle-Class Economics – Boise, ID,” Office of the Press Secretary, The White House, Speeches & Remarks, Briefing Room, October 21, 2015, http://www.wh”remaritehouse.gov/the-press-office/2015/01/21/remarks-president-middle-class-economics-boise-id; “Remarks by the President on Middle-Class Economics, University of Kansas – Lawrence , KS,” January 22, 2015, ibid., http://www.whitehouse.gov/the-press-office/2015/01/22/remarks-president-middle-class-economics-university-kansas-lawrence-ks; and “Weekly Address: Middle-Class Economics,” January 24, 2015, ibid., http://www.whitehouse.gov/the-press-office/2015/01/24/weekly-address-middle-class-economics)