Monday, 11 October 2004

US employment situation is worse than it looks

US job growth disappointed again last Friday, with payrolls growing by just 96,000 in September, well short of the 150,000 or so expected by economists.

Barry Ritholtz at The Big Picture suggests that the actual employment situation is much worse than it looks. He thinks that there are structural problems in the labor market which might be overlooked. And in a post-bubble environment, "economists err when they apply the usual presumptions about typical recession/recovery cycles" as the environment does not conform to the usual rules.

He points out that a proper accounting of the labour participation rate would raise the unemployment rate -- officially at 5.4 percent -- to a higher figure. And if you add the marginally attached workers and part-timers who really want to be working full time, the rate rises to 9.4 percent.

So things are bad, and I can't say I'm surprised. The manufacturing sector in particular has taken a huge hit, no thanks to its vulnerability to the increasing intensity of global competition, which is in turn the result of the emergence of China as a manufacturing powerhouse and its increasing integration into the world economy. Now, India is adding to the intensity of that competition.

This increased level of global competition is, in my opinion, a major factor in holding back job growth in the US. And facilitated by advanced communication technology, the extent of the competition is unprecedented. With the rise in the global supply of labour rising much faster than the rise in global demand, something has to give.

What has given so far is US employment. But workers and job-hunters need not bear the burden alone. The US dollar can take some of the burden off them by depreciating to help the US economy absorb some of the competition, as I suggest in "Disappointing job growth may hurt US dollar". This would not only relieve the job situation but also the current account deficit.

1 comment:

Ritholtz said...

What makes this analysis so potentially devastating is the source: This does not come from political partisans; Rather, it comes from economic analytical services who make their money advising huge institutions (mutual and hedge funds).

These real dollars at risk are unconcerned with "politics," -- they focus instead on investment performance. That means there's no room for overly rosy scenarios -- its "all reality, all the time." It has to be when there are (literally) trillions of dollars at stake.

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