Friday, February 4, 2011

America's Faltering Recovery

From Robert Reich's blog:
At a time when corporate profits are through the roof, the Dow is flirting with 12,000, Wall Street paychecks are fat again, and big corporations are sitting on more than $1 trillion in cash, you’d expect jobs be coming back. But you’d be wrong.

The U.S. economy added just 36,000 jobs in January, according to today’s report from the Bureau of Labor Statistics. Remember, 125,000 are needed just to keep up with the increase in the population of Americans wanting and needing work. And 300,000 a month are needed — continuously, for five years — if we’re to get back to anything like the employment we had before the Great Recession.

In other words, today’s employment report should be sending alarm bells all over official Washington. Granted, unusually bad weather may have accounted for some of the reluctance of employers to hire in January. But even considering the weather, the economy is still terribly sick. (Technical note: The official rate of unemployment fell to 9 percent from 9.4 percent, but that’s because more workers have left the labor market, too discouraged to continue looking for work. The official rate reflects how many people are actively looking for work.)

We have two economies. The first is in recovery. The second remains in a continuous depression.

The first is a professional, college-educated, high-wage economy centered in New York and Washington, that’s living well off of global corporate profits. Corporations continue to make money by selling abroad from their foreign operations while cutting costs (especially labor) here at home. Wall Street is making money by taking the Fed’s free money and speculating with it. The richest 10 percent of Americans, holding 90 percent of all financial assets, are riding the wave. And their upscale spending has given high-end retailers and producers a bounce.

The second is most of the rest of America, and it’s still struggling with a mountain of debt, declining home prices, and job losses. In coming months most Americans will also be contending with sharply rising prices of food and fuel.

Our representatives in Washington see and hear mostly the first economy. The business press reports mainly on the first economy. Corporate and Wall Street economists are concerned largely with the first economy.

But the second economy will determine our politics in 2012 and beyond.
The funny thing is that US unemployment fell while the number of new jobs created was pathetic at 36,000. This is no where near enough to keep the unemployment rate stable since population growth is is far larger than the 36,000 figure.

The situation is counterintuitive: falling unemployment while job growth is too anemic to cut unemployment. How can this be? A lot of workers gave up looking for work, the the "unemployment rate" fell. But the numbers without work rose. They just aren't counted since the "official" unemployment rate only counts those "actively" looking for work.

On the other hand, Canada is experiencing the opposite effect. Surging employment, but a growing unemployment rate. From the Wall Street Journal:
Canada's employment kicked off the year on a scorching note as the economy churned out about 4.5 times more new jobs than expected, the most since April 2010, but the unemployment rate rose unexpectedly as the number of people looking for work increased.

Both full and part-time employment rose. Job gains were shared between the private and public sectors, and among the self-employed, with the largest increases in business, building and other support services, public administration and agriculture. Manufacturing jobs inched up after a record gain the prior month.

Overall, employers hired a net 69,200 workers in January, the fourth consecutive increase and more than double the upwardly revised 30,400 gain in December, Statistics Canada said Friday.

The unemployment rate rose to 7.8%, the highest since October after holding at a two-year low of 7.6% in the prior two months.

The market had expected 15,000 new jobs to be added and the unemployment rate to remain steady. The statistical agency said employment grew by 1.9% or 327,000 compared with January 2010.
The situation in Canada is counterintuitive as well. But the explanation is that while job growth is strong (69,200 is equivalent to 692,000 in the US since the US is ten times as big a country) which is good but all that good news is pulling people out of the woodwork to look for jobs which increases the "unemployment rate".

The tragedy in the US is that they have a "leader" who doesn't take the recession seriously. His stimulus in 2009 was pathetically small but he has never admitted that. He continues to pretend that he did "just the right amount of stimulus". Obama is so deeply entangled with the Wall Street lobbyists that he can't admit the truth about the economy. Tragic.

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