We Are Waiting, Mr. President

We are facing the possibility of not a "jobless" recovery but a "JOB LOSS" recovery. Possibly a new normal for low economic growth and high structural unemployment. But policy makers in Washington, particularly in the White House, are silent on what to do about this state of economic purgatory. And it could be that they decided that nothing needs to be done or nothing politically can be done. Both are big mistakes.

There were three speeches within that last several days by three Federal Reserve Bank Presidents that all indicate a not to bright economic outlook (HT Calculated Risk). First, Dennis Lockhart, President of Federal Reserve Bank of Atlanta, while his overall assessment of the economy is that it's recovering there are these major qualifiers:

A second reason to strike a note of caution about the economic picture is that both the data and anecdotal descriptions of ground-level reality are quite mixed. Data on foreclosures, unemployment, personal income, and bank failures continue to disappoint. Also, nonresidential construction continues to decline, and state and local government budgets remain severely constrained.

Along with my colleagues at the Atlanta Fed, I spend a lot of my time asking business contacts about industry conditions and the outlook for their businesses. In recent soundings we've heard frequently about weak top-line sales, continuing inventory liquidation, reticence regarding capital expenditures, and reluctance to hire.

And then he adds this troubling point regarding the horrible commercial real estate market:

Today, I'm particularly concerned about the interaction among bank lending, small business employment, and CRE values.

To elaborate, there is a tight linkage between CRE values and jobs. In a mid-September conference at the Atlanta Fed, CRE practitioners, investors, and academics agreed that the evolution of the CRE picture will depend greatly on the path of employment.......

Let me go on to show the link between jobs and small business credit. During the last two economic expansions, small firms (those with fewer than 50 employees) contributed about one-third of net job growth. But the depth and duration of this recession have taken a substantial toll on small businesses. In the 2001 recession, small firms held up reasonably well and accounted for only 9 percent of net job loss. In this recession, however, small firms have accounted for about 45 percent of net job losses per our most recent data through the end of 2008.

Small businesses tend to depend greatly on the banking sector—especially community and regional banks—for financing. A Federal Reserve survey earlier in the decade showed that more than half of smaller firms had a credit line or loan with a bank. In addition, about half of these businesses used a personal or business credit card to finance working capital. In this recession, credit standards have tightened for all businesses, including small businesses.

At this juncture, it's hard to be encouraged about a fast rebound in job growth. As you know, last week's employment report pushed the official unemployment rate to 10.2 percent, the highest since May 1983. Net job losses continue on a monthly basis but at a declining pace. Because employment growth tends to lag recovery from a recession and because of factors such as small business credit constraints, my current outlook for employment is one of very slow net job gains once the trend reverses, in all likelihood sometime next year. If this view is correct, this job growth outlook doesn't help the commercial real estate situation.

Towards the end of his remarks he establishes a linkage between small business credit, community and regional banks and the commercial real estate crisis:

However, I am concerned about the potential impact of CRE on the broader economy. Unlike residential real estate, there is not the same direct linkage from CRE to household wealth—and therefore consumption—caused by erosion of home equity. However, there could be an impact resulting from small banks' impaired ability to support the small business sector—a sector I expect will be critically important to job creation.

To add some detail: At the end of June 2009 there was approximately $3.5 trillion of outstanding debt associated with CRE. This figure compares with about $11 trillion of residential debt outstanding.

About 40 percent of the CRE debt is held on commercial bank balance sheets in the form of whole loans. A lot of the CRE exposure is concentrated at smaller institutions (banks with total assets under $10 billion). These smaller banks account for only 20 percent of total commercial banking assets in the United States but carry almost half of total CRE loans (based on Bank Call Report data).

Many small businesses rely on these smaller banks for credit. Small banks account for almost half of all small business loans (loans under $1 million). Moreover, small firms' reliance on banks with heavy CRE exposure is substantial. Banks with the highest CRE exposure (CRE loan books that are more than three times their tier 1 capital) account for almost 40 percent of all small business loans.

The second Federal Reserve President who spoke yesterday was Janet Yellen, President of the Federal Reserve Bank of San Francisco. Dr. Yellen also offers some very cautionary notes about our economic purgatory:

The big issue is how strong the upturn will be. With such enormous reservoirs of slack in the form of high unemployment and idle productive capacity, we need a strong rebound to put unemployed people back to work and get underutilized factories, offices, and stores humming again. Unfortunately, my own forecast envisions a less-than-robust recovery for several reasons. As the impetus from government programs and inventories diminishes in the quarters ahead, private final demand will have to fill the breach. The danger is that demand may grow at too anemic a pace to support vigorous expansion.


Weakness in the labor market is another factor that may keep the recovery sluggish for quite some time. Payroll employment has been plummeting for more than a year and a half, and, even though the pace of the decline has slowed, unemployment now stands at its highest level since 1983. In addition, many workers have seen their hours cut or are experiencing involuntary furloughs. To bolster earnings in the face of weak revenue growth, employers have been aggressive in cutting labor costs and jobs, and my business contacts say they will be reluctant to hire again until they see clear evidence of a sustained recovery. Weak demand for workers is also putting a lid on paychecks. Wages are barely rising. A well-known measure of overall employment costs rose by only 1¼ percent over the past year, the smallest increase in the history of the series. High unemployment, weak job growth, and paltry wage increases are a recipe for sluggish consumer spending growth and a tepid recovery.

The U.S. experienced so-called jobless recoveries following the previous two recessions in 1991 and 2001, when job creation remained weak for several years following the business cycle trough. In both cases, output growth was less robust than in the typical recovery and, unfortunately, things seem to be shaping up similarly this time around.

If we are in an economic recovery it sure the hell doesn't fell like it. If we are in a recovery then we are currently in a state of a JOB LOSS recovery. We lost 190,000 jobs in October.

Finally, from a speech by Richard Fisher, President of the Federal Reserve Bank of Dallas:

It may be some time before significant job growth occurs and even longer before we see meaningful declines in the unemployment rate.


It will take some time, in my opinion, to get back on a steady pathway to a pace of growth that will result in significant job creation. We are in for a long slog. We had a snapback in growth in the third quarter and can expect that will continue in the current quarter. But looking into 2010 and perhaps to 2011, the most likely outcome is for growth to be suboptimal, unemployment to remain a vexing problem and inflation to remain subdued.

So there you have it. Three separate Fed President's. Three separate speeches. All very concerned about job growth (or lack of it) and unemployment. Oh, but there is more but not from a Federal Reserve President, but from an economics professor. Jeffrey Sachs, wrote a piece today for the Financial Times titled "Obama Has Lost His Way on Jobs," and he makes some great points and offers some suggestions:

The past week brought news of US double-digit unemployment and the Federal Reserve’s decision to maintain near-zero interest rates. Both pieces of news expose the inadequacy of US economic policymaking. The Obama administration’s stimulus policies are not well-targeted. The Republican alternatives are even worse. Both sides are missing the key fact: the US economy needs structural change that requires a new set of economic tools.

Yes, Yes, Yes, much needed structural change. But, what we have seen from the Obama Administration is certainly not innovative or even bold:

Following a Keynesian approach, the Obama administration has focused on restoring consumer spending. They have gone about this with a combination of near-zero interest rates, massive Fed financing of mortgages and various consumption incentives, such as rebates for new homebuyers and cash for clunkers.

During the previous bubble, the US consumer was encouraged to over-borrow. Recreating a new bubble is like offering just one more drink, on the government’s account, to overcome a mass hangover. With budget deficits of about 10 per cent of gross domestic product, government spending needs to be far more consequential than temporary boosts to consumer spending.

Prof. Sachs offers three long-term solutions:

1) Promote greater exports, partly through dollar depreciation (already happening) and partly through expanded government support for export financing particularly to credit constrained low income countries;

2) Massive expansion of education spending and job training; and

3) Spur investment in areas of high social return such as low-carbon economy or green technology.

There are other ideas as well. How about a National Infrastructure Bank. The ideas and proposal are out there. It's a matter of leadership:

Yes, politics is the art of the possible. But leadership is the art of expanding the possible. Leadership without politics is futile. But politics without leadership is blind.

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I'm right, I'm right, I'm right!

To poke a lot of fun at those who kept trying to predict the recovery, screaming "I am right" damn it....I note that I voted for the "L" shape some time ago.


Now, we know, I've written many posts, trying to promote legislation, great policy recommendations, high insight statistical reports....

that we need major structural change for our economy to right itself.

We need: major policy reform to curtail as much as possible the offshore outsourcing of jobs.

We need: trade reform, particularly China, to try to increase manufacturing and exports

We need: a national economic strategy policy, with funds, to invest in new ventures, new industries and KEEP THOSE INDUSTRIES IN THE U.S. for the jobs of tomorrow. Draft Venture Capitalists. Give them incentives. Use their expertise in identifying start-ups which have a good chance of success. Give loans, grants for critical economic development where the criteria is a U.S. based company AND U.S. workers. Revamp the SBA. Give tax breaks to small business who hire U.S. workers (verified!).

We need: to get back from being offshore outsourced, U.S. technology that is critical to both national security and infrastructure.

We need: These idiots to stop saying Americans are not skilled, trained and educated. We have the best universities in the world with many advanced skilled individuals being labor arbitraged, age discriminated and thrown away like disposable diapers. We need strong labor laws to stop this.

We need: Corporations to pay for training. Corporations used to invest in it's workforce, pay not only for training but often entire college degrees.

We need: policy, legislation and incentives to stop corporations from treating their employees like a disposable commodity to increase their quarterly bottom lines. We need executive bonuses tied to employees well being and career stability.

We need: College expenses lowered even more and we need graduate school stipends, for Americans, increased to the point one can live while attending graduate school. One cannot live for 6 years below the poverty line.

We need: A federal jobs program that not only gives people a paycheck, but the work targets very specific critical infrastructure projects, such as bridges and levies, and TRAINS people in advanced skills. We do not need another no-bid contract where they offshore outsource the work or bring in guest workers.

Mark Thoma talks about 'New Normal' for unemployment

He explains the term structural unemployment. He is also concerned about high structural unemployment:

The change in the structural component could, however, be significant. I expect structural unemployment to be higher than it was, particularly in the next few years. We had too many resources in housing, finance, and automobile production, and it will take time for the economy to make the necessary structural adjustments. When this is combined with continuing globalization, as well as the higher savings rate and correspondingly lower consumption expected from households in the future, both of which cause structural change within the economy, the expectation is that the new target rate of unemployment will rise above the 4 percent level it was at before the recession.

And he makes a few suggestions and a sobering warning:

In essence, structural unemployment arises from a mismatch between the supply of jobs in various industries and geographical locations, and the workers available to meet those needs. Thus, job training that promotes a better match of worker skills with available jobs, programs that help workers move to places where jobs exist, and programs to induce firms to locate where there is an oversupply of workers, e.g. Detroit, can mitigate some of the impact. Extended unemployment compensation can also cushion the blow for workers during the adjustment period. But the history of these programs indicates that we shouldn’t expect miracles for workers, and some degree of higher unemployment will need to be tolerated while the economy undergoes the necessary structural adjustments.

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Just ridiculous!

These people, it's pathetic. I'm sorry. Note he refuses to mention the obvious! The mass exodus of U.S. manufacturing to China and other cheap labor destinations and the offshore outsourcing of services jobs!

Good god. They will not even mention the "O" word, when we've had manufacturing drop from >15% of GDP to 12.2% and we've lost over 2 million jobs in this recession....BUT....
they refuse to note the massive jobs hemorrhage in manufacturing starting with NAFTA and accelerated on steroids with the signing of the China PNTR.

Just like the dot con bust. They refuse to acknowledge that tech corporations at that time had executive directives to offshore outsource entire divisions, as fast as possible.

You can see this from the total number of jobs in STEM are down ...same with manufacturing and that's before this recession.

It's like the elephant in the room is shitting all over the American people and these supposed "Progressive" economists refuse to even mention the word outsourcing.

ok, I'll give him 2 brownie points

But we really need major economists to quit this secret church of hush, hush and look at the statistics as well as their macro economic equations.

Unless I went into outer space and I do not think I did...the actual models show the U.S. is the big fat loser, esp. workers and the middle class with our current trade "policies" and the statistics bear it out.

I mean how much denial is there when the U.S. government will not even demand statistics on jobs offshore outsourced and now they are more plain creating jobs in other countries since they have fired so many Americans....so it's pure job creation by MNCs, where, which nation....globally.

Even funding for research into this area is thin. Seems like the last major funder with integrity is the Sloan Foundation.

Sachs is saying the party line

Sorry, but he is. We've already shown that "green jobs" is a myth and being offshore outsourced.

Until they deal with offshore outsourcing, curtailing it, making sure industries, critical to the U.S. future and economy will use America's workforce exclusively and stay in the U.S...exclusively....

this is throwing good money after bad. I'm sorry but we're already seeing that evidence in droves.

Who cares if GE has a "smart grid" when they offshore outsource the manufacture and jobs.

Who cares if IBM has some database....when they are offshore outsourcing those jobs in droves. (IBM should be banned from receiving any state and federal contract at this point).

So, instead of real solutions, we get that "green jobs" blow off answer...

I'm sorry it's bullshit. They won't deal with globalization, the race to the bottom on wages, and the middle class squeeze. They won't deal with a single policy to stop this trend.

We just say productivity to 9.5% in Q3 and that is in part due to offshore outsourcing. I've talked a lot about productivity and phantom GDP and there are only a few economists who have worked out those results and shown....
this is coming into play.

The government will not even collect, demand to collect, the statistics on jobs being offshore outsourced, technology moved offshore. It's massive! We literally had Pharmaceutical research move offshore and bear in mind these workers in Chemical and pharmaceutical research are PhDs.....didn't matter, they built advanced R&D centers in China and India and laid off the U.S./U.K./E.U. (U.S. the worst) workforce.

yes but

they refuse to deal with the evidence "green jobs" are already being labor arbitraged, offshore outsourced, or just plain started in China already.

I've put up multiple posts on this...

"green jobs" as the "jobs of tomorrow" is just like any other new incentive and new industry. If they don't protect that industrial agenda with incentives, tax breaks and criteria the company, the plant, the workers must all be U.S. and yes I said the "P" word...

it's offshore outsourced before it's even started. Pretty much same with any new industry.

So, ok, they can confront China's currency manipulation and they should.....that will help with exports...

but they also need to restart some older industries lost to offshore outsourcing as well as new innovations...

and they do nothing to ensure they are here, stay here and hire U.S. citizens here...

i.e. grow the U.S. economy here.

It's like pouring water in a bucket to save for a drought and refusing to notice that bucket is full of holes. All it's doing in this case is adding to the U.S. debt and basically stimulating other economies who got the plant, money, jobs.

But "they" are the policymakers

who are refusing to deal with the outsourcing issue and green jobs. Where is the leadership? There some very serious decisions and a sense of direction is needed:

Where are we going to target our very limited resources?

Are we OK with outsourcing of green jobs (corporate Dems may be ok with this)?

Will government be a partner in the development of new green technology?

We need answers and leadership.

RebelCapitalist.com - Financial Information for the Rest of Us.

ouch, economist predicting 12-13% unemployment rate

Ya know, of course it's possible, but I guess I went into denial to block it out of my mind...

although my rants on structural problems, I'm obviously beside myself with this administration, Congress and job creation.

But check out credit writedowns covering this economist's prediction.

Here is the thing.

The last 8-10 years have shown meager job growth. Now, with the crisis the jobs hole is even deeper - EPI report estimated we need 127,000 jobs per month just to keep up with population growth.

Even before the crisis we were seeing a huge shift in the labor market - completely away from manufacturing sector. The length of unemployment was creeping higher even before crisis. These are structural issues that are all made worse by the crisis.

If we choose to ignore them then we better be prepared for the serious socio-economic consequences.

RebelCapitalist.com - Financial Information for the Rest of Us.

jobs summit

uh huh. They know what policies to do. There are many economists, groups recommending them. Corporate lobbyists don't like them.

Let's see who is on the invite list. We have lobbyists trying to claim more job killing polices are "job creators" with some incredible spin.

Sounds right off the bat like PR. They have already gone against campaign promises on things that might create jobs.

I also saw Obama claim that insulating your house would somehow create jobs.

I'm getting pretty disgusted here Rebel, if you cannot tell. I already know you are.

in addition

Reid's putting together a jobs bill in the Senate which they want to pass before the midterms.

The question is what's in the bill.

Steven Attewell, request please

I can try or if you get the draft legislation, by hook or by crook, can you upload it here on EP and let's take a look at it?

Frankly, corporate lobbyists love to claim their agendas "create jobs" when in fact they offshore outsource even more jobs or bring in guest workers to displace American workers.

Then, we have "trade" agreements, which they will claim will "increase jobs"....when in fact they lose U.S. jobs.

Then, we have "business competitiveness" and (this is a research project) over and over again we get "tax credits" which are taken by corporations yet.....they never create jobs...nope, they ....layoff more people and create jobs overseas instead.

So, out of the lobbyists toolkit, it's standard fare for them to claim in some "bought and paid for white paper" somehow enabling corporations to fire even more U.S. workers....creates jobs.

It's just spin city and it wouldn't surprise me to see this come up as "jobs bill".

Last "American Jobs Creation Act of 2004" this is precisely what they did....they increased tax deferrals and incentives to offshore outsource jobs.

We need to get to draft legislation as soon as possible and expose this BS that odds are will be similar.

We already know they refuse to reform trade agreements, they will not stop the tax incentives to offshore outsource jobs, they try to increase guest workers by claiming somehow that's "innovation" (while U.S. innovators are broke and unemployed), and even when awarding Stimulus contracts they are giving them to big MNCs, who are offshore outsourcing and no-bid contract award system, same one as used in Iraq.

They will not stop offshore outsourcing of Federal and State contracts....when we have double digit unemployment with a projected rise coming at us.

Also, on the "let's get rich in a start up front"...VCs are shutting down funds, it's really bad for venture capital right now and this is terrible for innovation and the "jobs of the future".

GE is awarding VC money but knowing GE I sincerely doubt they have "incorporated in the U.S. and must hire U.S. citizens" as a requirement for funding!

In fact there have been many reports of VCs requiring a start-up offshore outsource half of it's staff in order to receive funding. Not good!

We also have "macro" reports claiming the U.S. is a terrible return on investment assets ....that's real companies from where this is claimed.

It's like EEs (emerging economies) are such bubble and hype and as a result, that's where the money goes. It's almost like advertising branding.


I don't have any special way to get access to any legislation, in fact I doubt it's even in leg. format yet, but I can call around and ask.

If we can get it up here, I'd be happy to analyze it.

if I can get it

I'll email you. (EP has an email system for all registered users).

Yves Smith response to Krugman

was spot on: Krugman on the Need for Jobs Policies:

Krugman does Germany an injustice by failing to contest US prejudices about European (particularly German) labor practices. If German labor practices are so terrible, then how was Germany an export powerhouse, able to punch above its weight versus Japan and China, while the US, with our supposedly great advantage of more flexible (and therefore cheaper) labor, has run chronic and large current account deficits? And why is Germany a hotbed of successful entrepreneurial companies, its famed Mittelstand? If Germany was such a terrible place to do business, wouldn’t they have hollowed out manufacturing just as the US has done? Might it be that there are unrecognized pluses of not being able to fire workers at will, that the company and the employees recognize that they are in the same boat, and the company has more reason to invest in its employees (ignore the US nonsense “employees are our asset,” another line from the corporate Ministry of Truth).

Krugman's piece was good too but the above paragraph nailed it.

RebelCapitalist.com - Financial Information for the Rest of Us.


She sure does nail it on the myth of cheap labor. Considering the entire EU is recovering with much stronger labor laws and supports for their middle class and also we have a weak dollar now...

this shows how screwed up the U.S. is on manufacturing, the real economy, trade.