November 5, 2012

Nation has impediments to economic growth

Posted in Economic Growth, recession, Uncategorized tagged , at 8:30 PM by Robert Barone

In my last column, I analyzed why headline data showing significant job growth might be misleading without a deep analysis of the underlying data. The fact is, the economy cannot grow without a healthy consumer, and the consumer cannot become healthy without a robust job market. This is common sense. The accompanying table sheds a lot of light on the health of those labor markets.

From July 2009 to September 2012, 3 million jobs have reappeared in America. From December 2009 to September 2012, that number is 5 million; 2 million jobs were lost between July and December 2009. But, if you stopped with that data, you would not have the real story.

• Over the period measured, jobs held by seniors, age 55 and older, grew by 3.5 million. That means that, on net, all jobs in other age brackets fell by 500,000.

• Those in the 20-24 age group (college graduates) grew by 730,000.

• Jobs for 16- to 19-year-olds fell by about 500,000.

• But the real issue here is that those in their prime earning years (ages 25-54) have lost 730,000 jobs. It is clear that, for the middle class, the recession has continued. And, it appears that Vice President Joe Biden hit the nail on the head when, in the vice presidential debate, he said that during the past four years, the middle class has been “crushed.”

Why has this occurred?

• After two devastating drops in the equity markets since 2001, and with a Federal Reserve policy of 0 percent interest rates, which dramatically reduces returns from now depleted retirement assets, seniors either are not retiring or are taking part-time employment just to survive.

• As you can see from the table, the number of part-time jobs has risen by 4 million since July 2009. These are folks who want full-time jobs but can’t find them. Remember, as I indicated in my last column, the headline measure of unemployment (7.8 percent in September) counts part-timers as fully employed.

• With increased levels of taxation (new upcoming Obamacare taxes plus promised new taxes on small businesses, which are those that earn more than $250,000 per year) and more regulations, employers are more than happy to use part-time workers where possible. By doing so, they have lower health care costs, lower hourly wage costs (the employee has a take-it-or-leave-it choice) and much lower long-term employment benefit and retirement costs.

Is it any wonder that household median income has fallen from $54,489 to $50,054 since the recession began? So, while the actual count of full- and part-time jobs has risen by 3 or 5 million depending on your starting date (July or December 2009), the vast majority of these have been part-time, low-wage jobs, and have been taken by seniors who simply cannot afford to retire. Meanwhile, full-time higher wage work for middle-class families in their prime earning years (25-54) has continued to contract after the recession supposedly ended.

Clearly, the economy won’t heal until these trends reverse. All of the rest of the supposed economic indicators (housing, GDP, stock prices, etc.) are irrelevant. Seniors need to be able to retire and have their full-time jobs taken by younger workers. Regulatory and government-imposed costs to business of hiring full-time employees need to be addressed. These are long-term issues. Recognition of these issues is a necessary first step — one we haven’t yet taken.

I suspect that the markets will pay more attention to these issues after the election, no matter who the winner is.

Robert Barone (Ph.D., Economics, Georgetown University) is a Principal of Universal Value
Advisors (UVA), Reno, NV, a Registered Investment Advisor. Dr. Barone is a former Director of the Federal Home Loan Bank of San Francisco, and is currently a Director of Allied Mineral Products, Columbus, Ohio, AAA Northern California, Nevada, Utah Auto Club, and the associated AAA Insurance Company where he chairs the Investment Committee.

Information cited has been compiled from various sources which UVA believes to be accurate and credible but makes no guarantee as to its accuracy. A more detailed description of the company, its management and practices is contained in its “Firm Brochure” (Form ADV, Part 2A) which may be obtained by contacting UVA at: 9222 Prototype Dr., Reno, NV 89521. Ph: (775) 284-7778.