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Churn & Burn

Are we finally starting to see some good economic news?  That’s always a hard question to answer, especially as legislatures across the USofA fight over some really lousy budget projections that require tough action.  But most people will agree that what matters most right now are jobs, and that may finally be looking up.  The reason is a simple one – those who are employed have been squeezed about as far as they can be.

One person’s constant stress becomes another person’s opportunity – eventually, at least.

The most recent jobs report shows that through the first four months of the year the private sector has been adding jobs at the fastest rate in a year.  The gains that were predicted back at the end of 2010 have materialized.

These gains were easy to predict because the initial claims for unemployment fell below 400k per week at the end of that year, meaning that businesses stopped laying people off.  Lost in this week’s flurry of good news is the latest initial claims figure, which spiked back up to 474k, bringing the smoothed out 4-week moving average of claims back up to 431k.  That suggests that there is trouble ahead.

A net gain of 244k over the course of a month is not particularly strong when you have 1,700k or more losing their jobs in the same period, but it shows that something very dynamic is happening.  Before we have real growth we have to expect turmoil – it’s the restructuring that has to come before a real recovery.  It appears to be happening.

The real underlying engine of job growth right now is falling productivity gains.  That’s a fancy way of saying that workers who have jobs are being squeezed about as hard as they possibly can and successful businesses have little choice but to hire more people if they want to keep growing.

There was a time when Fed Chairman Greenspan relentlessly told us that productivity gains were the driving engine of our economy, but yesterday’s productivity gains are today’s unemployment.  They mean that fewer people are needed to get the same amount of product out the door.  Declining productivity is the key to creating jobs.

That’s always the problem with economics.  Good news is often bad news, depending on how you look at it.

What we can say for sure is that the economy is churning like crazy and people with jobs are working very hard.  That means that the restructuring needed to create tomorrow’s economy is taking place and that there might well be enough work to go around if it was shared among more people.  The solution, again, is to reduce the overhead per employee so that companies are less resistant to hiring.  Sadly, this has escaped popular debate in just about every quarter I’m familiar with.

Meanwhile, keep an eye on that initial claims number, as always.  While there are so many numbers floating around that it’s easy to be distracted there is a lot of value in watching one and getting a good feel for it.  That number told us that 2011 would start out well, and so far it’s gone down that way.  It’s now telling us that there is trouble ahead so we have to be cautious.

Still, there are reasons to be optimistic.  Those with jobs are getting burned out, and their misery is an opportunity for everyone else.  It’s still not enough to absorb the young workers entering the economy, but it’s a start.  The new generation will be the ultimate restructuring, and that will come one day whether we are ready or not.

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18 thoughts on “Churn & Burn

  1. I’m confused – did we lose 474,000 jobs but gain 244,000? That doesn’t sound like good news to me.

  2. Anna, the net gain was 244k – so we lost at least 1.7m but gained closer to 2.0m. Sorry for the confusion, I should have labeled it better. That means about 20% of our workforce is changing jobs in a year, which is not unreasonably high but it is higher than it’s been in a while. I have to hunt down the figures on the total churn in the economy, but those aren’t tracked closely by anyone official.

  3. Good article. I was thinking about the military just the other day as we are in WWIV according to one foreign policy author. You know the Cold War III employed a lot of people and they didn’t necessarily have to die or do something productive but practice. Bin Laden may have helped cripple the 2 cold war empires. My friend who came from a poor family was a weekend warrior and is quite the successful man today.

  4. “…not enough to absorb the young workers entering the economy…” It’s for-sure-certain then, not enough to absorb at least one not-so-young-yet-willing worker whom I know personally only too well. [Written with a smile bordering on a grimace]

  5. You used to have graphs of the initial claims. I wonder how that has been going since December. Did it shoot up recently or has it been creeping up slowly?

    Good job predicting this stuff.

  6. Dan, there are a lot of things like that just going away. Some of it is totally predictable, but it’s all quite painful.

    Jack, I think a responsible government has to acknowledge this problem and respond before it becomes a worse crisis. I almost did a story today on how 2/3 of fed spending is on autopilot, meaning that we can’t do anything new or respond to situations. That’s a serious problem waiting to become a catastrophe – as I think you can see.

    Jim, I tried to get that graph together but the data wasn’t cooperating. Something weird at the St Louis Federal Reserve site. I just ran out of time. But yes, the initial claims leads hiring by 1-2 months – and reporting by about 3 months. Basically, companies stop firing before they start hiring (duh!). It’s a cute trick. 🙂

    • As long as congress plays politics rather than really trying to work out a budget, we will continue to lose over the long haul. Taxes must be part of the equation.

  7. Read an interesting pulp fiction book today by Jim Thompson called Pop.1280. Seems like the local town leaders were upset by the homes burnt down in the colored section, not because of the sufferin’ but cuz they needed the field workers.

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