A few scenario data points as we head into June:
- Job growth has apparently stalled after half a year of strong and apparently accelerating growth. Today’s release of May payroll numbers by the Bureau of Labor Statistics showed not only an increase of merely 69,000, it also revised April numbers down. BLS Commissioner John Galvin: “Payroll employment rose by an average of 226,000 per month in the first quarter of the year; for April and May, the average was 73,000. Health care, transportation and warehousing, and wholesale trade added jobs in May, while construction employment declined.” Unemployment rose to 8.2%.
- Health care employment was up 33,000 in May, almost half the net gain in jobs. Over the past 12 months, health care has added 340,000 jobs. (Think aging Baby Boomers. This trend should continue in the unthinkable event that Baby Boomers continue to get older instead of suddenly getting younger and mass-reassembling, zombie-like, at Max Yasgur’s farm in Woodstock.)
- Wholesale trade added 16,000 jobs over the month and has added 184,000 jobs the past year; manufacturing was up 12,000 (though this was down from an average of 41,000 a month during the first quarter). These sectors are relatively unchanged over the past 12 months. These sectors are presumably vulnerable to the fluctuations of the dollar. A weak dollar has caused somewhat of a rebound in US manufacturing; if the dollar were to strengthen (or the euro, e.g., to weaken), then these sectors could begin to hemorrhage jobs again. (Think “Greece and Spain and Italy, oh my.”)
- The political consequences of these numbers could be profound. Republicans pounced on President Obama today, claiming that the weakness in the job market is a testament to the failure of the President’s policies. From the other side, economist Paul Krugman and other Keynesians, who from the transition of 2008-9 warned the president that any stimulus bill should be on the order of the hole in GDP (some $2.9 trillion), now claim that they have been vindicated and that the recovery cannot sustain its current momentum now that the effect of the “mere” $787 trillion in stimulus has been spent. Obama would appear to have few options. Republicans, in control of Congress, have never been eager to hand him a victory; now that the economy seems to be fading once again, their incentive to do anything about it would appear to be nonexistent.
- Nixon allegedly said “We are all Keynesians now.” Actually, it was Milton Friedman. What he meant was that the terminology of much of modern economics was created by John Maynard Keynes, and even those who disagree with his conclusions – basically, that we cannot get to the long term to remedy debt and deficits without stimulating in the short term to get the economy going again – use Keynes’ terminology and his analytical frameworks. In today’s argument, the phrase means this: If you are a “liberal,” you probably want government spending, which is a Keynesian form of stimulus. If you are a “conservative,” you want more tax cuts, which is also a form of stimulus. Both sides claim to be concerned about the deficits, but in the end each side seems to hurl that concern under the bus in order to please its base.
- One more data point: banks are awash in deposits. This should mean that there is plenty of money to lend. But banks are not lending, because economic activity is in suspended animation. One source indicates to us that their institution is attempting to do anything they can to REPEL deposits, by lowering interest rates, because there simply are not places to invest the deposits. In fact, this has been cited as a possible reason for the recent J.P. Morgan $2+ billion loss: that the bank could not lend the money, and had to find “creative” ways to invest it: http://mobile.bloomberg.com/news/2012-05-17/fed-said-to-study-how-banks-manage-deposits-after-jpmorgan-loss . But you cannot lower interest rates below zero, so the tools banks can use to repel deposits are limited. Just an indicator of the abnormality of the economic times, and also one data point to show that those who believe that consumer saving is always a good thing and MUST be productively deployed once deposited in banks are not always right.
- One last data point: an economist we know states that the cure for the excess deposits and the debt crisis may well be a nice dose of inflation, “nothing serious, but a surprise, on the order of 5 to 10 percent a year for about five years.” This would diminish the real weight of debt on the US, harming only creditors, would also bail out those households in the US who owe, and would force banks to loan or watch the value of their deposits decline 5-10% a year. “Obama’s second term would be an ideal time for this to happen.” Whoops…that “ideal time” may just have receded into an unreachable future. Hard to imagine selling inflation to the American people — which was not this economist’s suggestion, of course; but also hard to imagine a president who seems concerned with comparisons to Jimmy Carter presiding over a second term in which inflation is allowed to reenter the economy…or, in fact, being re-elected at all to do any such thing. If Romney is elected, that inflationary remedy would appear to be even less likely.
- Equally it is difficult to imagine Obama not feeling tremendous pressure to do something dramatic to salvage the economy prior to the election. If these numbers had come in in September, he might have felt he could do nothing. June 1 is just enough time to at least take some steps to try to restimulate the economy — but it also appears far too late to merely propose something that appears reasonable, and to hope to be able to hang any failure on Republicans. He must actually DO something, or he is likely to appear weaker and weaker. With a Republican Congress in recess, the odds of doing anything with impact appear longer and longer.
In the words of Bette Davis, “Fasten your seat belts. It’s going to be a bumpy night.”