Unemployment Rises in February

March 10, 2014


As announced by the Bureau of Labor Statistics on Friday (link to the report provided above), unemployment rose by 0.1% to 6.7%, reflecting a gain in the employment level (household survey) of only 42,000 while the labor force grew by 264,000.  This leaves per capita employment essentially unchanged in February at 45.7%.  That figure is almost 3% lower than in 2007, meaning that nearly 10 million workers remain unemployed.

Per Capita Employment

Unemployed Americans

Wall Street drew some comfort from the fact that the number of jobs created – 175,000 (according to the establishment survey) – exceeded expectations reduced by the bad weather in February, but the numbers are weak nonetheless.  Other indications of a weak job market included:

  • the number of long-term unemployed increased by 203,000 in February to 3.8 million,
  • the employment-to-population ratio hasn’t improved in the past year,
  • the number of people working part-time because they can’t find full-time employment remains at 7.2 million workers,
  • manufacturing added no new jobs in February,
  • the average work week dropped by 0.1 hours, and
  • factory overtime also declined by 0.1 hours while the average factory work week remained unchanged.

It’s yet another corroboration of the “new normal,” chronically-high unemployment economy that dumb trade policy and a growing population have given us.

Rice for Vehicles

February 21, 2014


This epitomizes what’s wrong with American trade policy and the American economy as a whole.  As reported in the above-linked Reuters article, President Obama is running around the world selling meat and produce and is willing to surrender manufacturing jobs as payment.  In the case of Japan, he wants them to lower their tariffs on American farm products and, in return, is considering giving up our small tariffs on their cars and our big tariffs on imported trucks.  (By the way, in case you wonder whether tariffs work, take a look around at how few imported trucks are on the road compared to cars.)

At the same time that he’s marketing the U.S. as some rural, agrarian society – something we haven’t been for a century, he’s desperate to liberalize immigration policy to turn us into even more of an urban jungle than we’ve already become. 

Is the condition of our economy any wonder, when our president considers rice for vehicles an even exchange?  Does he not understand the difference in the labor involved in producing these products?  Can’t he acknowledge what a disaster the same trade deal with South Korea has been for American jobs? 

God help us.  Obama won’t.

Trade Deficit in Manufactured Goods Hits Record in December

February 6, 2014


As announced by the Bureau of Economic Analysis this morning (link to the report provided above), the U.S. trade deficit rose slighly in December to $38.7 billion – a fairly benign figure that continues a declining trend.  But slight improvements in the balance of trade for services, food and petroleum products mask a big $4.9 billion drop in manufactured exports that resulted in a record deficit in manufactured goods of $46.5billion.

Manufactured exports fell to $106.5 billion, the lowest level in 27 months.  To keep pace with with Obama’s goal to double exports within five years (a goal he set in January, 2010), exports needed to rise by $39.5 billion per month.  Manufactured exports now lag the president’s goal by a record $41.3 billion. 

Imports of manufactured goods in December were $153 billion, only $0.4 billion shy of the record set only 3 months earlier.  Clearly, if the president’s goal is to generate manufacturing jobs by reducing the trade deficit, his focus is misplaced.  He has no ability to influence exports which are determined solely by foreign demand.  But he has total control over imports, control that a change in trade policy toward a greater use of tariffs would give him.  But he lacks the fortitude for that approach. 

Here’s a chart of manufactured exports and imports:  Manf’d exports vs. goal

And here’s a chart of the manufactured goods trade deficit:  Manf’d Goods Balance of Trade

This kind of debunks the whole notion of the mythical “manuacturing renaissance,” doesn’t it?

The Dumbest Idea Yet for Revitalizing Detroit

January 25, 2014


The above-linked article details what may be the most hare-brained scheme ever devised for resuscitating Detroit’s economy, or the economy of any city, for that matter.  The plan is the brain-child of Michigan Governor Rick Snyder who, before being elected governor, served for a few months as interim CEO of ailing Gateway Computers until a more competent chief executive could be found. 

Detroit’s woes are no mystery.  Its economy was built on the auto industry which, until about the 1960s had a virtual lock on the domestic auto market.  Thanks to a change in U.S. trade policy in the late 40s, which opened the doors to our market without gaining access to equivalent markets, the share of the auto industry held by domestic manufacturers has shrunk to barely 50%.  The demise of the auto industry, together with escalating racial tensions, led to a mass exodus from Detroit.  Since 1960, Detroit has lost nearly two thirds of its population.  Last year, the state of Michigan experienced a net loss of 9,000 new college graduates.

In his state-of-the-city address, newly-elected Mayor Mike Duggan proclaimed that his tenure should be judged by one criteria – that within four years the population of the city of Detroit would be growing again.  Fair enough. 

But there’s a right way and a wrong way to go about it.  The right way is to improve city services, reduce crime, eliminate the blight, clean up the city, and attract businesses back into the city.  That’s the mayor’s job.  If he does it well, then Detroit will once again be judged a desireable place to live, and its population will grow.  And Mike Duggan will be seen as a successful mayor. 

Then there’s the other way – the lazy way – the wrong way – Governor Rick Snyder’s way.  Let’s just bring in 50,000 immigrants, says Rick.  Immigrants with advanced skills who can start businesses, says Rick.  (The insulting implication is that Detroit’s current residents are too dumb to start businesses.) 

But this begs a question for anyone who is familiar with Detroit.  Detroit already has one of the largest immigrant populations in the nation.  If immigrants arrive on our shores with this magic elixir for curing the economy, as politicians, corporations and the Chamber of Commerce would have us believe, then Detroit’s economy should be flourishing instead of floundering.  What happened?  Did we let in the wrong immigrants – the dumb ones?  Will the new batch of 50,000 immigrants be better-screened to identify their possession of the magic economic elixir?

The fact is that immigrants possess no such powers for curing the economy.  They are just people, no different than the rest of us.  They’re no smarter about how to establish businesses and grow the economy.  Nor are they dumber, thus being inclined to become a net drain on social safety net resources, as some anti-immigration groups claim.  In the final analysis, the only effect of immigration is to grow the population. 

And that’s just what those who benefit from a growing population – corporations who want to see growth in total sales volume – want.  Those 50,000 immigrants will set up households and consume the products necessary to do that.  And that will “create” jobs.  There’s a lot of work involved in meeting the needs of a growing population.

But no debate of immigration policy is complete without giving equal consideration to the other economic consequences.  The inverse relationship between population density and per capita consumption dictates that, once a critical population density has been breeched (a population density that liberal immigration policy helped us reach decades ago), the now-larger population will, on an average per capita basis, consume just a little less as they are forced into more crowded conditions.  Out of the 50,000 people added to the population, they’ll add to the labor force just slightly more than are absorbed by the new job opportunities created.  The end result will be declining wages and rising poverty.  Detroit will have a bigger economy, but it will merely be a bigger version of what it has now.

Manufactured Exports Lag Obama’s Goal by Record Margin in November

January 7, 2014


Once again, at first blush, the November trade deficit, announced this morning by the Bureau of Economic Analysis, seems to be great news.  The deficit fell a steep $5.0 billion to $34.3 billion, the lowest reading since 2009 when global trade was still in a big slump. 

However, almost all of the improvement can be attributed to a $4.3 billion improvement in the trade in oil.  The trade deficit in manufactured goods improved by only $0.4 billion.  Manufactured exports rose by $0.9 billion, but they needed to rise by $1.7 billion in order to keep pace with Obama’s goal of doubling exports by January, 2015.  As a result, manufactured exports lagged the president’s goal in November by $34.4 billion, beating the previous shortfall, set only 2 months earlier, by $0.5 billion.  And, it should be noted that this shortfall exceeds the total trade deficit by $0.1 billion.  In other words, November’s trade deficit is due entirely to Obama’s failure to follow through on his promise – something we should all be used to by now – his broken promises on trade policy. 

Manufactured exports have risen by only $0.3 billion since March, 2012.  (To keep pace with Obama’s goal, they needed to rise by $30.1 billion during that period.)  Here’s a chart of trade in manufactured goods, followed by a chart of the balance of trade in that category:  Manf’d exports vs. goal ,     Manf’d Goods Balance of Trade.

None of this is surprising since. like presidents before him for the past six decades, Obama has done nothing to stop the mindless application of free trade policy to situations where it makes absolutely no sense – trade with badly overpopulated nations incapable of providing us access to equivalent markets.

Trade Deficit with EU Soars in October; Exports Lag Obama’s Goal by $49 Billion

December 4, 2013


As announced by the Bureau of Economic Analysis (BEA) this morning (see above link), the U.S. October trade deficit moderated slightly to $40.6 billion from $43 billion in September.  The overall trade deficit continued its moderating trend that began in February of last year, thanks primarily to an improving balance of trade in oil.  During that time frame, oil imports have fallen by $7.0 billion while oil exports have risen by $3.2 billion – a swing of $10.2 billion in the balance of trade in oil.  That’s great news.  Here’s the chart for the overall balance of trade:  Balance of Trade.

The bad news lies in the details.  Our balance of trade in manufactured goods, though it improved by $1.6 billion in October, continues on an overall downward trend.  Here’s the chart:  Manf’d Goods Balance of Trade.

Exports of manufactured goods lagged the president’s goal of doubling them in five years for the 27th consecutive month and by a record margin – $33.9 billion.  They haven’t risen at all in the past year.  Overall exports lagged the president’s goal for the 25th consecutive month, and by nearly $49 billion.  In other words, the U.S. would now be enjoying a surplus of trade if the the president had met his goal.  But that was never possible since the U.S. has absolutely no control over exports.  Here’s the chart:  Manf’d exports vs. goal.

But the most disturbing news in the report is what’s happening to our balance of trade with Europe.  In October, the trade deficit with the EU hit a new monthly record of $14.3 billion.  And it’s on pace to shatter the annual record, set only last year, by 15%.  This is led by a record deficit with Germany of $6.9 billion in October.  Our trade deficit with Germany is on pace to shatter last year’s annual record by 22%.  And we also had a record deficit with Ireland in October  of $3.2 billion –  also on pace to beat last year’s annual record. 

President Obama’s approval rating has been sinking.  Nowhere is his failure greater than his failure to follow through with his campaign promise to fix America’s broken trade policy.

Detroit Files for Bankruptcy

July 19, 2013

One of my predictions for 2013 was that three major U.S. cities would file for bankruptcy, beginning with Detroit.  Now it’s begun.  As reported in this article, Detroit filed yesterday. 

Detroit was once synonymous with U.S. manufacturing prowess. Its automotive giants switched production to planes, tanks and munitions during World War Two, earning the city the nickname of the “Arsenal of Democracy.”

Now a third of Detroit’s 700,000 residents live in poverty and about a fifth are unemployed.

Truth be told, everyone in Detroit is living in poverty.  If not actually poor themselves, they’re living among the effects – the blight highlighted in the article. 

In its heyday, Detroit had over 2 million residents.  The population has since shrunk by nearly two thirds.  The reason is no secret; in its heyday, the domestic auto manufacturers had nearly 100% of the share of the domestic auto market.  Today they have barely half, without picking up any foreign market share.  The blind application of flawed free trade theory has brought Detroit to its knees and, indeed, has hobbled the economy of the entire country. 

Where has all of this auto manufacturing gone?  To high wage nations like Germany, Japan and South Korea.  The problem isn’t low wages or currency manipulation.  The problem is that these nations come to the trading table with nothing to offer but badly bloated labor forces hungry to manufacture for export.  They are so densely populated that their own per capita consumption of automobiles is emaciated by severe overcrowding.  With a population density seven times that of the U.S., Germany is actually the least densely populated of the three.  South Korea is fifteen times as densely populated as the U.S.  Wherever you live in the U.S., just imagine fifteen times as many people trying to crowd onto the roadways and you begin to understand how a rising population density erodes per capita consumption. 

So we blindly give away free access to our market, never thinking about whether we’re getting access to an equivalent market in return.  Free trade with badly overpopulated nations is nothing more than a poverty-sharing program, with the U.S. taking on the poverty that those nations would otherwise have to endure.  Nowhere is it felt more in the U.S. than in Detroit. 

That’s Detroit.  Amongst all the media hubbub about Detroit, little notice was paid to the fact that Moody’s also slashed the city of Chicago’s credit rating yesterday and gave the city a negative outlook.  Chicago’s problems are much the same as Detroit’s – pension obligations – obligations that, when they were made, seemed reasonable but now can’t be met from a tax base that has had so much manufacturing removed from it. 

Our trade deficit in manufactured goods continues to drain away a half trillion dollars from our economy each year – now a cumulative $12 trillion since our last trade surplus in 1975.  It’s no wonder that pension obligations can’t be met.  If the federal government isn’t willing to acknowledge that backstopping and bailing out such key aspects of our economy is part of the price of pursuing failed trade policy, then more bankruptcies are sure to follow.


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