(What’s Left of) Our Economy: Manufacturing Jobs Update – & the Wage Mystery Solved?

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Breitbart.com, illegal immigrants, Jobs, John Carney, manufacturing, offshoring, Trade, training, wages, {What's Left of) Our Economy

All the commotion surrounding last week’s midterms elections – and their continuing aftermath in places like Florida – make it all too easy to overlook the details of the latest U.S. government report on the country’s employment situation. These most recent results are worth examining because the dominant trends of the last few months – encouraging job creation and discouraging wage numbers – have remain so persistent that it may be time to consider a new explanation that I, anyway, have been skeptical of for months.

First, the data.

Domestic manufacturers created 32,000 net new jobs in on month in October – the biggest sequential increase since last December (39,000). Indeed, employment gains have been so healthy lately year that manufacturing’s share of total non-farm employment (the U.S. government’s jobs universe) hit its highest level (8.537 percent) since August, 2016 (8.533 percent).

Year-on-year, as of October, manufacturing payrolls grew by 296,000 – a pace nearly double that achieved between the previous Octobers (152,000). Further, that yearly increase was the second best since February, 1998 (311,000). And the very best annual performance since February, 1998 came in July (300,000).

As a result, American industry has now regained 1.332 million of the 2.293 million jobs it lost from the late-2007 beginning of the last recession through its latest employment bottom (in February and March, 2010). That is, 58.09 percent of those lost jobs are back.

Not that manufacturing employment doesn’t have a long way to go, especially compared with the rest of the private sector. It’s still 6.99 percent below those recession onset levels – whereas overall private sector payrolls are 9.75 percent greater. And since its own last employment bottom (February, 2010), the private sector has regained 20.103 million of the 8.785 million it had lost during the worst of the downturn – an increase that’s nearly four times as great as manufacturing’s. But it’s tough to deny that industry’s hiring performance is on the way up.

But manufacturing’s wage picture keeps looking completely different. October pre-inflation wages growth…wasn’t. Hourly pay was the same as in September. The private sector’s October monthly wage gain wasn’t terrific either. In fact, at 0.18 percent, it was the lowest since February’s 0.11 percent. But it still left manufacturing in the dust.

The annual increases make manufacturing’s wage laggard status even more obvious. At 1.46 percent, it was below that between the previous Octobers (1.67 percent), and the worst such figure since July’s 1.31 percent.

By contrast, private sector current-dollar annual wage growth in October was 3.14 percent. That was not only considerably faster than the October, 2016-October, 2017 increase (2.28 percent). It was the best such performance since April, 2009 (3.37 percent), in the midst of the recession.

Further, the widening of the private sector-manufacturing pay gap continues. From the mid-2009 beginning of the current recovery (in economic growth, if not employment, terms) through last October, pre-inflation private sector wages had increased 21.71 percent faster than their manufacturing counterparts. As of this October, the difference was 30.05 percent.

In absolute terms, since the recovery began, private sector wages are up 23.31 percent, versus only 17.77 percent for manufacturing.

Actually, it’s not just sluggish manufacturing wage growth amid strong job creation during this economic expansion that’s puzzled economists. It’s been a mystery for the entire private sector. But one explanation for manufacturing’s poor performance is starting to win me over, at least in part, and a clue comes from that robust year-on-year rise in manufacturing pay during deeply recessionary April, 2009.

At that time, of course, manufacturers were shedding jobs like mad. So why was pay going up? According to many manufacturing executives I spoke with at the time explained, they were letting go of their least experienced (and worst paid) workers – therefore, wages per worker seemed to be rising even though those workers’ paychecks themselves weren’t actually growing. Better paid workers had simply become a greater share of manufacturing’s total.

As explained to me by John Carney, the economics and finance editor over at Breitbart.com, something like the inverse may be taking place now: manufacturing companies have had to reach so deeply into the potential labor pool to fill positions that they’ve needed to hire many employees with subpar levels of skills and education, and who therefore aren’t very productive. As a result, they’re not performing productively enough to justify rising pay.

I’m still not convinced that poor worker quality is the only answer for relatively poor and stagnating manufacturing pay. For one, the threat of job offshoring has by no means vanished, as demonstrated vividly by the Carrier export of jobs to Mexico that then President-elect Trump promised to deal with in 2016. And manufacturers still hire lots of illegal aliens, especially in sectors like meat packing and processing, which undoubtedly dampen wage growth as well. Nor is it clear to me that manufacturers have started spending enough time and money training new workers, as opposed to expecting someone or something else (mainly, the schools) to do the job for them.

But I’ve also heard directly – and consistently – from manufacturers how difficult it remains to find even minimally qualified applicants to fill positions, and I can’t reasonably dismiss all or even most of these claims. So the one conclusion I can confidently reach is that following the manufacturing jobs and wages figures has become more important than ever for serious students of the U.S. economy.

Our So-Called Foreign Policy: An Empty Obama UN Farewell

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assimilation, education, geopolitics, global integration, globalization, international law, international norms, Islam, labor standards, Middle East, Muslims, Obama, Our So-Called Foreign Policy, radical Islam, reeducation, refugees, skills, sovereignty, TPP, Trade, trade enforcement, training, Trans-Pacific Partnership, UN, United Nations

National leaders’ speeches to each year’ UN General Assembly – even those by American presidents – are rarely more than meaningless boilerplate or cynical bloviating. But President Obama’s address to the organization yesterday – as with some of its predecessors – is worth examining in detail both because it was his last, and because Mr. Obama clearly views such occasions as opportunities to push U.S. and international public opinion in fundamentally new directions where they urgently need to head.

In yesterday’s case, the president saw his mission as justifying his belief that Americans in particular need to reject temptations to turn inward from the world’s troubles, and more completely embrace forces that inexorably are tightening international integration economically and even in term of national security.

To be fair to Mr. Obama, he sought to offer “broad strokes those areas where I believe we must do better together” rather than “a detailed policy blueprint.” But even given this caveat, what’s most striking is how many of the big, tough questions he (eloquently) dodges.

Here’s the president’s main premise and conclusion:

“…I believe that at this moment we all face a choice. We can choose to press forward with a better model of cooperation and integration. Or we can retreat into a world sharply divided, and ultimately in conflict, along age-old lines of nation and tribe and race and religion.

“I want to suggest to you today that we must go forward, and not backward. I believe that as imperfect as they are, the principles of open markets and accountable governance, of democracy and human rights and international law that we have forged remain the firmest foundation for human progress in this century.”

This passage makes clear that Mr. Obama doesn’t buy my thesis that the United States is geopolitically secure and economically self-sufficient enough in reality and potential to thrive however chaotic the rest of the world. Nor does he believe the converse – that the security and prosperity the nation has enjoyed throughout its history has first and foremost stemmed from its own location, and from its ability to capitalize on its inherent advantages and strengths, not from cooperating or integrating with the rest of the world.

The president’s contention that “the world is too small for us to simply be able to build a wall and prevent it from affecting our own societies” rings true for most countries – even assuming that he doesn’t really think that this stark choice is the only alternative to complete openness to global developments and commerce and populations and authority, however promising or threatening. But he seems oblivious to America’s “exceptionalism” geopolitically and economically.

Even if I’m wrong, however, and even accepting Mr. Obama’s “broad strokes” objectives, this lengthy presidential address gives national leaders and their citizens almost no useful insights on how countries can achieve his goals. Here are just two examples:

The president recognizes the need to make the global economy “work better for all people and not just for those at the top.” But given the trade deals he himself has sought, how can worker rights be strengthened “so they can organize into independent unions and earn a living wage”? The president insisted again that his Pacific Rim trade deal points the way. But as I’ve noted, the immense scale of factory complexes even in smallish third world countries like Vietnam makes the necessary outside monitoring and enforcement impossible.

Similarly, no one can argue with Mr. Obama’s recommendation to invest “in our people — their skills, their education, their capacity to take an idea and turn it into a business.” But as I documented more than a decade ago in my The Race to the Bottom, governments the world over, including in the very low-wage developing world, recognize the importance of improving their populations’ skill and education levels. In addition, multinational corporations can make workers productive even in these very low-income countries – and continue paying them peanuts compared with wages in more developed countries. Why should anyone expect his recommendation to give workers in America a leg up?

It’s easy to sympathize with the president’s call “to open our hearts and do more to help refugees who are desperate for a home.” Who in principle is opposed to aiding “men and women and children who, through no fault of their own, have had to flee everything that they know, everything that they love,…”?

But as Mr. Obama indirectly admitted, many of these refugees come from a part of the world where “religion leads us to persecute those of another faith…[to] jail or beat people who are gay…[and to] prevent girls from going to school….” He also described the Middle East as a place where too often the “public space” is narrowed “to the mosque.”

It was encouraging to see him recognize the legitimacy – though perhaps not the necessity – of insisting “that refugees who come to our countries have to do more to adapt to the customs and conventions of the communities that are now providing them a home.” But is he blithely assuming success? And it was less encouraging to see him ignore the excruciatingly difficult challenge of adequately vetting migrants from war-torn and chaotic countries.

Finally, on the political side of integration, the president seems to lack the courage of his convictions. For despite his high regard for international law, and support for America “giving up some freedom of action” and “binding ourselves to international rules,” he also specified that these were long-term objectives – presumably with little relevance in the here and now. Indeed, Mr. Obama also argued that, even way down the road, the United States wouldn’t be “giving up our ability to protect ourselves or pursue our core interests….”

So it sounds like he’d relegate even future international law-obeying to situations that really don’t matter. Which is fine. But how that gets us to a more secure world is anyone’s guess.

It’s true that Mr. Obama will be leaving office soon, and that his thoughts no longer matter critically. But at the same time, American leaders have been speaking in these lofty globalist terms for decades. If the president is indeed right about global integration and the future, what a shame that he didn’t make more progress in bringing these ideas down to earth.

(What’s Left of) Our Economy: Gallup Survey Shows No Public Consensus on Boosting Recovery

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2016 elections, balanced budget, budget deficits, economy, education, executive pay, Immigration, infrastructure, minimum wage, recovery, regulation, Social Security, spending, taxes, Trade, training, {What's Left of) Our Economy

I’m a strong believer the American people’s ability to understand policy clearly enough to govern themselves wisely, and an equally strong believer in viewing opinion polls skeptically. But some new Gallup findings on economic issues are so contradictory and confusing that it’s enough to make the most dedicated populist think twice.

You can see the full results here. (And Gallup says it will expand upon this exercise throughout the rest of this presidential cycle.) But here are some that are especially head-scratching:

> Of the 47 policy ideas presented to voters, only nine were judged likely to be “very effective” at improving the economy by half or more of respondents, and of these, four were so rated by 50 percent even. That’s no doubt in part a function of the large number of proposals (which would tend to fragment preferences – as we seem to be seeing for the Republican presidential field). But the diversity of popular responses strongly points to less comforting explanations.

> The only two proposals cracking the 60 percent “very effective” mark were “Ensuring that women receive equal pay for equal work” and “Improving job training for veterans.” Trailing close behind, at 58 percent, was “Giving small businesses easier access to loans to start or expand their businesses.” Nothing else exceeded 55 percent.

> The 50 percent neighborhood is where the fun really starts. Principally, budget deficit hawks will be heartened by roughly this level of enthusiasm for “Reducing federal government spending”; “Requiring a balanced budget”; and, arguably, “Reforming Social Security to ensure it remains solvent.”

> But spending doves will be just as pleased to see that roughly half of respondents saw great potential in “Spending more government money to improve U.S. schools and education”; “Providing free community college education for all Americans who want it”; and “Providing new federal government programs designed to increase manufacturing jobs.” Perhaps tipping the balance in the doves’ favor is the near-majority backing for increased public sector funding for pre-school education, more government loans for small businesses, and tax incentives to encourage business to train workers. These results also seem to signal fairly high public confidence that more educational opportunity is needed for spurring and spreading prosperity.  

> Some of the measures most prominently touted by politicians in both major parties haven’t lit raging fires under American voters, according to Gallup. “Increasing the minimum wage” was described as a “very effective” way to strengthen the economy by a solid but not spectacular 44 percent of respondents. Generating even less excitement were “Reducing income tax rates for all Americans” and “Reducing government regulations on small businesses,” which both came in at the 40 percent mark.

> However much Americans complain about the quality and quantity of their infrastructure, only 39 percent regard “Developing federal, state, and private partnerships to invest” in such systems as a great way to spur better economic performance. And for all the animus against Wall Street and the rest of Big Business, only 38 percent registered great confidence in “Setting a limit or ceiling on corporate executives’ salaries.”

> Immigration and trade issues were gauged by Gallup, too, but here the results look less reliable, thanks to some dubious wording choices. One possible reason: The polling firm received input on the entire survey from, among others, “economists, academics and economic and political observers” – groups where orthodox, establishmentarian views (of both liberal and conservative varieties) reign supreme.

> The immigration questions seemed unexceptional, and showed the public saw relatively little economic payoff from encouraging more immigration either by “high-skill” foreign nationals who graduate from American universities, by skilled workers generally, or by their low-skill counterparts. But respondents were never asked about the potential of limiting or reducing legal immigration flows, much less about cutting off illegal immigrants’ access to jobs and public benefits.

> Much more problematic were the trade questions, which gave respondents two choices: “Negotiating trade and economic agreements designed to enhance trade with other nations” and “Increasing tariffs and taxes in order to make it more expensive to import goods into the U.S. from overseas.” The former was seen as a very promising growth engine by 29 percent of respondents, the latter by 24 percent. But if you think about it, why should anyone intrinsically doubt the benefits of “enhancing trade,” especially if no drawbacks are listed? Conversely, including the word “tax” in the question suggesting trade barriers was bound to reduce this option’s popularity. What kinds of results would Gallup have gotten, for example, if its question mentioned something on the order of “Increasing tariffs to replace goods in our stores made by foreign workers with goods made by American workers”?

I’ll keep monitoring Gallup’s efforts on this score – and hope that the company does a better job framing the debate on the globalization-related hot button issues that seem to be generating an unusual number of political headlines.

By the way, it’s important to recognize that this survey doesn’t measure public backing for or opposition to these economic ideas. Instead, it measures how well the public believes these measures will or won’t improve the economy.  These questions are similar, but not identical.      

 

(What’s Left of) Our Economy: Boeing Hands China the Aerospace Rope

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aerospace, Boeing, forced technology transfer, manufacturing, technology transfer, training, {What's Left of) Our Economy

“Blowback” refers the dangerous backfiring of policies and other decisions that involve aiding dubious partners. Major recent examples include U.S. arms aid to anti-Soviet Muslim extremists who later became anti-American Muslim extremists, and voluntary technology transfers to China by American businesses that inevitably wound up teaching cyberhacking skills to the Chinese and helped create Chinese commercial rivals.

Now you can add to the list Boeing’s decision decades ago to start building aircraft parts and components in China, and training Chinese aerospace engineers. This offshoring strategy is finally enabling China to start building a jetliner that Boeing views as a formidable competitor.

Speaking at a conference last week, Boeing CEO Jim McNerney said that the company would launch a new narrow-body plane to preserve its position in this market both from longtime rival Airbus, and from a new prospective state-owned rival from China. Boeing’s entry in single-aisle jets is the 737, which as is typical for many commercial aircraft models, is already being updated.

But McNerney noted that Commercial Aircraft Corp. of China (Comac), is on track to deliver a single-aisle jet of its own by 2018, and that as a result, Boeing can’t count even on a revamped 737 to measure up. Therefore, the company will be aiming to build a wholly new aircraft for delivery before 2030 to remain competitive.

What Boeing failed to mention is how difficult it is to imagine China getting to this point anywhere near this fast without Boeing’s own help. As the company itself reports on its website, Boeing has been used Chinese-made parts and components on every one of its jets currently in service – including its newest and most innovative model, the 787 Dreamliner, for which the Chinese build the rudder, panels that reduce drag between the advanced carbon-fiber-constructed fuselage and the equally advanced carbon wings, vertical fin panels, and other composite parts.

Moreover, the Chinese are not manufacturing these parts in Boeing wholly-owned factories in China or in Boeing factories in China affiliated with private sector partners from the PRC or from any other country. These Made in China parts are manufactured either by factories in China owned and operated completely by China’s government-dominated aerospace industry, or by joint ventures between Boeing and these Chinese government facilities.

In addition, Boeing has provided “enhanced professional training to almost 50,000 Chinese aviation professionals” in fields including manufacturing and industrial engineering, and is conducting research with the Chinese Academy of Sciences and various Chinese universities. Projects worked on with these government-run or controlled institutions include “advanced materials and advanced computing technology for aviation and industry design.” The company is also working with four Chinese universities by providing, scholarships, funding programs, training faculty, and developing courses – all with an aerospace focus.

So far, Boeing – and the United States – have enjoyed a hefty payoff for all this cooperation. The company currently controls half the huge Chinese aviation market, and there can be no doubt that the offshoring and tech transfer price it has paid for these sales have resulted in major payoffs for U.S.-based workers both at Boeing itself and at its vast domestic supply chain.

And the company is unmistakably counting on such policies guaranteeing it and its U.S. Employees and suppliers, a big share of China’s future aviation market, which it believes will needs $870 billion worth of new aircraft (more than 6,000 planes) over the next 20 years.

The trouble is that China’s game plan doesn’t include granting non-Chinese players even a single percent of its market for anything a moment longer than it needs to. Given its still-wide edge over Chinese aircraft manufacturers, Boeing’s strategy looks like a winner for the U.S. economy for the foreseeable future. (The short-term impact on U.S. security of all this aerospace tech transfer and training could well be very different.) But with each bit of aviation knowhow it imparts to China – typically for reasons having nothing to do with free market practices, and everything to do with Beijing’s success at extorting these gains in exchange for pieces of the China market – Boeing brings the potential tipping point, and its own demise, a little closer.