Global Current Issues: April 2017
Total US nonfarm payroll employment in March added only 98,000 jobs while downward revision in February fell from 235,000 to 219,000 and in January from 238,000 to 216,000. In 2016, job gains totaled 2.2 million. In the first 3 months of 2017 job gains averaged 178,000 per month. A strong ending to the Obama presidency contrasts with the incoming Trump team. The labor force participation remains at 63.0%, as people returned to looking for jobs, with the unemployment rate fell to 4.5%, but 8.0% for African Americans. GDP increased at an annual rate of 3.54% in the third quarter of 2016, slowing to 2.1% in the 4th Quarter. Labor market statistics are notoriously subject to revision. The number of unemployed declined by 326,000 to 7.2 million people. There were 460,000 discouraged workers while the employment-population ratio rose to 60.1%. We now expect the Fed to continue to raise US interest rates slightly and gradually. Wall Street absorbed the Fed’s long-awaited 2016 rate increase from zero in 2015.
The markets rally after Trump’s electoral college victory is on expectations of his tax cuts promised as well as his large-scale infrastructure plan “Greening Trump’s Infrastructure Plan”. These are now on hold after the US missile response to Syria’s President Assad’s chemical weapons attack on his own citizens. The fight over healthcare and widening investigations of Russian hacking have become the focus in Washington. The Electoral College instituted by US founders to keep small states, some slave-owning, in the Union met December 19th to confirm Donald Trump’s electoral win over Hillary Clinton’s almost 3 million popular vote. Trump’s historically low 40% approval fell further confirming a deeply divided country. Many in the US and Europe are concerned over Russia’s hacking and Trump’s style. (“Concern Over Trump’s Tweets Grow”). Continued global weakness could be expected in 2017, due to Europe’s refugee crisis, Brexit, US political uncertainty, still-turbulent oil markets in spite of OPEC’s pledge to cut production. Wall Street still ponders Trump’s trade policy and misunderstands China’s stock market – even though as in the USA, these markets resemble casinos and are not reflective of the real economies in China or the USA. Payrolls changed little: average hourly earnings were $26.14 while the average for non-supervisory private sector rose to $21.90. Market players now focus more on the need for wage growth, recognizing that this is key to maintaining aggregate demand.
Wall Street is still hoping for Trump’s promised regulatory reform and more tax cuts, while also focusing on the Fed and other central banks, China, oil prices and global GDP–measured growth. Financial markets are still avoiding real world risks of water shortages and climate change as I reported in Risks! What Risks?. Central banks’ tools are exhausted as I discussed in Ben Bernanke and Milton Friedman Were Right: Helicopter Money or Qualitative Easing? and many calls for governments to step up with fiscal spending, particularly on infrastructure were echoed by the OECD. Financiers and media reporting daily roller-coaster volatility are still ignoring the destabilizing role of computers, algorithms and high-frequency trading’s many “flash crashes” and the need for Reforming Electronic Markets and Trading, now an official UN document. This UN Inquiry will now follow up for two more years on these issues and the disruptions to traditional finance by fintech and IT startups in which Ethical Markets continues to participate (see my “FINECH; The Good and Bad News for Sustainable Finance”). The USA recovery is still unevenly shared as I note in “Facing Up to Inequality”. The economy is still the top worry of voters as well as the growing inequality gap between Wall Street and Main Street, with these anxieties drove much of the election debate. For example, they are concerned as to what extent corporations are fair as found in the survey by JUSTCapital, founded by hedge fund executive Paul Tudor Jones, who announced recently that his firm will lower its fees. Just Capital’s 100 Leading Companies, Nov. 30, 2016.
It has been difficult to find information on government jobs, but they are now included in the main BLS summary. Losses of government jobs are key to understanding the state of the recovery. Total government jobs in March are estimated at 22,318,000. We report on these government jobs to correct misstatements by some politicians that “government doesn’t create jobs – only the private sector creates jobs”. Political uncertainty in Congress and the unprecedented political shifts among voters will likely continue through 2017. Trade issues are in focus for voters and both parties acknowledge the plight of those dis-employed by corporations offshoring jobs, as well as US trade deficits. The goods and services deficit in February was $43.6 billion, exports were $192.9 billion, and imports were $236.4 billion. Beyond off-shoring, jobs losses via automation are a growing concern, discussed in our TV program Robot’s Taking Over: What Will Humans Do?
The politicization of the Supreme Court after the death of Justice Anton Scalia with the Senate unable to produce 60 votes for Neil Gorsuch changing its rules remains unprecedented. The deeper issues remain as in Time To Re-Balance The Corporate-Friendly Supreme Court and Aligning the Supreme Court with the US Constitution. Further adverse consequences beyond gridlock are continuing unrest across the USA over the degraded public election debate influenced by Russian hacking now confirmed by 17 U.S. intelligence agencies, fake news, police brutality and shootings of unarmed African American citizens, unresponsive legal systems as well as Trump’s second blocked travel ban – all damaging the USA’s reputation worldwide. Trump’s erratic policy proposals, executive orders, tweets and phone call are widely reported internationally, as well as the USA lag in internet access and broadband ranks the USA at 28th worldwide behind many emerging economies. (See also my “New Trends in Globalization”)
Public debates turn to job outsourcing which Trump vowed to end by charging a proposed border tax on company products entering the USA. Instead he has taken credit for many companies’ previously announced job creation similar to the story of Carrier in Indianapolis saving 1,000 jobs through tax breaks while sending some 1,000 other jobs to Mexico. Such isolated jaw-boning of companies cannot substitute for overall economic policy. Meanwhile wages for middle class families still need to close the gap between most workers and the 1% winners. California became the first state to raise the minimum wage to $15 an hour. The some ten percent of Americans who gained from the stock markets rise were doing well with financial activities adding 160,000 jobs in the last 12 months with another 22,000 in October, 13,000 in December, 32,000 in January, 37,000 in February and another 9,000 in March. Professional, technical and business services added 522,000 jobs in 2016. The rest who rely on lower-wage jobs in the real economy for their income had their spending constrained. Job growth has shifted to healthcare averaging 35,000 jobs per month, adding 374,000 in the past 12 months and another 27,000 in February and 14,000 in March. Job cuts if Obama care is repealed are not yet estimated, nor are the numbers losing coverage. Demand for restoring purchasing power to minimum wages was widely supported even in the “red” states for the White House increase to $10.10 an hour. A survey of the US public in October by JUSTCapital found majorities supporting better pay and conditions for US workers. Seattle became the first city to offer $15 an hour in June. In 2016, so far Los Angeles and New York City have followed suit.
Mining sector jobs have fallen by 185,000 since peaking in September 2014, remained flat in January 2017 with 8,000 in February and 11,000 in March, mostly in support services. While this reflects global commodity prices, some mining activities such as coal are phasing out as with the bankruptcy of coal companies including giant Peabody. As we at Ethical Markets point out with our EthicMark® GEMS standard, global gem mining is now obsolete and unnecessary since science now creates diamonds and other gems in laboratories in many countries, as also reported in The Economist, July 1, 2016 and NPR, December 1, 2016. De Beers reported a 32% decline in its diamond sales in 2015. The human and environmental hazards of mining gems are recognized in several UN resolutions on “blood diamonds,” while Russia recently dumped a large quantity of mined diamonds – tanking the global market, as documented in “Beyond Bloodstained Gems: New Science and Standards”.
Consequences of budget cutting and “austerity” are seen in the job losses we have witnessed in Europe. The migrant crisis is forcing EU decision-makers to choices about the costs of absorbing these refugees fairly in member countries or a loss of solidarity in the EU itself. Britain’s referendum on “Brexit” shocked the 48% who voted to stay in the EU, and Theresa May, Conservative Prime Minister has invoked the EU’s Article 50 for the exit, with many voters still expressing remorse on Brexit as well as much consternation in the EU. Concern grows in Europe over Russian hacking and political interference in the elections due in France, Germany while Netherlands voters rejected the right wing candidate.
The wage gap in the US continues, fueling the national debate on inequality and that among professional economists over Thomas Piketty’s Capitalism in the 21st Century, which concludes that this inequality is endemic and requires global taxes on wealth (Pikettymania, cover of Businessweek, June 2, 2014). TIME business editor Rana Foroohar’s Makers and Takers (2016) overview details how Wall Street is now preying on businesses on Main Street rather than serving them. Donald Trump’s promise to “drain the swamp” of special interests in Washington, has become the butt of jokes. His picks to serve a Trump administration are largely insiders with many Wall Street billionaires, from Goldman Sachs, including right-wing advisor Steven Bannon recently demoted. Even IMF chief Christine Lagarde focused on inequality in her September 2014 speech at Georgetown University and in July repeated her urging of EU countries to re-structure Greece’s un-repayable debt. More realistic approaches include those by business leader/economist Peter Barnes in With Liberty and Dividends for All which calls for user fees on exploitation of all commonly owned resources: e.g., air, water, the electronic spectrum and rebated to all citizens-owners as dividends.
Unemployment stands at 7.2 million people with 5.6 million part-time workers still looking for fulltime jobs and 460,000 discouraged workers no longer counted in the unemployment rate of 4.5%. A new debate began about whether the “sharing economy” (Task Rabbit, Mechanical Turk, Uber, Lyft, et al) can provide decent jobs or whether it will lower wages, since its “freelancers” accept these part-time jobs along with uncertain hours, no benefits or security. Such companies are less about sharing and cooperation and more about extending and re-organizing labor markets in what is now called the “gig economy”. Recent books make such critiques: Throwing Rocks at the Google Bus (Rushkoff, 2016) and Raw Deal (Hill, 2015) which I reviewed in www.SeekingAlpha.com. Self-employment remains a growing trend, with many unemployed people preferring to remain independent, often home-based consultants or joining such social, office-sharing sites as WeWork. Meanwhile, many of these Silicon Valley startups and the lofty valuations of the “unicorns” are now slipping and with many which went public trading well below their IPO prices.
Policy wonks and statisticians approved the set of revisions announced back in July 31, 2013, and back cast to 1929 to begin accounting for the evolution of the US economy from manufacturing to services. The US Bureau of Economic Analysis (BEA) finally entered the 21st century. GDP will now include much of the intangible production and services which make up some 70% of mature 21st century economies: software, R&D, entertainment, trademarks, copyrights, design and other creative innovation. The BLS now breaks out employment in Information Technology, such as computer services, which added 13,000 jobs in January,2017. Back to the July 31, 2013 report from the BEA, US GDP then rose 1.7% (with the revised accounting method adding .41% of the total). Italy and Britain now inflate their GDP growth by including prostitution in Services! So far, the shifts of these intangibles from “costs” to “investments” is slight. At last, The Economist weighed in on the deficiencies of GDP, offering its own somewhat improved GDP-Plus. Better late than never! Still not included is the most important investment all societies make in their future: education, still categorized as an “expense”! With student debt now at over $1.2 trillion and too few jobs available, many are now opting for online courses now exploding as MOOCs offer free access. Ethical Markets now provides its free MOOC at www.ethicalmarketsexploratorium.com for global citizen activists and lifelong learners.
Congress still drives to repeal Obama Care and cut reimbursements to Planned Parenthood for its general health services already rendered to patients in poverty. Cuts favored by Republicans fall on vital public health services as well as our most vulnerable, politically less-influential citizens. We will need to balance further government job cuts with hopefully more gains in the private sector. Ethical Markets mid-2015 update of the Green Transition Scoreboard® focuses on Energy Storage & Batteries and showed a jump to $6.22 trillion of private investment in green sectors worldwide since 2007, updated to $7.1 trillion in the 2016 report on “Ending Externalities: Full-Spectrum Accounting Clarifies Transition Management”. Earlier reports have focused on the growing market for green bonds, as reported in the Institutional Investor, September 2014. The February 2015 report focused on the UN’s Sustainable Development Goals (SDGs) is now ratified by its 193 member countries.
As more cuts in government jobs are deemed necessary by Republicans, the need to continue growing new jobs in renewable energy, smarter infrastructure and cities as well as in R&D and education will be critical. The official unemployment rate of 4.5% shows the number of unemployed persons at 7.2 million is still too high. Climbing out of the 2008 financial crisis where GDP dropped by 9% has proved to be the long climb back most analysts expected. As President Obama left office he provided Trump with a sound economy and healthy job growth. Few can acknowledge a key problem: the US domestic money supply, which is created by banks’ lending and securitization, has collapsed. Since our money is created by private banks when they make loans, after 2008, lending dried up and securitization of loans which had ballooned during the housing bubble also collapsed. Today, hedge funds are buying up foreclosed homes and renting them at high rates and beginning a new round of securitization of these rental incomes into backing more bonds. Congress began in 2016 investigating the huge spike in drug prices and the role of hedge funds and lack of competition. As hedge funds enter Puerto Rico to take advantage of its financial crisis, they are renamed “hedge-hogs”.
The 2009 $789 billion stimulus (mostly individual tax cuts, infrastructure and help to states) did create and save over 1 million jobs along with 1.1 million saved in the auto company bailouts as reported in The New New Deal. The money supply shortfall remained which former Fed Chair Ben Bernanke recognized in his QE1, QE2 and other unusual measures of taking toxic assets onto the Fed’s balance sheet. At last, mainstream critiques offering alternatives appeared in Foreign Affairs, September/October 2014, urging direct QE with stimulus cash to citizens rather than banks. Now many central banks talk of “helicopter cash” as Milton Friedman recommended as the fastest, most effective stimulus as I describe in “Bernanke and Friedman Were Right: Helicopter Money or Qualitative Easing?”. New efforts in many countries to bolster purchasing power and aggregate demand with basic incomes emerged, after the success of Brazil’s “Bolsa Familia” in bringing 40 million out of poverty (Brazil’s Antipoverty Breakthrough, Foreign Affairs, Jan/Feb 2016) . The current crises in Brazil over endemic corruption and losses in GDP-measured economic growth obscure the country’s natural capital riches and creative human energies. Bernanke’s reliance on the textbook “trickle down” model gave almost free money to the big banks at the Fed’s discount window which never trickled down to Main Street. Instead, the old theory failed to account for the globalization of finance and that the banks sent most of the QE’s new money into asset bubbles offshore, some creating jobs in China and Brazil, while much ended up in speculation on European bonds, derivatives, commodity ETFs, rising food prices and unwanted asset bubbles in BRIC countries. Lawyer Ellen Brown analyzes all this in her Even the Council on Foreign Relations Is Saying It: Time to Rain Money on Main Street. The head of Britain’s Labor Party, Jeremy Corbyn now advocates a similar “Peoples QE.”
A computer model now links speculation to food price spikes, (“The Economics of Curbing Speculation in Food”). Current Fed Chair Janet Yellen brings in a broader view beyond the domestic economy, looking at the global effects of the strong dollar on emerging economies. Meanwhile, domestic savers in the USA still suffer from low to zero or negative real interest rates as now in several EU countries. This view outside the economics box is now provided by IMF head Christina Lagarde and in my analysis of “Abenomics” in Japan at the Crossroads. Prime Minister Abe met with Donald Trump and his daughter Ivanka in November as well as in February at Trump’s Mar-A-Lago Club, where members dues were raised to $200,000 annually. Abe’s gift of a gold golf club we assume Mr. Trump returned. The progress at the UN COP 21 Climate Conference in Paris now ratified and in effect after COP22 in Marrakech in October 2016 augers the end of the fossil fuel era, but cannot prevent more mega-storms like Sandy, Bohpa and Haiyan, both of which hit the Philippines. Whatever the price of oil, mostly used in transport, demand continues declining due to the spread of electric vehicles “Assessing Risk of Fossil Reserves”. The UN Summit on Climate Change in New York City in 2016 continued to see citizens marching peacefully for progress on climate change, similar to the larger, women-led demonstrations in cities worldwide, on January 21st, 2017.