In celebration of a decade of Barataria, I have to present another repeat. This is from March 2008. It’s an interesting time in that it was six months after the stock market peaked and six months before the financial collapse became obvious. One of the great themes of Barataria since this time has been how we’ve seen it all before and we’re about to see it again. The real story here isn’t that I called it at this time – it’s that so few people saw what was obvious as it happened around us.
Imagine that a new technology comes along that spawns a whole new industry. Not only is this industry a revolution in how people lead their lives, it’s immensely popular and generates a big pile of cash. The field starts out wide-open with many small entrepreneurs, but gradually they become rich as they are bought out by a few big players. Soon, the industry has consolidated and re-investment slows dramatically. Those who made big money start to put it into real estate, specifically in Midtown Manhattan, Florida, and Los Angeles.
“All money is a matter of belief.”
– Adam Smith
Gold is taking a solid beating these days. It’s been slipping for a while, but when China revealed that it’s reserves were less than believed it really fell – quickly slipping below $1,100 per ounce when one mysterious trader dumped everything. It’s now more than a third off its 2010 peak and nearly everyone believes that it’s doomed to slip below $1,000 per ounce by the end of the year.
What happened? Isn’t gold the ultimate money in an unstable world? The short answer is no, and this has as much to do with the rise of the US Dollar as anything. But in the end gold is not as much a form of money as it is a barometer of fear – a commodity that appears to be in much shorter supply today than it was just a few years ago.
Where are the jobs? Job creation has been the hot economic topic since the big downturn in 2008. The sooner we have full employment the sooner demand for goods and services will turn around and there will be a net upward pressure on wages. But in 2015 the rate of increase in jobs has slowed somewhat, barely hitting 200k net every month from a solid run of 220k the year before. What happened?
The data is even more confounding when you look at the net good news on jobs – that initial claims for unemployment per week are at an all-time low as a percent of total jobs. We’re not creating jobs as fast as we should, but we also aren’t losing them. Along with a large backlog of unfilled job postings there is substantial evidence that something is wrong. Is it a skills gap? Or something else?
If you’re like most people living paycheck to paycheck, you have a simple problem at the end of the month – not enough cash. There’s nothing to be embarrassed about here – it’s a common problem that is faced by a large number of families as the economic recovery struggles on.
But if you’re an S&P 500 company, you may have a different problem – too much cash. Not precisely too much cash on hand, that is, since that’s never a problem. You may have something like cash sitting around somewhere in the world that you have trouble bringing home to make use of the way you want to.
Therein lies the problem with this economy – not that there isn’t enough to go around, but that it isn’t going around.
Investment is a tricky thing. You put up a lot of money in the expectation that you’ll have a small return year over year. Currently, the expected rate of return is historically small in the developed world, on the order of a few percent. It has to be weighed against the risk that the initial investment will never be paid back, winding up in default.
The slowdown in the global economy is not actually a decline in output all over the world, but a pause in the rate of growth. It wasn’t expected, either, which is the real problem. The developed world is largely stagnant, save some hope in the US for better times ahead. The developing world need to catch up, but appears to be taking a breather after a tremendous run.
As we consider the next few years and the potential for a genuine boom ahead, it is becoming clearer that we aren’t ready for anything more than muddling through until there is a reckoning and a realization of how the next economy will work – for everyone. That will take some patience and public investment all over the world.
Of all the various measures of the economy we have at our disposal, one of the most consistent and real-time is the Unemployment Initial Claims, which comes out weekly. It’s nothing more than a measure of how many people filed for unemployment insurance in the previous week, so it’s a solid number that doesn’t come from a survey or other statistical measure.
It still has its problems, however. It’s noisy, bouncing up and down a bit each week – a problem taken care of by looking at a 4-week moving average. Initial Claims numbers also don’t tell us a thing about hiring, but rather how many lost their jobs.
It hasn’t been useful for at least two years as attention turned away from job loss to job creation that would absorb the surplus workers looking for employment. But it’s worth checking in with this handy number one more time because it has hit an important milestone – and may be as low as it will ever go.
According to ADP, the largest payroll processer in the US, the total number of private sector jobs made up the net loss in the last official recession last month. In January 2008 the total number of jobs stood at 116.0 million in January 2008, falling to 107.2 million by February 2010. The net loss of 8.8 million jobs was finally regained in March 2014 when we hit 116.1 million total. That includes 491 thousand gained so far in 2014.
If that’s not a good reason for a party, what is?