More on the Jobs Data
Caroline Baum is a Bloomberg columnist that I enjoy reading. She's smart and always has an insighful and unorthodox take on the markets and economics. (I like her also because I witnessed her call Morgan Stanley chief economist Stephen Roach, "Mr. Gumpy" to his face.)
Nonetheless I can't understand what she is talking about in her latest column on last week's jobs data. I made the argument in my previous post that slowing jobs data is totally logical given the unemployment rate and higher wages, companies can end-run these challenges by growing foreign operations. Baum thinks this is a weak argument. Her first salvos in making her point are these:
"Construction employment has shown virtually no growth in the last four months, further corroboration of cooling in the residential real estate market. The number of retail jobs has fallen for the last three months, which could be a response to the downshift in consumer spending in the second quarter. Temporary help services jobs, which employers use to address fluctuations in demand and which don't carry the same financial burden as a permanent hire, have been in decline all year."
Well, construction has been growing at a torrid pace for years, why should it be troubling that it is not growing anymore? Slowdown perhaps, but maybe it is plateauing, who knows? Perhaps it is because the US residential construction business is the domain of illegal immigrants and companies have been raided by the Feds recently. Like I said, who knows? And four months? Pretty thin substance to hang your hat on. Retail jobs falling? Well, it rained yesterday too. Retail jobs are highly volatile and week to week fluctuations are as normal as the weather. Temp help? Businesses I follow have been bringing their temp folks on full time as salaried employees, which would cause temporary jobs to decline as they are replaced by full-time needs. No alarm bells there.
Then this: "In fact, government was the largest source of job creation last month, which is hardly an indication of a robust labor market."
Government jobs become overrepresentative in the data under two scenarios, first when there is a recession and the government, which is relatively insensitive to economic conditions, continues hiring in the absence of private sector hiring, and, second, after an expansion when the private sector has lured workers from the public sector with higher-paying jobs that then have to be refilled (all while gov't is expanding its spending due to the tax revenues brought in by the expansion). Government hiring can be, and in this case IS, indicative of a tight labor market.
Fortunately, because Baum is Baum, we get to more substantial arguments than those weak databites:
"we have an easy way to tell whether it's lack of demand or lack of supply that's behind the slowdown in hiring to an average of 108,000 a month (total employment, including government) in the second quarter from 170,000 in the previous nine months. ``The proof of the pudding is in the pay,'' says Jim Glassman, senior U.S. economist at JPMorgan Chase & Co. ``If labor is in short supply, labor pay rates should be rising.'' As it turns out, ``unit labor costs are rising less than inflation,'' he says.
Inflation is both a newish arrival and relatively benign according to the Fed, so the fact that wages haven't kept up with inflation doesn't really hit the bullseye. And what does inflation really matter to the availability of qualified workers anyway? The trucking industry is a good example of what has been going on. Trucking has been short of skilled drivers for several years now, way before anybody was talking about inflation. Trucking companies just can't find enough drivers who show up to work, drive safely, etc. for what they are willing to pay. And they can't outsource their jobs, an Indian in Bangalore can't drive a load from Tulsa to Phoenix. So what truckers have been doing is using technology (GPS mainly) to plan more efficiently and optimize use of their capital assets, which are the trucks. It isn't that the trucker is vastly better at driving the truck and thus the source of productivity gains, just that this formerly backwards industry is starting to think like first tier businesses think. The productivity gains are rightly going to the bottom line as return on investment. But even after all that, wages in the trucking business are rising because truckers can leave to become lots of other things and if it was easy to replace a trucker who now wants to be a crane operator then wages would be flat, but it ain't so they ain't.
It is just wages that matter, inflation is a monetary phenomenon and doesn't impringe upon the short term labor pool. Raw wages are the modulator of supply and demand and they have been rising (not to mention pension costs and healthcare costs) because the labor market is tight. Ask any hirer from a CEO down to the local ice parlor owner, good help is hard to find, much more so in 2006 than in previous years.
Nonetheless I can't understand what she is talking about in her latest column on last week's jobs data. I made the argument in my previous post that slowing jobs data is totally logical given the unemployment rate and higher wages, companies can end-run these challenges by growing foreign operations. Baum thinks this is a weak argument. Her first salvos in making her point are these:
"Construction employment has shown virtually no growth in the last four months, further corroboration of cooling in the residential real estate market. The number of retail jobs has fallen for the last three months, which could be a response to the downshift in consumer spending in the second quarter. Temporary help services jobs, which employers use to address fluctuations in demand and which don't carry the same financial burden as a permanent hire, have been in decline all year."
Well, construction has been growing at a torrid pace for years, why should it be troubling that it is not growing anymore? Slowdown perhaps, but maybe it is plateauing, who knows? Perhaps it is because the US residential construction business is the domain of illegal immigrants and companies have been raided by the Feds recently. Like I said, who knows? And four months? Pretty thin substance to hang your hat on. Retail jobs falling? Well, it rained yesterday too. Retail jobs are highly volatile and week to week fluctuations are as normal as the weather. Temp help? Businesses I follow have been bringing their temp folks on full time as salaried employees, which would cause temporary jobs to decline as they are replaced by full-time needs. No alarm bells there.
Then this: "In fact, government was the largest source of job creation last month, which is hardly an indication of a robust labor market."
Government jobs become overrepresentative in the data under two scenarios, first when there is a recession and the government, which is relatively insensitive to economic conditions, continues hiring in the absence of private sector hiring, and, second, after an expansion when the private sector has lured workers from the public sector with higher-paying jobs that then have to be refilled (all while gov't is expanding its spending due to the tax revenues brought in by the expansion). Government hiring can be, and in this case IS, indicative of a tight labor market.
Fortunately, because Baum is Baum, we get to more substantial arguments than those weak databites:
"we have an easy way to tell whether it's lack of demand or lack of supply that's behind the slowdown in hiring to an average of 108,000 a month (total employment, including government) in the second quarter from 170,000 in the previous nine months. ``The proof of the pudding is in the pay,'' says Jim Glassman, senior U.S. economist at JPMorgan Chase & Co. ``If labor is in short supply, labor pay rates should be rising.'' As it turns out, ``unit labor costs are rising less than inflation,'' he says.
Inflation is both a newish arrival and relatively benign according to the Fed, so the fact that wages haven't kept up with inflation doesn't really hit the bullseye. And what does inflation really matter to the availability of qualified workers anyway? The trucking industry is a good example of what has been going on. Trucking has been short of skilled drivers for several years now, way before anybody was talking about inflation. Trucking companies just can't find enough drivers who show up to work, drive safely, etc. for what they are willing to pay. And they can't outsource their jobs, an Indian in Bangalore can't drive a load from Tulsa to Phoenix. So what truckers have been doing is using technology (GPS mainly) to plan more efficiently and optimize use of their capital assets, which are the trucks. It isn't that the trucker is vastly better at driving the truck and thus the source of productivity gains, just that this formerly backwards industry is starting to think like first tier businesses think. The productivity gains are rightly going to the bottom line as return on investment. But even after all that, wages in the trucking business are rising because truckers can leave to become lots of other things and if it was easy to replace a trucker who now wants to be a crane operator then wages would be flat, but it ain't so they ain't.
It is just wages that matter, inflation is a monetary phenomenon and doesn't impringe upon the short term labor pool. Raw wages are the modulator of supply and demand and they have been rising (not to mention pension costs and healthcare costs) because the labor market is tight. Ask any hirer from a CEO down to the local ice parlor owner, good help is hard to find, much more so in 2006 than in previous years.
posted by Donny Baseball at 12:13 PM
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