The Jobs Report: What Structural Really Means
What Will Happen When Enough People Figure Out How Bad Things Really Are?
The U.S. labor statistics, released on April 6, look ready to move stock prices lower, at least in the early going on April 9. But beyond the inevitable volatility, there is little information that has been put together by the media, or any credible analyst that describes that nebulous term, "structural," which is the central principle of why things are the way they are in the economy and the labor market.
The big picture is that 120,000 new jobs were created. That's roughly half of the number that the consensus of analysts were expecting, and half the number created in the prior month. That's a big hit, no matter what anyone says. According to the U.S. Labor Department press release of the data: "Private-sector employment grew by 121,000 in March, including gains in manufacturing, food services and drinking places, and health care. Retail trade lost jobs over the month. Government employment was essentially unchanged."
The fine print does offer some hints as to what's happening. For example, physician offices and hospitals added 8,000 for the month, accounting for 6.7% of the newly hired. Also, interesting is this one: "employment in food services and drinking places rose by 37,000 in March and has risen by 563,000 since a recent low point in February 2010." What the fine print doesn't say is that physicians and hospitals are being forced to hire more employees in order to comply with the rising regulatory burdens created by the Affordable Care Act and other regulations, which have mandated layer upon layer of electronic paperwork and the advent of the electronic medical record.
And here is another one: "Employment in financial activities was up by 15,000 in March, with most of the gain occurring in credit intermediation (+11,000)." This one is interesting, as the area of growth in financial services seems to be related to deteriorating credit quality in customers, perhaps a negative sign for the future of the economy. If you need more workers to address credit problems, that means that eventually the number of people who will skip payments and eventually default, is on the rise. That will eventually lead to lower quarterly earnings reports.
Perhaps the biggest headline is that the number of those unemployed for over 27 weeks remains stubbornly high. According to the report: "The number of long-term unemployed (those jobless for 27 weeks and over) was essentially unchanged at 5.3 million in March. These individuals accounted for 42.5 percent of the unemployed. Since April 2010, the number of long-term unemployed has fallen by 1.4 million." That means that a whole new class of citizens has expanded in the last five years. And it means that their numbers are stable. These people are basically done now. What lies in their future is uncertainty. That has yet to be factored into the so called "conversation."
Thus, the emerging picture is that there are still plenty of people out of work. Only 63.8% of those who could work are actually working, according to Bureau of Labor Statistics (BLS) data. And the number of those who are out of work for over six months remains stubbornly high. This includes 865,000 so called "discouraged workers," who presumably have stopped looking for work because "they believe no jobs are available for them," according to the BLS definition of "discouraged worker."
So we asked a few questions. One is what kind of jobs are out there that are available? And how can all of this be reconciled.
We listed the occupation and the reason given for the lack of participation in parentheses. According to data from CNBC.com, job openings are available in the following areas: truck drivers (not enough pay for the work), software developers ( rising need for Java based Internet developers), construction laborers (lack of training and experience), nursing (demographics, aging population), machinists (not enough skilled workers), accountants (often leave for better offer), scientific researchers (not enough being trained, job location), administrative assistants (lack of experience, skills), hospitality workers, including "HVAC technicians, locksmiths, carpenters and plumbers" to work in hotel maintenance, repair technicians (lack of skill and experience).
What we see is that the need for workers is spread out throughout different areas. But the underlying theme is that the work, except for software development and accounting includes a fair amount of manual labor and inconvenience. Nurses have to do unpleasant things and deal with sick patients and demanding families. Construction workers, in the current economy, have to relocate to large cities and work on high rise buildings with very specialized technology. Machinists have become computer literate operators of highly sophisticated equipment. Nobody wants to be anyone else's go-fer anymore, which is why administrative assistants are hard to find. And locksmiths, HVAC technicians, and concierges aren't exactly the most glamorous positions.
In other words, the work that is available in most cases isn't particularly sexy, which goes against the media portrayal of success. That accountants and software programmers are part of the shortages is not surprising either. A good software programmer can make millions developing his own apps, instead of working for Comcast on some Java for the company's Internet platform. And accountants can set up their own shops and thrive as business owners without having to put up with corporate politics.
It seems disingenuous that corporations are whining about a lack of skilled workers when they don't want to pay the skilled ones well enough in many cases, or treat them as professionals. And it seems unrealistic for someone who is unemployed to not take a job that is "beneath" his or her own self opinion in order to earn some sort of living. But that's clearly what the trading floor cynic may be thinking.
To be sure, there is more to it than that. And that's where the definition of structural comes in. It provides a starting point, a place from which arguments can be derived from, and from where conclusions may be arrived at. Dictionary.com defines structural in two ways:
1. "Of, relating to, or forming part of the structure of a building or other item," and
2. "Of or relating to the arrangement of and relations between the parts or elements of a complex whole."
Both definitions are complementary, and both are applicable to the employment situation and the U.S. economy. In the case of employment, structural refers to the role that employment plays in the economy. In this context it forms a part of the building or structure of the economy. Without workers nothing gets invented, manufactured, advertised, sold, purchased or serviced.
In terms of being part of a "complex whole," it's a similar picture. There is no economy if there aren't enough workers to fuel the necessary moving parts of the whole mechanism.
So the word structural is referring both to the economy, and to the relationship between the economy and the employment situation. There isn't one without the other. And when one suffers, it makes sense that the other one would as well. If you add the complementary and complex layers of issues, including politics, religion, and individual people into the equation, you can see that the whole "structure" is highly complex and thus complicated.
What is so wrong with the structure of the economy that employment, a vital cog in the machine, is suddenly stalling?
The further you go back, the more complex, but intuitive it becomes. In the 60s, the social revolution, the Vietnam War, and the Great Society changed everything. Suddenly, there were "alternatives" to the traditional mores and expectations. LIfe was more about self-fulfillment instead of about duty. Jobs changed. Mobility became the norm. The education system became politicitized. The politican system became more corrupt and influenced by special interest groups.
All the while jobs were increasingly exported to lower cost nations. Manufacturing first moved to Mexico, then Asia, and elsewhere. And then service jobs, such as customer service followed.
The U.S. became obsessed with consumption. Housing, instead of manufacturing and innovation became the focus of the economy. 9/11 led to huge capital flight to China and other emerging markets, an act that compounded the previous decades' already noticeable changes.
And then, the subprime mortgage crisis was the killing blow. Suddenly billions of dollars disappeared from the economy and into the pockets of the smart guys who bet against the fools who thought that you could make $14,000 per year and live in a million dollar home, and the other fools who thought that the original fools would actually make their house payment and put high yielding dividends into their pockets. And the Fed is printing money, but it's not going where it should go. Instead of creating jobs, it's being used to make bank balance sheets look better and to buy back stock at inflated prices, inflating them further so CEO's can get their bonuses.
So, in terms of structure, multiple parts of the system are broken, and subsequently, the relations between the parts and the elements of the complex whole are in need of repair. Yet, money printing isn't working because it's not enough, or more specifically, it isn't being targeted at the real problem, which is the structure of the economy, not the balance sheet of the banks or the stock market.
All the money in the world, or in the mind of Ben Bernanke, won't bring back the jobs that are still in China, and India, and are never coming back. GE, and IBM, and GM aren't going to hire 60 year old machinists who work with their hands instead of computers. And Celadon isn't going to pay truck drivers $180,000 per year. If they did, this scribe might change occupations. And because the education system has failed and few understand that hard work is just part of life, no one wants to be administrative assistants and truck drivers. Those are pretty much thankless and unglamorous jobs. Never mind that somebody has to do them.
So, the structure is broken and beyond repair. The pendulum has swung too far in the wrong direction and the solution, printing money, is inadequate because the new money isn't doing what it's intended to do, move back through the economy. And no one, not even Pimco, whose "New Normal" is thrown about as the explanation for everything economic, has bothered to connect the dots publicly. So few really understand what "structural" means. That gives politicians, bureaucrats, and slick CEOs a chance to continue the charade instead of making meaningful changes. And so the game goes on. Until, if things get really bad, the public loses confidence in paper money and the institutions that print it and accept it as legal tender.
Are we there yet? We certainly hope not because the alternative is a return to the Middle Ages.
The structural problems at the center of last week's disappointing jobs report are the product of decades of neglect, short term thinking, and a lack of vision from corporate leaders, the government, and the population at large. What we're seeing is what happens when you make bad decisions over long periods of time, and compound them by making more bad decisions.
We were all sold a bill of goods and bought into the con in exchange for a few video games, a high speed Internet connection, and 99 months of unemployment benefits, much like the Native Americans gave up Manhattan for a few trinquets. Now, like those early tribes, we are left with little to show for our transaction.
Next month may deliver 300,000 new jobs. That would be great, if it happens. But last month was a bust. And it's because the foundation of the U.S. economy is no longer what it once was. And it's not looking as if it will repair itself anytime soon as too many who could deliver meaningful change are too busy furthering their own interests.
And things won't improve until the "structural" problems, education, job repatriation, innovation, and reponsible long term policies in energy, manufacturing, tax structure and fiscal responsibility are addressed in a sensible, flexible, and responsible fashion.
Where does that leave us? It leaves us in an in an increasingly volatile and dangerous environment as investors, and more important, as citizens of the United States.
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