Falling Unemployment: Blind Optimism in the “Poor” Economy

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Let’s see…what’s new?

Bloomberg reported last week that thanks to the mining boom, uneducated Aussie crackers earned more than Ben Bernanke.

“Travis Marks, a 24-year-old with no college degree, is hitting pay dirt as Australia’s mining bonanza fuels demand for workers,” says Bloomberg. “Already making triple the nation’s average salary, he expects to get even richer…

“Marks, who earns A$220,000 ($227,150) a year – more than Federal Reserve Chairman Ben S. Bernanke’s $199,700 – is a rigger for a company providing construction and maintenance services to the resources industry. ‘[This job] is a really good way to get ahead as a young bloke,’ Marks said.”

Well, of course Mr. Marks should earn more than Bernanke. He’s not destroying the world’s financial system. He’s doing something useful.

As we’ve said many times, modern academic economics is a knowledge- subtracting discipline. It’s full of bad ideas and misleading theories. The more you study it, the more you know that isn’t so. Mr. Bernanke proves it. He’s a smart guy. But with so much training in economics he’s worth less than an Outback truck driver.

But this story has a sunny side to it. Turns out, there’s opportunity Down Under.

“Prime Minister Julia Gillard said in February the resource industry could be short 36,000 workers in the next four years,” Bloomberg continues, “and the government will have to introduce measures to encourage older Australians and parents to rejoin the workforce. She also plans to relax restrictions on skilled migration.”

Did you see that last sentence, dear reader? Maybe this is part of the answer to America’s job shortage – export workers to the sunburnt country on the other side of the world. They just have to learn to wrestle crocodiles and to speak Strine.

But let’s turn back to the main story we’re following:

There are now two economies in America.

There’s the “rich,” recovering economy, floating on $2 trillion in excess cash pumped in by the feds. And there’s the “poor” economy, with millions of people drowning in all that Fed-fed inflation.

But wait, what’s this? Unemployment is down to 8.8%. Here’s the report:

“The unemployment rate fell to a two-year low of 8.8 percent in March,” says Bloomberg, “capping the strongest two months of hiring since before the recession began.

“The economy added 216,000 jobs last month. Another month of brisk hiring provided the latest sign that the economy is strengthening nearly two years after the recession ended. Still, a surprisingly large number of people who stopped looking for work during the downturn have yet to start looking again. Private employers, the backbone of the economy, are driving the gains. They added more than 200,000 jobs for a second straight month. It was the first time that’s happened since 2006 – more than a year before the recession started.

“Economists predict employers will add jobs at roughly the same pace for the rest of this year. That would generate about 2.5 million new positions. Still, that would make up for only a small portion of the 7.5 million jobs wiped out during the recession.”

Well, at least that’s progress…but read the next two paragraphs carefully:

“A big factor in the lower unemployment rate is that the proportion of people who either have a job or are looking for one is surprisingly low for this stage of the recovery,” Bloomberg winds up. “People who stopped looking for work during the downturn are not counted as unemployed. If many out-of-work people start looking for work again, they will be counted and the unemployment rate could go up. That could happen even if the economy is adding jobs.”

Let’s see, the economy has to create 125,000 jobs per month just to stay even with population growth. Even so, this isn’t bad. Net, nearly 100,000 jobs to the good. Hmmm… With 7 million officially unemployed…and maybe another 5 million who stopped looking for work…that makes 12 million or so without jobs. If we can sustain this rate – recovering about 100,000 jobs per month – how long will it take for your laid-off nephew to find a new job? Maybe only 10 years!

And more thoughts…

Here’s another thing to be gloomy about:

Workers’ paychecks were flat in March. Average hourly earnings held steady at $22.87, unchanged from February. Over the past 12 months, wages have lagged behind inflation.

In other words, even if you have a job, you’re likely to earn less real money.

Uh oh… And here’s former Labor Secretary, under Bill Clinton, Robert Reich. He says job growth is not likely to continue. Instead, we’re headed for another dip into recession.

Says Reich:

Consumers are 70 percent of the American economy, and consumer confidence is plummeting. It’s weaker today on average than at the lowest point of the Great Recession.

The Reuters/University of Michigan survey shows a 10-point decline in March – the tenth largest drop on record. Part of that drop is attributable to rising fuel and food prices. A separate Conference Board’s index of consumer confidence, just released, shows consumer confidence at a five-month low – and a large part is due to expectations of fewer jobs and lower wages in the months ahead.

Pessimistic consumers buy less. And fewer sales spells economic trouble ahead.

Add two other ominous signs: Real hourly wages continue to fall, and housing prices continue to drop. Hourly wages are falling because with unemployment so high, most people have no bargaining power and will take whatever they can get. Housing is dropping because of the ever- larger number of homes people have walked away from because they can’t pay their mortgages. But because homes [are] the biggest asset most Americans own, as home prices drop most Americans feel even poorer.

There’s no possibility government will make up for the coming shortfall in consumer spending. To the contrary, government is worsening the situation. State and local governments are slashing their budgets by roughly $110 billion this year. The federal stimulus is ending, and the federal government will end up cutting some $30 billion from this year’s budget.

..Watch out. We may avoid a double dip but the economy is slowing ominously, and the booster rockets are disappearing.

*** Booster rockets? He must mean the popular QE2 program that expires in June. It’s done wonders for the rich – boosting stock market prices and business profits (largely in the financial sector). But it’s a curse on the poor and lower middle classes. Gasoline has just registered its highest price ever for the month of March. ABC is on the story:

The weekly national average gas price showed the highest price ever during the month of March and the seventh consecutive increase this week, according to the Department of Energy. Prices are at their highest level since 2008, in part because of the Japan earthquake and turmoil in the oil-producing Middle East. But analysts say the price of oil and gas would still hover at a surprisingly high level despite geopolitical concerns.

The feds wanted inflation. They got it. Now what? David Rosenberg says that when oil shoots up it always bring on a recession. 1974, the early ’80s, ’93, 2001 – each of the previous 4 recessions came with a big rise in oil.

Regards,

Bill Bonner
for The Daily Reckoning Australia

Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
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2 Comments on "Falling Unemployment: Blind Optimism in the “Poor” Economy"

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Nexus
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It looks like the US economy would have to generate up to 300,000 per month to match population growth and absorb the unemployed. Don’t see that happening and even the jobs that are being created seem to service/low skill.

Ned S
Guest

The potential ‘ace in the hole’ for the US economy I can see is that they haven’t played the GST/VAT card yet – Once they do that and waste the decade or so’s stimulus they’ll potentially get from it they’ll be every bit as stuffed as (moreso even?) the bulk of the rest of the developed nations. Though yep, when push comes to shove they still do seem to quite literally have more and bigger guns than anyone else. So cheer up Bill – All is not lost … Yet? :)

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