Job Numbers and the Economy
Written by Michael Kelly
In April 2016 the Federal Reserve Board of Governors said they would raise rates in the summer on three conditions: higher growth, rising inflation and further improvement in the labor market. As of today the first two have been met. Consumption surged by 7.4 percent at an annualized pace in April, driven by spending on durable goods – E-commerce accounted for $1 in every $10 that American shoppers spent last year, up by 15 percent from 2014. Other useful economic bellwethers – wage increases and housing starts – show an economy growing at a modest pace.
Average hourly earnings of private-sector workers rose by 5 cents or 0.2 percent to $25.59. From a year earlier, hourly wages have risen by 2.5 percent, higher than the 2.1 percent average during the roughly seven-year expansion. Starts on single-family homes, which account for roughly two-thirds of the market, rose 7.2 percent in February to 822,000, their highest level since November 2007.
But as Friday’s jobs numbers reveled the economy has now fallen way short of the third hurdle – the labor market.
In May only 38,000 jobs were created, the weakest performance since September 2010. This missed the estimate of economists surveyed by The Wall Street Journal by over 100,000, revealing a labor market that is loosened, rather than tightened, despite low interest rates. Even the decline of the unemployment rate from 5 percent to 4.7 percent is not a solid positive indicator. The flow of unemployed to employed has declined to 20 percent over the past two years, from a high of 30 percent in 2007, but up from its historic low of 16 percent at the trough of the recession.
Economists had been thinking that a strong economy would be creating more jobs and tempting more people back into work. Data shows that nearly 500,000 Americans stopped working or looking for jobs and 7.4 million workers want a job, yet can’t find one. Nine point seven percent of Americans are stuck in part-time jobs or too discouraged to look for work. There has also been a shift from full-time to part-time work. (Staffing employment is projected to rise by 50 percent over the next five years to about 3 percent of the workforce from 2 percent today.)
Some good news. There are now 1.4 unemployed workers for every available job, down significantly from 6.7 workers for every available job at the worst of the recession. Secondly, the Atlanta Fed’s “GDPNow” model is predicting better growth – 2.5 percent – in the second quarter. Inflation, too, is on track, having risen from 0.8 percent in March to 1.1 percent in April, according to the measure the Fed targets. Core inflation, which excludes volatile food and energy prices, stands at 1.6 percent, not all that far from the Fed’s 2 percent target. The dollar seems to have ended its two-year tear (notwithstanding a recent mild strengthening, probably caused by the Fed’s hawkishness). That will soon cause import inflation to pick up and oil prices have been gradually rising since January.
Is the nation’s current expansion days running short?
This June America’s economic expansion will be seven years old. Only three previous ones lasted longer. The record boom of the 1990s survived only ten years. Research by Glenn Rudebusch of the Federal Reserve Bank of San Francisco shows that since the end of the second world war there have been only 12 American expansions and that before the second world war the odds of tipping into recession rose as an expansion got older. (Yet an expansion in its 40th month is just as vulnerable, statistically, as one in its 80th (each has about a 75% chance of surviving the next year).
Janet Yellen, chairman of America’s Federal Reserve, once declared: “I think it’s a myth that expansions die of old age.” Rudenbusch’s research seems to agree, showing that America’s historical expansions do not seem to become more vulnerable with age. A recent Economist Magazine article Murder Most Foul: When periods of economic growth come to an end, old age is rarely to blame explains “Finite business cycles seem to make sense: an economy just coming out of recession should have plenty of opportunities for investment, for example, which, once exhausted, make the onset of a new downturn more likely. Yet economists reckon cycles need not unfold like that; instead, it is possible for the composition of growth to change even as expansion continues. A booming tech sector might siphon off capital that would otherwise flow to infrastructure or housing. Those industries, in turn, could power growth once the tech boom runs its course. If all domestic investment opportunities are used up, capital should flow towards foreign investments, reducing the value of the currency and so helping exporters to spur the economy forward. As long as the end of a boom in one sector does not engender self-fulfilling pessimism in the rest of economy, the show should go on.”
Though economic shocks (from earthquakes to financial crises) are inevitable every so often; the longer an expansion goes on. Additionally, the end of some expansions are clearly the result of foul play. In the early 1980s, for instance, both America and Britain suffered recessions that were deliberately induced in order to bring down raging inflation.
Why, then, should an economy ever find itself in recession?
In the pre-war era, when age mattered more, governments and central banks played a much smaller part in stabilizing the economy. After the Depression, governments took on the job of countering pessimism. Bigger welfare states provided bigger “automatic stabilizers”, meaning spending on things like unemployment benefits, which pump more money into an economy as growth weakens. Central banks began manipulating interest rates more vigorously to keep growth on track, and eventually adopted targets to help instill the expectation of steady growth. Yet event as post-war expansions are longer (and recessions shorter) than was once the case, business-cycle immortality remains elusive. Thus becomes the challenge the Fed faces every day with its monetary policy decisions – when is the right time to act – to soon or too late has consequences.
What else is impacting the U.S. economy?
In Friday’s WSJ Marie-Josee Kravis, a senior fellow at the Hudson Institute, penned an Op-Ed What’s Killing Jobs and Stalling the Economy, articulating that in economics, as far back as Joseph Schumpeter, or even Karl Marx, we have known that the flow of business deaths and births affects the dynamism and growth of a country’s economy. Business deaths unlock resources that can be allocated to more productive use and business formation can boost innovation and economic and social mobility.
For much of the nation’s history, this process of what Schumpeter called “creative destruction” has spread prosperity throughout the U.S. and the world. Over the past 30 years, however, with the exception of the mid-1980s and the 2002-05 period, this dynamism has been waning. There has been a steady decline in business formation while the rate of business deaths has been more or less constant. Business deaths outnumber births for the first time since measurement of these indicators began.
The latest analysis of Census Bureau data by the Economic Innovation Group points to the increasing concentration of new business formation in a smaller number of U.S. counties. The findings show that 20 counties account for half of new businesses and that most counties had fewer business establishments in 2014 than in 2010. Even accounting for so-called dynamic counties, the total number of firms in the U.S. remains lower than it was in 2004. As the Economic Innovation Group shows, the 1990 recovery registered a net increase of over 420,000 business establishments, or a 6.7 percent increase. The numbers for the 2000 recovery were 400,000 and 5.6 percent. Since 2010, the number of new business establishments has grown by only 166,000 or 2.3 percent.
Side note: Historically, young firms have been dynamic job creators, but they now account for a smaller share of new hires, down from about 38 percent in the late 1990s to roughly 33 percent today, according to the Kauffman Foundation. In every quarter during the 1990s, six of every 100 workers moved to new jobs, while 5.5 out of 100 workers left their jobs. When they are not fired, many employees move from firm to firm, or different jobs within their firm in search of broader experience, better pay, better prospects for career-building and advancement or greater compatibility with personal needs. March data from the Labor Department’s Job Openings and Labor Turnover Survey showed that 60 percent of workers are changing jobs willingly (5.3 million workers moved to a new job, down from 5.5 million in February. Close to five million left their jobs compared with 5.2 million in February.)
He goes on to explain that many studies have also attributed the slow rate of business formation to the regulatory fervor of the past decade. Some point to the deadening effect of the Dodd-Frank law, which is 23 times longer than the Glass-Steagall Act passed in response to the 1929 Depression. One part of Dodd-Frank, the so-called Volcker rule pertaining to bank investments, has 1,420 subsections.
It is not clear to what degree these laws affect business formation, but in a 2010 report for the Office of Advocacy of the U.S. Small Business Administration, researchers at Lafayette University found that the per employee cost of federal regulatory compliance was $10,585 for businesses with 19 or fewer employees, compared with $7,755 for companies of 500 employees or more. Large and established businesses navigate through rules and compliance requirements. Small and new businesses often find them prohibitive.
He also argues that state and local regulators have also hampered new business initiatives, notably through the growth of occupational licensing. A July 2015 White House study found that licensing requirements vary substantially by states, irrespective of political leadership. Ohio imposes licenses on 33.3% of workers; in Florida it’s 28.7%; in California, 20.7%; and in Nevada, 30.7%. Sixty occupations are regulated in some way in all 50 states, with 1,110 occupations regulated in at least one state. Certain demographic groups, such as immigrants and military spouses, are more heavily penalized by these licensing measures.
This is something CA and L.A. should take note of. For immigrants, the tedious and costly process of obtaining a license often delays their integration into the workforce. Thirty-five percent of military spouses work in professions that require state licenses, but they are also more likely to move across state lines than civilian counterparts, requiring multiple and lengthy relicensing reviews. This is clearly an area for bipartisan action to harmonize regulatory requirements among states, increase multi-state compacts to promote greater mobility and impose sunset reviews of licensing requirements.
Los Angeles Region
A recent report from the Los Angeles County Economic Development Corporation showed that 346,000 jobs will be created in L.A. County over the next four years, for an average growth rate of 1.5% a year, but most of them will be low-paying. Office administration and food services will add the most positions to their ranks, combining for a total of about 93,000 new jobs. Those jobs do not require more than a high school diploma, and pay less than the state median household income. The county will gain only about 19,000 jobs in engineering, and manufacturing and machine operation, during the same period. A total of 469,200 jobs have been added in the county since the rebound began in February 2010.
Part of the reason L.A. is producing lower-paying jobs may be that the county has a large immigrant population seeking blue-collar gigs, which disappeared during the great recession and have not come back in full force. Yet on the other hand L.A. County may face a brain drain if it can’t figure out how to create more lucrative and advanced jobs.
A quarter of people aged 25 to 34 living in the county in 2014 had a bachelor’s degree. That makes those young workers more educated than older residents. But a weak job market for their skills may prompt them to go elsewhere. The ones that stay will be snapped up by companies eager for high-skilled people. The real opportunity is solving the skills gap related to mid-skilled jobs.
According to a report commissioned by JP Morgan Chase last year, twenty one percent of the 4.8 million jobs in L.A. County are high-wage, high-growth middle skilled occupations. These occupations pay a median hourly wage of $29.75 and are expected to grow by 6 percent from 2015-2019. Additionally, a larger percentage of entry-level jobs exist and pay good wages and with the right education and training programs, workers hired into and currently working these positions, would have better opportunities to move into middle-skilled and higher-skilled jobs, increasing their lifetime earnings.
Three key areas stand out:
Healthcare
The largest and fastest growing economic sector in the region is healthcare, with 596,000 jobs and projected employment growth of 12 percent by 2019. Twenty three percent of all healthcare positions are middle-skilled jobs (registered nurse, health information technician, physical therapy assistant, medical assistant, licensed vocational nurse & coding specialist) and there is a 14 percent projected growth rate through 2019.
Logistics
L.A. County is also a top import/export hub with one of the world’s most dynamic global trade and logistics network. There are 79,000 middle-skilled jobs (logisticians/supply chain specialist, transportation inspectors, scheduler/operations coordinator, shipping/receiving clerk, transportation supervisor & ship engineers) and a 7 percent projected growth rate through 2019.
Information and Communications Technology
With the advancement of technology and the growing focus of content and entertainment innovation, funding, ideas, and workers are flowing into Los Angeles at record levels. Los Angeles is now home to more technology workers (368,510) than Silicon Valley (313,260), according to an October 2014 study by the Los Angeles County Economic Development Corporation Institute for Applied Economics. Entry-level and middle-skilled job opportunities linked to information and communications technology (web developers, computer user support specialists & audio and video equipment technicians) are expected to increase by 14 percent by 2022.
Addendum – Other Cyber Related Job Opportunities
Cybersecurity
The Cyber/Web Security track shows you how to secure your network from unauthorized activity. This program teaches you about security principles, such as establishing an effective security policy, and about the different types of hacker activities that you are most likely to encounter. Individuals with these security skills can pursue or advance careers in many aspects of online and network security.
Technical Project Management
This role is set for people with or looking to receive a PMP certification. They are executing their skill sets by setting daily scrums with software engineering teams, information technology, quality assurance, product managers and etc. in the IT field. Their role is to provide flawless execution of the project requirements and meet milestones.
Product Managers
This role is for people with product experience working in the areas of software or physical goods. They user their experience to build out feature sets according to the priorities of the project. The product manager along with the synchronization of efforts sets the requirements forth from software engineering teams, user interface/user experience teams, marketing, sales, and business process teams. Their principle role is to launch product.
Software Engineering
These roles are usually software engineers that are looking to pick up new technologies. They have typically been using some other languages in ASP, C#, PHP or etc. and would like to transition into other areas of growth and demand such as Ruby on Rails. People working on these project teams are at a learning stage or have achieved a certification and would like to gain actual work experience.
Quality Assurance
The QA roles in this project team work directly with the IT and software engineering functions. They have worked either as a manual tester up to QA Leads / Managers. They have a fundamental concept of QA and bug testing and would like to further their skill sets to be better-rounded. A typical requirement would be to work with new technologies for automating the QA process such as experience with Selenium.
Internet Marketing
The marketing positions have multiple disciplines in search engine optimization, search engine marketing, and content writing. These positions are slated to increase visibility on search engines and various online advertising mediums. The content writers work on content creation while the SEO analysts work on optimizing content on websites, mobile apps, blogs or online marketing content to be discovered on search engines or other platforms.
Business Process
The roles of the business analyst are to understand user requirements on the business level. They would then translate that into technical requirements that are given to the engineering teams to implement. The final step would be to initiate user acceptance testing and execute the process. The business process analyst can be used in various disciples in sales, logistics, IT, finance etc.
Data Science
The roles as a data analyst typically work with identifying data attributes and analyzing data sets. This role utilizes SQL or SAS to find useful information from the data sets driven by new concepts in big data such as website clicks, check-ins, Likes, comments, or other usage data. The role takes information otherwise not relevant into useful information.
Web design, Graphic Artists and User Experience
These roles are typically people that have a desire to enter the field of graphic design or website design. They work with tools such as Adobe Photoshop, Illustrator or other UX design wire framing software. They work with the product manager to graphically enhance the business requirements through placement of forms, text, and graphical icons. They deliver wireframes to the software engineering teams to implement. They also can have experience on the front end of web applications writing the CSS and HTML for the web and mobile applications.
Recruiting and HR
These human resource positions work on more of a generalist role of onboarding and initiation of payroll systems. They are trained on basic HR employment law. The recruiting functions are in the areas of sourcing and interviewing. They work on various techniques that relate to SEO marketing on different job boards and search engines. They are also trained in Boolean search strings to find job candidates in the databases. Interviewing is also another area that the HR person is trained in. They will learn different methods to interview a person to discover attributes that are most important to the end clients in the organizations they support.
Sales/Marketing
The role of sales is mainly focused on customer service, phone calling, account management, and community management. The sales person usually learns to maintain the sales cycle by tracking their own sales metrics in a Customer Relationship Management (CRM) software. The role is training a person to be comfortable to engage with current or potential clients by building a relationship through the phone, email or in person.