McJobs for America

Today’s U.S. jobs report received rave reviews in the financial press. The 214,000 Americans who found jobs last month had no reaction. Most haven’t read the news yet because they are too busy slinging fries.

Fast food is a perfectly respectable field, of course. It is the launchpad to better things for many people. Journeys begin there … and sometimes they end there as well.

Rocket explosion

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The photo above is an unmanned Antares rocket blowing up on the launchpad last week. No humans were aboard.

The rocket had an entry-level job delivering supplies to the International Space Station. As you can see, its career ended quickly. Will the formerly unemployed Americans who started new jobs last month have better luck?

This morning, the Bureau of Labor Statistics released its monthly employment report for October. Economists had estimated the economy generated 235,000 new jobs for the month. The actual number came in a little lower at 214,000.

Overall, this was a good report. It marked the ninth consecutive month of job growth over 200,000. Furthermore, the unemployment rate dropped to 5.8%, even though the labor force grew by 416,000. However, their improvement was not simply a result of people giving up their job search.

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Some analysts saw the report as evidence the Federal Reserve would start raising interest rates early next year. I’m not convinced. I think Janet Yellen wants to see more than new jobs. She wants to see new jobs that allow workers to gain financial stability.

By that standard, we have a long way to go.

Look at wages. Today’s report also showed average hourly earnings rose only 0.1% in October and 2.0% in the last year — roughly in line with the “official“ inflation numbers, which we know understate the cost of living for most people.

Moreover, we have to look at the nature of the new jobs. BLS breaks them down by sector. Here is a handy chart from Quartz.com.

Jobs chart

Notice that the top four sectors account for 73% of the new jobs. “Leisure & Hospitality“ alone is 24% of the increased employment. Within this group, 42,000 of the 52,000 new jobs were in the “food and drink“ subcategory, where wages are generally low.

The second-place category is “Education and Health Services.“ It definitely includes some high-paid people like doctors and nurses, but it is also where BLS puts the folks who clean hospital rooms and drive school buses.

“Professional and Business Services“ is a catchall category that covers all sorts of jobs. Again, I suspect most of the new ones have below-average wages.

“Retail Trade“ includes store cashiers, stock clerks, and their supervisors.

Again, any job is better than no job, so I’m not saying this is bad news. My point is that the labor market is nowhere near recovery, despite the good headlines.

Look at the bottom of the table. The “Information“ sector — i.e., technology — actually lost jobs last month. These are well-paid jobs, and the economy isn’t generating any more of them yet.

When average wages start growing faster than inflation, we know that businesses are hiring for senior-level workers. This will mean they are planning for growth. I hope that we get there soon.

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One place where our readers don’t see a lot of hope is in politics. I’m still getting feedback letters on my Midterm Tsunami and 72 People Who Rule the World articles. Thank you for your comments.

I asked yesterday if elected officials are afraid to make the “hard decisions“ voters say they want. Here’s what some of your fellow readers had to say:

Reader Roger W. says: “I think we say we want the hard decisions but in reality, not if it affects us personally … . and every hard decision will affect millions of Americans. Most if not all of our politicians want to be re-elected so none of them want to touch any of the hard issues.

Most Americans rebel at even the slightest mention of reforming Social Security, Medicare, education, etc, etc. No one wants to feel the pain but it is everywhere. So nothing will change until forced by a no-win situation.“

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Reader Allen O. says: “Brad, would the citizens of any country vote for Santa Claus or Scrooge? Santa, of course. There are those who openly call for bigger government as long as they are exempt from the bulk of regulations.

“Those who openly call for a smaller government want spending cuts, but not from their shopping list. They also would take any cuts off the lists of others to spend on their own list.

“The size of government will continue to grow. Though it may grow more slowly under Republican control, history proves government will continue to grow until it collapses. Like Detroit, even during the collapse life goes on.“

Brad: Thanks, Roger and Allen. I wish I could say you are wrong, but your comments make a lot of sense.

Speaking of Detroit, today a federal bankruptcy approved the city’s plan to eliminate $7 billion in debt and begin a multi-year rebuilding process. As Allen says, life goes on.

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What do you think of the jobs report? Does anyone really want smaller government? As always, I welcome reader feedback on my afternoon thoughts or any other topics. You can leave a comment on our website or send me an e-mail.

***

Stock benchmarks were all over the board today. The Dow dropped at the open as traders digested the jobs report, rose at mid-day as the energy sector rallied, then pulled back to end just above break-even. It was still good enough for another record close.

  • For the week, the Dow Jones Industrial Average gained 1.1% and the S&P 500 rose 0.7%.
  • Energy stocks rallied after a rough stretch. Crude oil rallied on reports that Russian forces were moving back into Ukraine. U.S. Dollar softness against other currencies helped as well.
  • Boots on the Ground Watch: President Obama today authorized 1,500 more troops deploying into Iraq to help the country resist Islamic State militants.
  • Struggling retailer Sears Holdings (SHLD) said it would raise cash by selling hundreds of prime store locations to a newly formed real estate investment trust. SHLD shares shot higher and ended the day with a 31.0% gain.
  • The U.S. Supreme Court agreed to hear another challenge to the Obamacare law. Opponents say the law as written forbids tax credits to low-income people in some states. If successful, the challenge could render the entire program unworkable.

Good Luck and Happy Investing,

Brad Hoppmann

Publisher

Uncommon Wisdom Daily

 

Your thoughts on “McJobs for America”

  1. I’m sure they’ll all be going out and putting down payments on $500,000 homes next week.

  2. In free-market capitalism, capital generates income for the owners of the capital which in turn is used to create additional capital. This is very good. Sometimes, it can be actually too good. As capital continues to accumulate, its owners find it more and more difficult to deploy it efficiently. The business sector generally must interact with the household sector by selling goods and services or lending to them. When capital accumulates too rapidly, the productive capacity of the business sector can outpace the ability of the household sector to absorb the increasing production.

    The capitalists, or if you prefer, job creators use their increasing wealth and income to reinvest, thus increasing the productive capacity of the business they own. They also lend their accumulated wealth to other business as well as other entities after they have exhausted opportunities within business they own. As they seek to deploy ever more capital, excess factories, housing and shopping centers are built and more and more dubious loans are made. This is overinvestment. As one banker described the events leading up to 2008 – First the banks lent all they could to those who could pay them back and then they started to lend to those could not pay them back. As cash poured into banks in ever increasing amounts, caution was thrown to the wind. For a while consumers can use credit to buy more goods and services than their incomes can sustain. Ultimately, the overinvestment results in a financial crisis that causes unemployment, reductions in factory utilization and bankruptcies all of which reduce the value of investments.

    If the economy was suffering from accumulated chronic underinvestment, shifting income from the non-rich to the rich would make sense. Underinvestment would mean there was a shortage of shopping centers, hotels, housing and factories were operating at 100% of capacity but still not able to produce as many cars and other goods as people needed. It might not seem fair, but the quickest way to build up capital is to take income away from the middle class who have a high propensity to consume and give to the rich who have a propensity to save (and invest). Except for periods in the 1950s and 1960s and possibly the 1990’s when tax rates on the rich just happened to be high enough to prevent overinvestment, the economy has generally suffered from periodic overinvestment cycles.

    It is not just a coincidence that tax cuts for the rich have preceded both the 1929 and 2007 depressions. The Revenue acts of 1926 and 1928 worked exactly as the Republican Congresses that pushed them through promised. The dramatic reductions in taxes on the upper income brackets and estates of the wealthy did indeed result in increases in savings and investment. However, overinvestment (by 1929 there were over 600 automobile manufacturing companies in the USA) caused the depression that made the rich, and most everyone else, ultimately much poorer.

    Since 1969 there has been a tremendous shift in the tax burdens away from the rich on onto the middle class. Corporate income tax receipts, whose incidence falls entirely on the owners of corporations, were 4% of GDP then and are now less than 1%. During that same period, payroll tax rates as percent of GDP have increased dramatically. The overinvestment problem caused by the reduction in taxes on the wealthy is exacerbated by the increased tax burden on the middle class. While overinvestment creates more factories, housing and shopping centers; higher payroll taxes reduces the purchasing power of middle-class consumers. …”
    http://seekingalpha.com/article/1543642

  3. The politicians are not telling the public that the reason they think they must cut Social Security and Medicare for the elderly is because they took the money out of the Social Security fund and spent billions of dollars to fund their favorite projects, that the workers paid during their working careers. Now, there is no money, just a stack of worthless IOU’s, because of the politicians greed. The average amount monthly payment is $1,100 and the high is about $1,400. If an elderly person is alone, how could anyone live on that amount?

    This hurts every family including the parents, children, grandchildren. The average worker cannot save enough to save the thousands of dollars that is needed to pay all of their retirement costs. If the workers had that money saved over many years, they would not need social security; but the government took all of that money from them.

    To start with, the politicians should be required to pay into the same retirement benefits that the people pay into and receive the same benefits. Instead, they have a special retirement package and they are paid a pension for life for a few years of working on a very high income job.

    I have a feeling that when this hits, there will be grounds for a much needed reparation

  4. when you put blue letters on top of the green background it becomes REALLY hard to read.

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