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business newsThe Yin and Yang of the US Macroeconomy
By
Professor Pinch
Feb 07, 2012 2:10 pm
Our economy is undergoing a massive change. Regardless of whether the change is good or bad, it will require adaptation on our parts.
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The truth is, nobody knows for certain. While some folks will point to data points that are positive, there are others that aren't so cheery that other folks will highlight. Welcome to the age where everybody is right. And conversely, if everyone is right, then everyone is wrong as well.
So instead of trying to argue how to interpret certain data points as being positive or negative, what can we learn if we put a bunch of it together, blend it all up, and pour it out? What kind of concoction is it? Let's find out.
First, let's look at unemployment and its converse, employment. I'm not going to rehash an interpretation of the jobs report that you've probably already read about 5 bazillion times by now. If there's one economic release that not only brings out everyone's collective instinct to beat a dead horse, but also take that dead horse and chop it and mince it into dog food, it's the monthly jobs report. Ed Harrison has a good take on the January jobs report out there, and the BondDad blog has another good one as well.
My high-level takeaways are simply these: Lower labor force participation rates are to be expected when you have an aging population. Plus, people who were mortgage processors, construction workers, or local government administrators aren't really well-prepared to immediately become data scientists or health care workers, so some of them are going to go back to college or something to develop new marketable job skills. And since restating up to 12 months of data is a pain, we get catch-up revisions all at once. No, this doesn't make analyzing the data easier, but it's what we have.
So I started looking at some sectors on an individual basis. We've heard a lot about the rise of temporary employment during this recovery. The chart below shows that as a sector, professional and business services (which temporary employment falls under) has outperformed the job market as a whole:
Work is out there, but finding a job in this economy has changed. You're going to have to be a lot more creative and flexible. Yin and yang. Challenge and opportunity. You can't really have one without the other.
Meanwhile, health care has grown virtually nonstop. In fact, this recession we just came through didn't even put a dent in job growth. And given the changing demographics of the country, it makes sense. But, it comes at a cost. This next chart looks at the relationship between health care employment and the cost of health care:
When I worked at a bank, we were always told "people are our greatest resource." And it's true. The biggest cost any company has is labor. Which also explains why when I worked at a bank they were always anxious to get rid of you. But in health care, the sector's growth is heralded as a savior of the economy in one breath and is the subject of a great deal of angst in another because of its rising costs.
Data-driven solutions and mobile health devices have the chance to bend that cost curve and make health care more accessible, efficient, and cost effective. The downside will mean that a large number of the clerical jobs in health care will be eliminated. But if the goal is to provide better health care at reduced cost, the fact that some jobs will be eliminated in the process is something folks should actively prepare for, not wring their hands over.
Another metamorphosis under way is the resurrection we're seeing in the manufacturing sector. The latest employment report says manufacturing added 50,000 jobs last month, with almost all of those jobs flowing into durable goods manufacturing. Gregor McDonald wrote about increased manufacturing activity recently, and here's a clip that I think is rather telling (emphasis, mine):
Already a certain virtuous circle is developing. Increased natural gas extraction is driving the need for more drilling equipment and energy infrastructure. This has induced global companies to revive metalcraft and steel operations in the depressed American Midwest. An intriguing story in this regard is the investment Vallourec of France is making in Youngstown, Ohio, which will produce specialized steel tubing for the oil and gas industry. Surely the fact that the US has some of the lowest electricity rates in the developed world is part of the attraction.
Manufacturing jobs are coming here because of the insanely cheap price for natural gas as we look to grow by boosting exports. How cheap is nat gas to oil? Take a look at how many BTUs of natural gas it takes to buy a barrel of oil. To say things have changed is a bit of an understatement:
But, as Gregor suggests, we're now bidding for our "own natural resources in a booming world market for commodities." So as jobs become more closely tied to our own exporting, our own inflation rate will become more closely tied to global demand instead of domestic, rendering the Federal Reserve's efforts to control/guide inflation less effective. How this will play out in a world that wants to have "Just In Case" versus "Just In Time" supply chains will be interesting (see The Global Interconnectedness of Inventory).
Everywhere we look, something positive presents a challenge. Pro vs. con, yin vs. yang. It's the same as it ever was. But as to whether things are getting better or worse, I think we can agree things aren't getting worse, and they have in fact been improving. Even if that improvement has only been on the margins, it is an improvement.
As for the bulk of the economy, though, it sure feels like we're doing a lot of running just to stand still.
Twitter: @japhychron
No positions in stocks mentioned.
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