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Monday, May 19, 2008

The Future

You rarely see anyone discuss the JOLTS (Job Openings and Labor Turnover Survey), but does prove useful. Jolts measures job openings and job departures. As you might guess, in bad job markets employees tend to leave jobs less, so both tend to turn down together. While JOLTS hasn't varied much recently, there has been a notable slackening beginning in 2007:
The job openings rate remained essentially flat from August 2006 through September 2007 then began trending downward; the rate in March was at the lowest point since mid-2005. The hires rate has had an overall downward trend since July 2006, and has reached the lowest level since early 2004. The separations rate has had an overall downward trend since November 2006. (See tables 1, 2, and 3.)
There has been an obvious change in private hiring:
Over the year, the job openings rate (not seasonally adjusted) rose significantly only for federal government. The rate fell over the year for total nonfarm (to 2.7 percent) and total private (2.9 percent) as well as in several industries, including construction (1.4 percent); durable goods manufacturing (1.8 percent); wholesale trade (2.2 percent); transportation, warehousing, and utilities (1.9 percent); information (1.7 percent); and finance and insurance (2.7 percent). Two industries--wholesale trade and information--have experienced exceptionally steep declines in the job openings rate over the past year. The job openings rate for whole-sale trade fell from 3.8 percent in March 2007 to 2.2 percent in March 2008; the rate for information fell from 4.5 percent in March 2007 to 1.7 percent in March 2008.Regionally, the job openings rate fell over the year in the Northeast (2.3 percent) and in the South (2.8 percent).
The wholesale trade trend is because retail margins are very tight and volumes are dropping. As I kept explaining last year, the volume trends in shipping are most related to employment in trade & transport. The explosion of banking and lending businesses had accounted for many information openings during recent years, and therefore it's no surprise that this industry would be affected.

There's lots more data at the survey. According to rail data, we should have a sharper downturn coming along at almost any time in wholesale and retail. Trucking data confirms this theory.

Therefore I do not believe that the emerging economic consensus for a slow improvement in the economy is correct. Gas and diesel prices are exerting an inexorable downward pressure on disposable incomes, and the consumer side of the economy will trend downward, placing further pressure on employment.

Furthermore, the weakening in German and Japanese exports is not a good sign for US manufacturers. US currency is giving a competitive edge to domestic producers, but it is an edge for what seems to be a declining market.

I have written somewhat about the Indian situation, and their economy seems to me to be in considerable travail, and I am not the only individual with these concerns, although the debate rages. But the major problem affecting the Indian economy is likely to stem from infrastructure pressures. It is quite significant that their energy companies want to cap LPG quotas to existing customers and limit new connections in order to stem their losses. In another move, energy companies are trying to bypass their losses on price-controlled motor fuels by ceasing to provide them and substituting their brands, which are not price-controlled.

I cannot believe that current energy price trends can last much longer without inflicting a severe blow on international trade. India is a relatively strong economy and an economy with significant domestic energy production, so I take it as a middle Asian case. Yet inflation is soaring, its currency is depreciating, and costs to consumers are unlikely to be curbed.

In such an environment, imposing a carbon cap and trade scheme could inflict a severe blow on world trade. The price controls and subsidies so common in Asian countries come along with energy inefficiency, and such schemes will end up being a massive tariff. Both McCain and Obama seem now to be supporting policies which are extremely economically risky. The US is dependent on growing demand in other countries just as those other countries depend on our consumption.

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