America is Turning Into a "Part-Time Nation"
FORECASTS & TRENDS E-LETTER
IN THIS ISSUE:
1. Economy Gaining Ground Or Treading Water?
2. America is Becoming a “Part-Time Nation”
3. Will the Fed Start to “Taper” on September 18?
4. Welfare Pays More Than Work – Revisited
Part-time work accounted for a whopping 77% of the jobs the US economy created from January through July, according to household survey data from the Bureau of Labor Statistics. Last year during the same time period, part-time jobs were only 53% of the total versus 47% full-time jobs. This trend toward part-time, low paying jobs is accelerating rapidly.
A rising number of companies are citing healthcare reform as the reason for the growing part-time workforce. As a result, the US labor pool is rapidly restructuring toward “29-ers” – employees working just under the 30-hour full-time threshold. This meteoric increase in part-time versus full-time new jobs has been happening since 2009.
Next, we look at the latest clues as to when the Fed will start to “taper” its monthly bond and mortgage purchases. The minutes from the Fed’s July 30-31 policy meeting indicated that a growing number of FOMC members are leaning toward reducing purchases before year-end. But we still don’t know when Bernanke & Co. will pull the trigger.
Finally, in my blog last Thursday, I wrote about a new study which found that, in at least 35 US states, a person on welfare can get more cash benefits than a person working 40 hours a week at the minimum wage. In some states, a whole lot more than the minimum wage. Today, we explore this dangerous trend and why we have a record number of Americans on welfare.
But first let’s take a quick look at the latest economic reports and what’s ahead this week.
Economy Gaining Ground Or Treading Water?
Recent economic reports continue to be mixed overall, which argues that this lackluster recovery will continue to disappoint. However, some forecasters are feeling a little more upbeat in the last few weeks. Here are a couple of reasons why. First, there are hopeful signs that consumer spending could improve in the months ahead. Retail sales in June rose a solid 0.6% which led to some optimism about the rest of this year.
Yet the retail sales report for July released on August 13 showed a net gain of only 0.2% which was disappointing. However, if we look at “core” retail sales – minus auto sales and gasoline sales – the July number came in at a respectable +0.5%. This plus the sales report for June led some forecasters to increase their estimates on consumer spending in the 3Q to 2.5%.
That tidbit of optimism brings us to this Thursday’s 2Q GDP estimate which is widely expected to be revised higher. In the “advance” report in late July, the government estimated that the economy expanded at an annual rate of only 1.7% in the 2Q. But based on additional data since that time, the pre-report consensus now suggests that the second estimate will be revised upward to 2.1%. That’s encouraging, I suppose, but it’s not a suggestion that the economy is really on the mend.
America is Becoming a “Part-Time Nation”
Part-time work accounted for a whopping 77% of the jobs the US economy created from January through July this year, according to household survey data from the Bureau of Labor Statistics. Specifically, this data showed that the US economy has created 953,000 jobs so far in 2013. Of that sum, 731,000 were part-time jobs versus only 222,000 (23%) full-time jobs.
So how does this compare to the same period last year? Based on the same survey, from January to July 2012, the US economy created 1.4 million jobs. Of that sum, 764,000 (53%) were part-time jobs versus 658,000 (47%) full-time jobs. So not only are we producing fewer new jobs this year, over three-quarters of them (77%) were part-time jobs.
President Obama likes to brag that the US economy has been adding on average 200,000 jobs a month, and that was true in the first seven months of 2012. But this year through July, that number has plunged to only 136,000 new jobs a month on average, with three out of four being part-time work.
Worst of all, most part-time jobs are in the low paying retail world, such as food services/bars, hospitality, temporary staffing firms, home health care, etc. Economists cite these low-paying jobs as the main reason why median household income continues to decline.
A rising number of companies are citing healthcare reform as the reason for the growing part-time workforce (see list below). The new healthcare law defines a full-time worker as one who works on average 30 or more hours per week. Those workers must be given healthcare coverage or the employer faces government fines and penalties.
And no one knows what healthcare coverage will cost employers when Obamacare is fully implemented over the next two years. As a result, the US workforce is rapidly restructuring toward “29-ers” – employees working just under that 30-hour full-time threshold. In addition, an estimated 1,200 companies and a growing number of unions have either sought or won temporary waivers from the new healthcare mandates.
GOP members of the House Ways and Means Committee report that since January 2009 the country has added seven times more part-time jobs versus full time jobs. The US now has a historically low labor force participation rate, with 116.1 million full-time workers and a record 28.2 million part-time workers.
The rise in the part-time workforce is a significant reason why US worker pay and median income has dropped since the Great Recession ended in June 2009. That trend held up again in the July unemployment report. Government data show that average hourly pay fell two cents in July to $23.98 an hour. The average workweek for all private sector employees dropped again last month, this time by a tenth of an hour to 34.4 hours.
US employment trends are a warning, as the US has a retiree population growing faster than its working population, a pattern former President Bill Clinton noted when he said the Baby Boom was about to become a “Senior Boom” in his 1999 State of the Union address.
Leading economists have warned that the US economy has been restructuring since the 1980s away from higher paying jobs into lower-paid service industry jobs, in restaurants, retail, lodging, entertainment, education, etc. With lower median incomes in these fields, this puts a drag on GDP growth since consumer spending is apprx. 70% of the US economy.
Government data show that retailers, restaurants and bars delivered more than half of July’s job gain. These low-paying industries account for 39% of the US workforce, according to government data analyzed by Moody’s Analytics. Moody’s also notes that mid-level jobs have contributed just 22% of job creation so far in 2013.
Companies are also relying increasingly on technology or outsourcing to low-wage Asian countries to replace US workers in order to lower costs and boost their bottom lines. Restaurant, hotel, retail, and home health care jobs typically can’t be exported, and this is another reason that more of the new jobs created are in these low-paying fields.
Here’s a short list of companies citing Obamacare as the reason for the increase in part-time workers:
Welcome to Part-Time America, a trend that has been exploding since 2009.
Will the Fed Start to “Taper” on September 18?
I know you’re tired of hearing about it. I’m tired of writing about it. However, concerns about the Fed starting to end its historic QE purchases of Treasury bonds and mortgage securities continue to dominate the stock and bond markets. Last Wednesday, the Fed released the minutes from its July 30-31 policy meeting, and analysts all over the world hoped that those details might give more insight on when the Fed will start to ‘taper.’
Some interpreted the minutes to suggest that the Fed will start to cut back on its huge monthly purchases immediately after the September 17-18 FOMC meeting, while others read the minutes to suggest the Fed will wait until the late December policy meeting. Here are a few excerpts from the minutes:
While a range of views were expressed regarding the cumulative improvement in the labor market since last fall, almost all Committee members agreed that a change in the purchase program was not yet appropriate.
However, in the view of the one member who dissented from the policy statement, the improvement in the labor market was an important reason for calling for a more explicit statement from the Committee that asset purchases would be reduced in the near future.
A few members emphasized the importance of being patient and evaluating additional information on the economy before deciding on any changes to the pace of asset purchases. At the same time, a few others pointed to the contingent plan that had been articulated on behalf of the Committee the previous month, and suggested that it might soon be time to slow somewhat the pace of purchases as outlined in that plan.
At the conclusion of its discussion, the Committee decided to continue adding policy accommodation by purchasing additional MBS at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month and to maintain its existing reinvestment policies.
How anyone can conclude from the remarks above that the Fed will start reducing purchases in September versus December is a mystery to me! Clearly, the FOMC is divided on the question of when to taper. The only thing that was clear in the minutes to me is that the Fed intends to keep Wall Street – and the rest of the world – guessing.
This means that the stock and bond markets will continue to be erratic and nervous from now until September 18 when the next FOMC meeting concludes and the policy statement is released that afternoon. My thoughts on what will happen next have not changed from what I wrote last week:
I still believe it all comes down to Bernanke. I continue to feel that he has the votes on the Committee to continue QE beyond the September meeting – if he wants to. On the other hand, I also believe he has the votes to taper – if he wants to…
I think this all boils down to whether or not Bernanke feels a responsibility to begin to finish what he started before his term is up in January.
Finally, there is the question of how much will the Fed taper if it does so at all. The Fed has said absolutely nothing about the size of the initial reduction in purchases. As I wrote last week, the consensus was that the initial taper would be from $85 billion a month to $65 billion, with all the reduction coming from Treasuries.
However, the Federal Reserve Bank of New York recently surveyed its 20+ “primary dealers” to see what they were thinking about the taper. Primary dealers are those big banks and brokerages that buy Treasuries direct from the Fed. Of these dealers, most felt that the Fed will move to taper at the September 17-18 FOMC meeting.
As for the size of the reduction, the average estimate was $15 billion – $10 billion in Treasuries and $5 billion in mortgage-backed securities. That’s less than the consensus of $20 billion I noted last week. And the consensus among the primary dealers was that the Fed will end QE entirely by mid-2014.
Finally, as a reminder, these estimates are purely speculation. No one knows for sure.
Welfare Pays More Than Work – Revisited
In my blog last Thursday, I wrote about a new study which found that in at least 35 states, a person on welfare can get more cash benefits than a person who works 40 hours a week at the minimum wage. In some states, a whole lot more than the minimum wage. If you missed the blog, you can read it HERE.
That study has drawn quite a bit of attention, as well it should. Many who read the study’s conclusions reacted by saying that the poor are simply lazy, stupid or both. I find such generalizations offensive. Admittedly, there are some poor people who are lazy and/or stupid, but there are some well-off and even rich people who are also lazy or stupid or both.
Yet I would argue that the reason there are more people on welfare today than ever before is much more simple than blaming it on stereotypes. I boil it down to this:
If you pay people more not to work than
The question is, how did we get to this point? Let’s go back and see how a successful program went so wrong.
Back in 1996, a Republican House led by Speaker Newt Gingrich, working with Democratic President Clinton, helped enact genuine welfare reform that included three main elements, the most important of which was the “work requirement.” Within five years of the law’s implementation, stagnant welfare rolls were cut by half, employment among low-income Americans soared and child poverty rates plummeted.
The 1996 law turned the federal welfare program into state block grants under the Temporary Assistance for Needy Families program, and for a while it worked very well. A safety net was provided for those truly unable to work or lacking basic skills, but the able-bodied were incentivized to seek work and most found that getting up and going to work each day could be rewarding in both self-esteem and remuneration.
Enter the Obama administration and the beginning of the “fundamental transformation” of America, with its emphasis on redistribution of – rather than the creation of – wealth. Once again, the poor were told they were poor because the rich had taken their money and had rigged the zero-sum game to their advantage. We were soon on our way to becoming a “food-stamp nation.”
Matters were made worse in July 2012, when the Obama administration released a directive from the Department of Health and Human Services announcing that states would be able to waive the law’s work requirements. The requirement that able-bodied adults work, prepare for work or look for work in order to receive benefits was deemed too much of a burden for some states and the poor to bear.
So what we have is a colossal double-whammy. President Obama creates an economy with a disincentive to create new jobs due to taxes, regulations and ObamaCare. And at the same time, he waives the work requirement to qualify for welfare benefits. In essence, “Don’t worry about those nasty work requirements, the government will take care of you.”
This is how we got to a record number of Americans on welfare, with many in at least 35 states making more than (some a lot more than) a full-time job paying minimum wage. I could go on for hours on this subject, but I had better leave it there for now.
Hoping you had a great summer,
Gary D. Halbert
Forecasts & Trends E-Letter is published by ProFutures, Inc. Gary D. Halbert is the president and CEO of ProFutures, Inc. and is the editor of this publication. Information contained herein is taken from sources believed to be reliable but cannot be guaranteed as to its accuracy. Opinions and recommendations herein generally reflect the judgement of Gary D. Halbert (or another named author) and may change at any time without written notice. Market opinions contained herein are intended as general observations and are not intended as specific investment advice. Readers are urged to check with their investment counselors before making any investment decisions. This electronic newsletter does not constitute an offer of sale of any securities. Gary D. Halbert, ProFutures, Inc., and its affiliated companies, its officers, directors and/or employees may or may not have investments in markets or programs mentioned herein. Past results are not necessarily indicative of future results. Reprinting for family or friends is allowed with proper credit. However, republishing (written or electronically) in its entirety or through the use of extensive quotes is prohibited without prior written consent.