FORECASTS & TRENDS E-LETTER
by Gary D. Halbert
August 6, 2013

IN THIS ISSUE:

1. Most Americans Are Pessimistic About the Future

2. July Unemployment Report Was Disappointing

3. More & More New Jobs Are Low-Paying Positions

4. Why New Jobs Are Dominated by Part-Time Work

5. Wednesday’s 2Q GDP Report Was A Flop… Really

6. Congress & Staffers Want OUT of ObamaCare

Most Americans Are Pessimistic About the Future

I thought we would start off today by looking at some interesting reports and polls. The media would have us believe that the US economic recovery is finally on a roll. They gushed over last week’s 2Q GDP report showing annualized growth of only 1.7%, because it was better than the pre-report consensus of only 1.1%. Gushing over a sub-2% GDP report… really?

Then they couldn’t contain their enthusiasm when last Friday’s jobs report for July had the national unemployment rate falling to 7.4%, a four-year low, when most forecasters felt it would be unchanged from June at 7.6%. If you listened to the mainstream media, you would think that the US economy is suddenly off to the races.

Such claims are not completely out in left field, given that the Consumer Confidence Index reached the highest level in more than four years in June. While this is indeed good news, you have to keep in perspective where the confidence index is historically. Let’s look at the chart below from Doug Short who writes for AdvisorPerspectives.com, one of my favorite websites.

As you can see, consumer confidence has risen significantly from the bottom in early 2009 at the depth of the Great Recession and the devastating 50% plunge in the stock markets. But as you can also see, confidence is nowhere near where it was in the roaring late 1990s.

But now I would like to turn our attention to a poll I watch on a regular basis. This one is from RealClearPolitics.com. RCP calls it their “Right Track/Wrong Track” poll. They average eight major polls that ask Americans if they feel that the direction of the country is on the right track or the wrong track longer-term. Here are the latest numbers:

The average is that only 29.1% of Americans feel that the country is moving in the right direction long-term, while 61.9% believe that the country is headed down the wrong track. That’s a more than two-to-one margin of those who believe the country is heading in the wrong direction!

And there’s more. A new survey by the Pew Research Center, conducted July 17-21 among 1,480 adults, finds that 44% say it will be a long time before the nation’s economy recovers. Smaller percentages say either the economy already is recovering (28%) or will recover soon (26%).

This is surprising since the economy hasn’t recorded a negative quarter of GDP growth since the 1Q of 2011. However, GDP growth has been below 2% in four of the last five quarters. Apparently, many Americans don’t feel that sub-2% growth in the economy qualifies as a recovery. I would tend to agree.

Opinions of current economic conditions, which had improved modestly in June, have slipped back to levels from earlier this year. Currently, 17% say economic conditions are excellent or good, while 82% rate them as only fair or poor – this according to another recent Pew poll.

The same Pew survey found that President Obama’s overall job rating, which was more positive than negative in both May and June, is now evenly divided: 46% approve of his job performance while 46% disapprove.

I could go on with similar polls, but I think you get the point. The media would have us believe that the economy is not only out of the woods, but off to the races, just because of a couple of recent reports that were not as bad as expected.

Have we come to interpreting economic data that is bad – but not as bad as expected – as good news? I certainly hope not! But the media is clearly trying to move us in that direction. There are plenty of political reasons for this, but space limitations don’t allow me to go there today.

Let’s take an in-depth look at the two disappointing reports noted above that the media would have us believe are really good news.

July Unemployment Report Was Disappointing

Last Friday’s jobs report for July had one positive surprise and several negative ones. The positive surprise was that the headline unemployment rate unexpectedly fell to 7.4% from 7.6% in June. Most forecasters expected the rate to be unchanged last month. It fell primarily because more people dropped out of the labor force and are not looking for jobs.

Among the negative surprises, the Bureau of Labor Statistics (BLS) reported that employers added only 162,000 new jobs last month versus the consensus of around 180,000, and below the 12-month average of 189,000.

The BLS also revised the number of new jobs created in June and May. June jobs were reduced from 195,000 to 188,000. May was revised down from 195,000 to 176,000. These revisions were worse than expected.

Also worrying many analysts is the fact that the new jobs data show continued increases in the weakest sectors of the economy. Much of the growth is stemming from new positions taken in retail trade and the leisure and hospitality industry – sectors with the lowest-paying jobs and fewest working hours (more on this below).

Finally, the labor force participation rate, which measures the share of Americans either working or seeking work, ticked downward from 63.5% in June to 63.4% last month. That’s well below the 63.7% seen in July 2012.

As usual, the mainstream media heralded the fact that the headline unemployment rate fell to 7.4%. But the fact remains that there are still 11.5 million unemployed Americans, of which 4.2 million (37%) have been out of work for 27 weeks or longer. Another 8.2 million are under-employed because they can’t find full-time jobs.

Barclays Capital economist Peter Newland called it "a clearly weaker-than-expected report."

More & More New Jobs Are Low-Paying Positions

While the economy generated 162,000 jobs last month, the bulk of those jobs is neither highly paid nor full-time work. This explains in large part why the economy isn’t growing as fast as the pace of job creation. Here's a closer look:

As always, there are more low-wage jobs in the economy overall than there are high-wage jobs. Nonetheless, low-wage jobs have made up much more of the recent job gains than usual. Retail, restaurant and bar workers make up about 22% of the overall workforce. But in July, those categories accounted for over 52% of the job growth.

“I don't think we are becoming an economy of retail and restaurant workers,” says Heidi Shierholz, a labor economist at the Economic Policy Institute. “But what is absolutely true is that low-wage jobs have had disproportionate growth in the economy.”

All this makes for a troubling trend, given that consumer spending makes up 70% of GDP. Whereas the average weekly pay of US workers overall is $824, leisure jobs pay $349 a week, while retail pays only slightly more at $520 a week on average. The point is, most of the new jobs being created are low paying jobs. But it gets even worse.

Why New Jobs Are Dominated by Part-Time Work

When we get these monthly unemployment reports, the media rarely pays much attention to how many of those new jobs were part-time jobs as opposed to full-time jobs. But if we drill down into the numbers, we find that the vast majority of new jobs created in the last year and a half were part-time jobs that pay less and have few, if any, benefits.

Let’s take a look at the latest numbers for July. As noted above, the BLS says that “net” new jobs created in July were 162,000. Net new jobs is a combination of how many total new jobs were created last month, minus the number of jobs that were lost.

The total number of new jobs created in July was 260,000 but 98,000 jobs were lost last month, thus giving us the net new jobs of 162,000. But here’s the really important part. Of the total new jobs of 260,000 created last month, 170,000 were part-time jobs vs. only 90,000 full-time jobs. The point is, part-time jobs have dominated full-time jobs over the last year or longer.

The chart below illustrates this very troubling trend vividly. According to the BLS, in 2012 the percentage of new jobs was 85% full-time jobs vs. only 15% part-time jobs. But so far in 2013, that new job ratio has deteriorated dramatically to 65% full-time jobs and 35% part-time jobs. The percentage of new part-time jobs vs. full-time jobs has more than doubled in the last year!

Part-time jobs almost always offer less job security and few, if any, health and retirement benefits. And when workers aren’t sure how much or where they might work tomorrow or next year, they’re less likely to spend.

There can be various reasons why the number of full-time new jobs vs. part-time new jobs can fluctuate. But I can find no prior year where the number of part-time new jobs has exploded at the rate we’ve seen since last year. So, what could be the reason for this? I’ll give you three guesses, and the first two don’t count.

ObamaCare. Unless you live under a rock, you have heard that many employers are cutting workers back to under 30 hours a week to get them to part-time status. Employers are so scared about how much it could cost them to provide health insurance for their employees, they are scrambling to cut their number of full-time workers.

This explains why the Obama administration recently decided to postpone the ObamaCare “employer mandate” to provide health insurance for one year. It remains to be seen if this unilateral move by Obama was legal or not, but I’ll save that discussion for another time.

Wednesday’s 2Q GDP Report Was A Flop… Really

[Editor’s Note: Some of what follows was in my blog last Thursday. Yet it is significant enough to share with our much broader audience as well, plus I have some additional analysis below.]

If you listened to most in the mainstream media, you would think that last Wednesday’s big report on Gross Domestic Product was much better than expected. I’ll explain how this twisted thinking was almost believable.

The Bureau of Economic Analysis (BEA) released its “advance” estimate of 2Q GDP last week. Ahead of the report, the consensus was that it would show a gain of only 1.1%; however, the actual number came in at 1.7% (annual rate) for the 2Q. Granted, the number was a little better than expected, but who can get excited over a number well below 2%?

Then the other shoe dropped. The BEA also revised its estimate of 1Q growth from 1.8% reported last month to only 1.1%. You may recall that the BEA’s first estimate of 1Q GDP growth was 2.5 %, then down to 1.8%, and now only 1.1%. So despite all the positive hoopla in the media, last week’s 2Q GDP report was indeed a FLOP.

Last week’s report marked a third straight quarter of GDP growth below 2%, a pace that is definitely too slow to bring down unemployment. Consumer and government spending each grew less than expected in the 2Q, but were offset by a rebound in business spending and exports. The net result – a measly gain of only 1.7% – yet the media cheered it as a big success. What else is new?

As I discussed at length in last week’s E-Letter, last Wednesday’s report also included landmark revisions to the government’s GDP statistics going all the way back to 1929. It was widely expected that these somewhat controversial revisions would add around 3% to the overall size of the nation’s economy. They were actually even a little better than that.

In late April, the BEA announced that the US economy topped $16 trillion for the first time ever in March of this year. With the latest sweeping revisions announced last week, the BEA says GDP topped $16 trillion in the 1Q of 2012, a full year earlier than under the old methodology. As of the end of June, the BEA says the economy is now $16.6 trillion.

The BEA’s latest GDP revisions also showed that the recent recession was a little less severe than earlier reported, and the recovery has been a bit stronger. In the recession that started in December 2007 and ended in June 2009, the economy shrank at an average annual pace of 2.9%, not 3.2% as previously reported. And from the recession’s end through 2012, the economy grew at an average annual rate of 2.2%, not 2.1% as previously published.

Yet even with these upward revisions, the recession of late 2007 – early 2009 still qualifies as the worst since World War II, and the current recovery is the weakest as well.

Congress & Staffers Want OUT of ObamaCare

The more we learn about ObamaCare, the worse it looks. Members of Congress know this as well. The interesting thing is that the Affordable Care Act requires members of Congress and their staffs to participate in its insurance exchanges, supposedly in order to gain first-hand experience with what they imposed on their constituents. And why not?

When ObamaCare was rammed through at the end of 2011, without a single Republican vote, apparently Harry Reid and the Dems did not realize that the Affordable Care Act would strip them of the generous health coverage they now have as part of the Federal Employees Health Benefits Program (FEHBP).

Instead they will get the lower-quality, low-choice “Medicaid Plus” to be offered on the ObamaCare exchanges. The members of Congress – with an annual salary of $174,000 plus benefits and lifetime pensions – wouldn't qualify for ObamaCare subsidies. Neither would their higher-paid staffers. That means they could be exposed to thousands of dollars a year in out-of-pocket health insurance costs.

As this knowledge spread, members of both parties panicked. Democrats in particular begged the White House for help, claiming that their failure to “carve-out” an exemption for Congress and their staffers was an unintentional mistake. Reportedly, President Obama told Democrats in a closed-door meeting last week that he would personally resolve the issue.

It now appears that the president will once again unilaterally change the Affordable Care Act so that Congress will not be subject to ObamaCare. He may offer them huge subsidies (up to 75-80%) even though they make $174,000 a year, plus benefits and pensions. This is outrageous! I’m out of space today, but you can read the details that we know so far HERE and in the first link in SPECIAL ARTICLES below.

We all need to stay on top of this. If Congress and it staffers – all total about 11,000 people – get exempted (or hugely subsidized) from ObamaCare, this will be a HUGE CAMPAIGN ISSUE IN 2014!

Wishing you well,

Gary D. Halbert

SPECIAL ARTICLES

ObamaCare causing a huge spike in part-time jobs

Democrats Have Taken Advantage of Millennials

We should be horrified at 1.7 percent GDP growth

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