Economics & Research Blog
Jobs Report Highlights What the Real Problems of the Economy Are
By Dr. Joe Webb
Published: June 4, 2010
Sure, the unemployment rate
went down to 9.7%, but there was little good about this report. Last month, the rate went up, but the news cycle rightly reported that the increase in the workforce was a good economic sign. This month, however, the workforce declined by -322,000, and the household survey
showed a decline in employment of -35,000. That's despite a rise in payroll employment
of more than 400,000 of which the majority were temporary Census workers. The broadest definition of unemployment (U-6
) did drop from 16.6% to 16.1%. The workforce is about 1.3 million smaller than May 2009.
There are four basic themes playing out:
- Efficiency rather than expansion: Investment in computer technology is strong, but not in many other areas. A part of getting more from less is by investing in information technologies. These make businesses more efficient, but it does little for most businesses to expand their operations or new initiatives.
- Proof before action: Decisive inertia, that is being firm about doing nothing is now the rule of the day for many executives. They're not likely to make any big bets on a growing economy until they see clear proof of it.
- Stay close to home: Venturing out into new areas looks riskier than usual, so there is a tendency to keep investment closer to core business operations and to keep any excess cash close by, despite the meager earnings that it has. Risks seem more dangerous and 1% returns seem to be protection against losses.
- Credit is not capital: There is still a belief that stimulating loans is the key to getting business rolling again. Business people need opportunities, not loans. They'll find the capital for compelling opportunities from investors, not banks. But as long as the prior three items are the guidelines for business, all the credit expansion one can imagine will be useless.
The government, the Fed included, is still trying to support the prices of goods produced long ago (housing) and is doing little to stimulate the production of new goods and services. When money is created out of thin air, rather than by the actions of entrepreneurs, investors, and workers, any upward economic movement is hollow and temporary. We are in an L-shaped recovery. Still. Recent GDP growth looks more and more as it is in response to shifting revenues to this year to avoid the higher tax rates of 2011.
Sideways movement of the economy does not mean that things are at a standstill. It means that there is lots of churning inside organizations as they work to change their costs because they can't change their revenues. Costs are the only things that they can control; revenues are unpredictable. This is where good and innovative suppliers can gain footholds when they offer options to the status quo. This is why nothing will go back to the way it was, nothing will go back to “business as usual.” What are you doing to join in the creative chaos that clients need? Step back and rethink your business, and that of your clients.
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I'm waiting for someone in Congress to propose that we do a Census every year as a jobs program. It reminds me of the old story about Milton Friedman's visit to a government program construction site. When asked why the workers were using shovels rather than construction equipment, the supervisor admonished Friedman that it was a jobs program. Friedman replied, “Why didn't you give the workers spoons instead?”