Autumn pick-up?

The US employment figures for August that came out on Friday put a bit of a dampener on the growing euphoria in the business media that economic recovery is now sustained, not only in the US, but also in Europe and Japan – after over four years since the trough of the Great Recession in mid-2009.  Unfortunately, for that view, the US employment rose just 169k in August, with July being revised down to 104k and June down to 174k – three weak numbers in a row.  Against the hopes of 200k+ each month, the last three months are averaging just 148k. That’s nowhere near enough to ensure a steady fall in the unemployment rate back to so-called full employment (which now means about a 5% unemployment rate in the US), let alone to the target that the Federal Reserve has set to start ‘normalising’ monetary policy (i.e ending QE and beginning to raise interest rates).  At this rate, the Hamilton Project at the Brookings Institution’s jobs gap calculator reports that the US jobs gap won’t close until after 2025.  That’s over 12 years from now!

Sure, the official unemployment rate fell to 7.3% from 7.4% in the previous month, the lowest since December 2008.  But this was only because fewer Americans are seeking work as they have given up looking.  The labour force participation rate fell to a 35-year low (graph).  And the employment rate — the share of working-age population with any job — also fell.  If it were still at January 2009 levels, the unemployment rate would be 10.8%.  As RDQ Economics cautions, “This continued fall in participation should give pause to those who argue that the decline is cyclical and will be reversed.”   The Economic Policy Institute points out that there are “3.8 million missing workers … workers who have dropped out of, or never entered, the labor force due to weak job opportunities in the Great Recession and its aftermath.”  If they were in the labour force looking for work, the US unemployment rate would be 9.5% instead of 7.3%.

090613jobs

Moreover, the median unemployment duration actually increased to 16.4 weeks from 15.7 weeks in July, while the share of the unemployed without work for 27 weeks and longer jumped to 37.9% from 37.0%.  So there are 3 million more long-term unemployed Americans today — four years after the end of the recession — than before the recession.  And here is the most amazing statistic: so far this year there have been 848,000 new jobs.  But of those, 813,000 are part time jobs – an incredible 96% of the jobs added this year were part-time jobs.  There is an increasing lost generation of Americans who may never have a proper job that brings in a living wage (I’ll return to this theme in a future post).

It’s true, however, that employment is a lagging indicator – it looks backward to what has happened and not forward to what will happen.  And the consensus is that faster growth is on its way, and along with it, a rise in real incomes and employment.  This optimism is based on the significant rises in the Purchasing Managers Indexes (PMIs) around the globe in the last few months.  The PMIs, as I have pointed out before in this blog, are the best high-frequency measures of the level of activity in capitalist economies that we have.  They are really measures of what company managers think about the state of their industries and markets.  They are not measures of actual sales or production.  Thus they show what might happen in the future.  I have developed a composite indicator for the US PMI (manufacturing and services combined).  For the first time, in August, that indicator (data from the ISM) went close to what I consider is boom territory (graph below).  So perhaps the US economy is finally on its way up?

US comp ISM

Similarly, across the globe, PMIs rose in August.  But let’s be careful.  This does not mean every region of capitalism is expanding.  It means that each region is now doing better (or less worse than before), according to the PMI indicators.

PMIs

Also, the OECD announced its latest update for forecast real GDP growth in the advanced economies of the OECD, revising up their measures slightly.

English

The OECD reckoned that  growth was “proceeding at encouraging rates in North America, Japan and the UK” and the Eurozone was “out of recession, although output remains weak in a number of economies”.  But, although some advanced economies looked like growing faster in the rest of this year than previously thought, some larger emerging economies were slowing down: “the numbers for advanced economies are a tad higher, and for France and the UK more than a tad higher”, but the average rate of growth in emerging economies would be about 1% point a year lower than in the recent past.   And remember what the OECD is talking about is growth of about 2% a year or less for the major economies (see graph above), hardly a ringing endorsement of economic strength.  For 2013, the OECD now thinks US growth will be 1.7% with growth rates of 1.6% in Japan, 0.7% in Germany, 0.3% in France, -1.8% in Italy and 1.5% in the UK.  Wow!

The IMF has also begun to raise its forecasts a little for the advanced capitalist economies.  But the IMF has dropped its rosy view of the emerging economies which it had considered were the ‘dynamic engine of the world economy’, instead noting that “momentum is projected to come mainly from advanced economies, where output is expected to accelerate”.  It is now admitting that the faster growth in economies like Brazil, India, China etc was partly a product of a flow of cheap credit (fictitious capital as Marx called it) into the emerging economies.  The huge expansion of credit generated by central banks printing money had not gone into new investment in the productive sectors of the advanced economies, but instead into buying financial assets (bonds and equities) or into the coffers of the financial sectors of the emerging economies, where it has fuelled a property and stock market boom.

But now the PMI indexes for key emerging economies don’t look so rosy – with slowdowns reported in India, Indonesia and Korea, while greater China is steady.

Asia-PMI-scorecard-Aug-2013

So the IMF is now worried that some of these emerging economies like India or Brazil could have a credit crunch just as the advanced economies did in 2007 and is urging the upcoming Group of 20 summit in St Petersburg this week “to take action to mitigate risks from weakness in poorer countries.”  Ironically, the IMF, having swung towards ‘Keynesianism’ last April, urging governments to go easy on austerity so that economies could recover, is now swinging back.  The IMF now recommends that countries follow the British policy of “achieving structural fiscal targets and allowing automatic stabilisers to play freely”.  The IMF, under its semi-Keynesian chief economist Olivier Blanchard, is all over the place.Behind the IMF’s new backing for the success of the UK government’s austerity measures is the supposed excitement that the UK, far from slipping into a ‘triple-dip’ recession (that’s recession in 2009, 2011 and 2013), is now likely to grow faster than many other advanced economies – before austerity was a bad idea, now it is a success!

This optimism about the UK comes from a batch of recent data that suggests an improving economy (from a disastrously low base).  The services PMI has rocketed up.

UKServiceSectorAugust

According to the NIESR economic think-tank, the UK economy is now growing at its fastest pace in three years.  That sounds good, but what it means is real annual GDP growth of just 0.9% in the last three months to August, up from 0.7% a year to July.  Wow!  The UK economy is still 2.7% smaller than it was at its last peak in January 2008, in the slowest and weakest recovery from a recession in the last 100 years – even weaker than in the 1930s.  It is now 66 months since the start of the Great Recession and the UK economy has still not got back to its peak (black line in graph below), while that was achieved in 48 months in the 1930s (blue line).

NIESR_3M_Aug

The fact that optimism about UK recovery is based on its services sector is no accident.  What has been recovering is the property market.  Residential property prices are rising at over 10% a year in London and around 3-5% a year elsewhere.  It is the same phenomenon in the US, where home prices are rising at over 12% a year.  The boom in these economies is concentrated in the unproductive sectors of finance, property and the stock market, not in investment and employment in manufacturing, industry and exports.  Indeed, UK industrial output was completely flat in July  And exports to non-EU countries fell by over 16% in July, the largest monthly decline since January 2009.  As much of the UK’s ‘better’ real GDP growth in the last quarter came from exports this does not suggest that this current quarter will deliver much faster growth.

Much of the recent optimism about sustained recovery is the view that finally the Eurozone, with all its distressed and depressed peripheral economies like Spain, Portugal, Italy, Greece etc is starting to grow again.  That view starts again with the pick-up in the Eurozone PMI.

Surveys of industrial activity are consistent with a renewed recovery in time – the manufacturing PMI suggests that the annual growth rate could pick up from July’s -2.2% towards +5%. But for now, with production in Q3 very unlikely to come near Q2’s 1.3% rise, GDP growth looks set to slow quite sharply after the 0.7% quarterly gain seen last quarter.German trade data released earlier today revealed a fall in exports in July that supports this picture. In all, the data will dent hopes of a rapid recovery in Germany and hence in the euro-zone as a whole, justifying the cautious tone struck by the ECB yesterday.- See more at: http://www.cityam.com/blog/1378462536/german-industrial-production-sinks-july#sthash.etjbnyAw.dpuf
UK industrial output has been completely flat in July, despite expectations of a rise of 0.1 per cent. That comes after 1.3 per cent growth last month (revised up from 1.1 per cent).Manufacturing production also came in lower than expected, at 0.2 per cent versus estimates of 0.3 growth. Last month the manufacturing sector saw production increase by 2.0 per cent (revised up from 1.9 per cent).- See more at: http://www.cityam.com/blog/1378456108/end-uks-winning-streak-industrial-output-growth-goes-flat#sthash.7SMWtiQd.dpuf
Think tank NIESR has estimated that UK GDP grew by 0.9 per cent in the three months to August, up from an estimate of 0.7 per cent growth in the three months to July.The latest time NIESR estimated growth this fast was in July 2010, when it was also at 0.9 per cent.- See more at: http://www.cityam.com/blog/1378475746/think-tank-sees-uk-growing-fastest-pace-three-years#sthash.D1mzJvTx.DWVhoYka.dpuf
Think tank NIESR has estimated that UK GDP grew by 0.9 per cent in the three months to August, up from an estimate of 0.7 per cent growth in the three months to July.The latest time NIESR estimated growth this fast was in July 2010, when it was also at 0.9 per cent.- See more at: http://www.cityam.com/blog/1378475746/think-tank-sees-uk-growing-fastest-pace-three-years#sthash.D1mzJvTx.DWVhoYka.dpuf
Think tank NIESR has estimated that UK GDP grew by 0.9 per cent in the three months to August, up from an estimate of 0.7 per cent growth in the three months to July.The latest time NIESR estimated growth this fast was in July 2010, when it was also at 0.9 per cent.- See more at: http://www.cityam.com/blog/1378475746/think-tank-sees-uk-growing-fastest-pace-three-years#sthash.D1mzJvTx.DWVhoYka.dpuf

EurozoneManufAug

The PMIs are recovering even in the peripheral Eurozone economies, although most are still contracting, if at a slower pace.

EurozoneManufBreakAug

And it would seem that the Eurozone composite PMI is a reasonable guide to where the real GDP growth rate will go – both are picking up (see graph below).

EuropeanPMIGDPAugust

But the actual data continue to show how weak Europe’s economies are.  Most forecasts are that Eurozone GDP will still contract this year, before growing next year.  Indeed, the European Central Bank (ECB) adjusted its predictions from June, revising up its 2013 GDP forecast from -0.6 per cent to -0.4 per cent, but it cut next year’s estimate from 1.1 per cent to 1.0 per cent.   Wow!

And it was not encouraging to note that in Germany, the engine of Europe’s growth, manufacturing output in Q3 is very unlikely to come near Q2’s 1.3% rise and real GDP growth looks set to slow quite sharply after the 0.7% quarterly gain seen last quarter.  July’s German trade data revealed a fall in exports.

I have never claimed in this blog that the world was in a permanent slump or that it had dropped back into a recession, when many others made such forecasts.  But I also remain unconvinced that recent optimistic noises mean that world capitalism is now on a sustained upward trend in economic activity.  In my view, it is still in a slow crawl, as it was in the years 1932-37 during the Great Depression or in the Long Depression of the 1880s.  For me, the key indicators of sustained recovery in capitalism would be rising rates of profit, a sharp pick-up in business investment and substantial falls in unemployment.  There are little signs of any of this.

I’ll return to the question of the role of investment and profits in another post shortly.

POSTSCRIPT

John Lott (http://johnrlott.blogspot.co.uk) provided the figure that said 96% of all jobs created in the last eight months in the US were part-time.  Well, it appears that Lott got it wrong.  Only 59.4 percent of the jobs added from January to August were part-time jobs (497,000 of 837,000 total jobs).  And if you exclude March, then the percentage drops to 19%.   And over the last year, the figure is just 14%.

parttime

Even so, that does suggest part-time jobs are becoming a larger proportion.  Statistics!

5 Responses to “Autumn pick-up?”

  1. Boffy Says:

    Michael,

    Thanks for the usual supply of extremely useful data. Just a caution on the US participation rate data, however. I’m sure that the obvious, and probably main reason is that people have stopped looking for work. But, another reason is almost certainly the composition of the workforce, and the role of baby boomers.

    In the 1990’s, almost every year at the Council where I worked, there were voluntary redundancies. It was usually part of a ‘restructuring’ that allowed the Chief Executive who was usually the last in a line of such who had done the job for two or three years, to retire, for other Chief Officers to obtain redundancy payments and early retirement, and for others to build a temporarily larger empire, and salary before the next restructuring. But, their were lots of other people at all levels of the hierarchy that were able to take advantage of redundancy payments, an extra 6 2/3 years added to their pension contributions, and to start getting their pension from age 55.

    Many had worked in Local Government since leaving school, so with the added years, most then received their full pension of 50% final salary. A few of these did take on part-time jobs, working in B&Q etc., most simply enjoyed 10 years of additional retirement. As with many other people of the boomer generation, they would have been able to have bought their houses back in the 1960’s, maybe upgraded in the 1970’s, and long since had it paid for, as wage inflation in the 70’s, in particular dissolved the capital sum of their mortgage. This is all the more easy for those of us who live in the North away from the ridiculously inflated house prices of London and the South-East.

    But, the US has had a similar development of its boomer generation. It has had people who were able to similarly buy their houses and long sicne have had them paid for, to have enjoyed rising wages in the 1960’s and 70’s, even if they have been stagnant in the last 30 years. Having paid for their houses etc. decades ago, they would have been able to have built up reasonable nest eggs, which could be invested in mutual funds, 401k’s etc., just as many of the people I worked with including the ordinary clerical staff had built up additional pension, and taken up their full entitlement of PEP’s and ISA’s etc.

    For such people, the stagnant wages of the 80’s and 90’s, would have been more than compensated for by the bubble in asset prices.

    So, its likely that many of the older people in the US who are no longer participating in the workforce are doing so out of choice. For those who worked in large companies they may also have health insurance cover as well, as is the case for retired auto workers, for example.

  2. Charles Andrews Says:

    “I have never claimed in this blog that the world was in a permanent slump…”

    Yes, there will be cycles of accumulation. Since 1973, though, the trend line for workers is permanently down. In the U.S. the real median wage peaked that year, stagnating or falling most years since then, occasionally up a tick, and forever well below the 1973 level. It will never be regained.

  3. bill jefferies Says:

    “I have never claimed in this blog that the world was in a permanent slump or that it had dropped back into a recession, when many others made such forecasts.”
    No you just claimed it was in a Great Depression. Excuse me for not seeing the difference.

    • michael roberts Says:

      Hi Bill
      Good to hear from you again. After your quote, I went on to say “But I also remain unconvinced that recent optimistic noises mean that world capitalism is now on a sustained upward trend in economic activity. In my view, it is still in a slow crawl, as it was in the years 1932-37 during the Great Depression or in the Long Depression of the 1880s. For me, the key indicators of sustained recovery in capitalism would be rising rates of profit, a sharp pick-up in business investment and substantial falls in unemployment. There are little signs of any of this.” The Great Depression of the 1930s did not end until WW2 was well under way, indeed sustained recovery did not start until 1946. But there was still a period of relative expansion from mid-1932 to 1937, before another recession. This happened several times during the first ‘Great Depression’ of 1873 to the early 1890s. I am suggesting that is the stage we are in now. But if I am wrong, I promise that I won’t hang to a refuted analysis.

      • bill jefferies Says:

        hi Michael, its the business cycle. We’ve had the crash, then the recovery, then the slow down and now the boom – probably until around 2017 – and then the crash.
        So far so unremarkable.
        Its obviously not the end of globalisation – the upward phase of the long wave remains in tact – there has been no change the geo-political framework, profit rates remain high and rising etc.
        The next recession might signal the end of the long wave, but this one certainly hasn’t.

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