Why we need Rhett Butler as a hiring authority

Rhett_Butler_by_khinson

Image by Khinson

Hiring authorities are taking longer than ever to fill vacancies, the New York Times recently reported.  Candidates interview five or six times and leave empty-handed. Sometimes the jobs never seem to get filled. I know that on LinkedIn I have seen a number of  ads for the same journalism jobs  pop up again and again — for more than year. In case you haven’t heard, there are plenty of unemployed journos dying for full-time work. What’s up with that?

Blame it on the glut of candidates. The more choices we have in life, the harder it is to choose. “We don’t know our preferences that well, says behavioral economist Dan Ariely in a TED Talk back in 2009. This is why we need Rhett Butler. He’s a guy who finally figures out what he wants and acts  on it. Ariely explains:

We have an irrational compulsion to keep doors open. It’s just the way we’re wired. But that doesn’t mean we shouldn’t try to close them. Think about a fictional episode: Rhett Butler leaving Scarlett O’Hara in Gone with the Wind, in the scene when Scarlett clings to him and begs him, “Where shall I go? What shall I do?” Rhett, after enduring too much from Scarlett, and finally having his fill of it, says, “Frankly, my dear, I don’t give a damn.” It’s not by chance that this line has been voted the most memorable in cinematographic history. It’s the emphatic closing of a door that gives it widespread appeal. And it should be a reminder to all of us that we have doors—little and big ones—which we ought to shut.

Dan Ariely, Predictably Irrational

So, dear, Hiring Authorities, choose a candidate. Close the door on the others.

Just for fun, here’s Ariel’s hilarious TED talk on how we let outside forces control our decision-making, largely because we just don’t know what we want or we get too vermischt when presented with more than two choices. Word to the wise: Before agreeing to surgery, demand your doctor present all the other choices he is rejecting!

 

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Debt-laden US is a leader in job losses

In my previous post on the jobs market, I asked about different ways to help long-term unemployed people — especially those who were unlikely ever to find work in the areas they were trained for. Now, the Wall Street Journal reports that the US is way behind in new job formation since the global economic meltdown began. A key reason: too much debt and  shaky banks. So it appears we need to engage in a double-tracked conversation to heal the jobless situation: trimming the debt while re-training the jobless.

At the bottom of this post, I share the very disturbing WSJ graphics, which show how poorly the job market here is faring — down 4.8%  from December 2007 (click to enlarge). It’s a sad day when you see US fall behind countries as diverse as Brazil and Japan and Hungary in creating new jobs. Here’s the top of the WSJ story:

One year into the global recovery, the U.S. is lagging far behind other major economies in restoring jobs lost in the recession.

A Wall Street Journal analysis of employment trends in 11 countries suggests that manageable debt burdens and healthy banking systems—areas in which the U.S. doesn’t excel—are proving to be crucial factors in creating jobs.

via U.S. Lags in Job Growth – WSJ.com.

U.S. is No. 1 in job losses since the start of the economic turmoil

Graphics via WSJ

The jobless benefit debate revisited

This morning the Wall Street Journal published a front-page story debating whether extended jobless benefits subtly encourage recipients to remain unemployed. In March, I wrote a similar post raising the same question and was skewered as an indifferent let-em-eat-cake Marie Antoinette.

The issue hits a nerve, as well it should. As I wrote in the spring, no jobs, no real recovery. So I will re-frame the question: Does the system we now have work for an extended economic crisis as intended? Or, put another way: Unemployment benefits were designed so that workers would not be forced to take just any job. If you were a skilled factory worker, that would mean you could wait for the right job, which typically took about 26 weeks — the traditional length of unemployment insurance. You wouldn’t be forced to take the first job that came along, says, as an unskilled laborer. That is a core value embedded in unemployment benefits.

Now, let’s fast-forward to the Great Recession. There are five workers for every available position, a statistic that’s about as subtle as a mallet on a pinhead. Some areas have jobs aplenty — healthcare and government have expanded throughout the recession. Other areas are suffering and are unlikely EVER to return. Think autoworkers; administrative assistants; newspaper reporters or newspaper delivery services.

The WSJ begins the debate today with a story of a recruiter trying to place engineers in $60,000/year jobs. Here’s what happened:

“We called several engineers that were unemployed,” says Karl Dinse, a managing partner at the recruiting firm. “They said, nah, you know, if it were paying $80,000 I’d think about it.” Some candidates suggested he call them back when their benefits were scheduled to run out, he says.

But, of course, that’s just one story. Plenty of others aren’t so fortunate. They find themselves competing with scores, maybe even hundreds, of others for low-paying jobs. There’s the $12/hour forklift operator who says he can’t find any work after a one-and-a-half-year search and has no benefits left. If Congress would renew the law extending benefits for 99 weeks, he would have continued to receive $315 a week. Economists argue that providing benefits to people in that situation is good for the economy. They spend the money right away and are not forced to seek other benefits that may prove even more costly.

Now back in March, I took the opportunity to mock Paul Krugman — who specializes in condescending to anyone who doesn’t agree with him. He is a strong advocate for extending benefits, even though he himself has written that that can lead to slower job recovery. Krugman argues that this time is different. I agree, this time round is different. Most jobless workers are not lolling about, taking summer vacation at the taxpayer expense. The degree of hopelessness is breathtaking. U6 unemployment number, which includes those that have given up looking for work, has hit record highs, and is now pegged at 16.5%.

Back in his academic days, Larry Summers, the White House chief economic advisor, has written much the same thing as Paul Krugman. But Summers emphasized something very important that hasn’t been adequately discussed: job training. The Administration has created some job-training programs. But as one expert told me, the history of government training programs is less than stellar. Community colleges are actually the most cost-efficient re-training venues.

This is a topic that I will need to address in depth another time;  so I will need to leave this post with a series of questions for you to consider:

–Is there some way to re-structure benefits during a prolonged economic crisis so that those who can get jobs should take them, even if they aren’t ideal? Would that save enough money to enable other jobless workers to get re-training for jobs in this economy? Is it even practicable to enforce?

–Is there something special we should be doing to encourage employers to hire older workers, who face the stiffest problems in finding jobs? Or for families with small children? In other words, is there some way to make the system subtler and more responsive to the very real needs of a hurting population without raising the costs to frightening levels?

Where have all the green shoots gone? (Update)

We are still in a serious job recession

Last night I began this post by saying the markets are sure looking ugly. The jobs report published this morning for June does nothing to alter the thesis of this post: confidence is waning because job formation is so weak. The “topline” number — 9.5% unemployment — looks superficially better than last month’s 9.7%. But actually the rate shrank because the size of the labor force shrank. And that’s not a good thing. Other metrics on the jobs report were weak: hourly pay edged down a tad as did hours worked. Translation: There’s plenty of slack in the economy. Even if business picks up, employers don’t need to run out and hire more people.

Private companies did hire last month, but at an anemic rate of 83,000. Bloomberg noted: “The pace of hiring signals it will take years for the world’s largest economy to recover the more than 8 million jobs lost during the recession that began in December 2007.” The chart at left, via Calculated Risk, say sit all. (Click to enlarge.)

And, man, the markets are sure looking ugly.

As I wrote in early June, I thought the stock market rally had gotten way ahead of the recovery story on Main Street; that’s why we shifted our portfolio to about 75% cash and bonds. An 80% rally from the lows is a bit hard to swallow with 9.7% unemployment and a record number of people who despair of ever finding a job. And so the official story for the recent correction is a new raft of weak economic data: Home sales falling off a cliff, as everybody likes to write, now that the tax credit has expired;  jobless claims rising this week; weak construction numbers, etc., etc. And the European debt woes and slowdown in China are pretty good downers, too.

But I find it hard to believe that the numbers would be much of a surprise to market watchers. They are in sync with what many were expecting: a slowdown in the second half of 2010. But suddenly all of the elements that have been “out there” have shaken the confidence of investors. (And the confidence number out this week also shocked on the downside, falling to 52.9 in June from 62.7 in May.) Shaken confidence is the big enemy of markets. Can anyone remember when commentators dared last year to speak of “little green shoots” in the economy?

Confidence is the oxygen of the marketplace. The atmosphere is getting mighty thin.

Yale professor Robert Shiller recently wrote that fear of a jobless recovery is a key factor deflating confidence; the dreaded double-dip in the language of Main Street doesn’t mean that the recovery suddenly ends this minute. GDP is in fact expanding if slowly. But the fear that has seeped into the average Joe is that even if the recovery continues in its snail-like pace for another year or two, unemployment may stay high (which did in fact happen in the last few recessions). And then the economy may get hit again by another slowdown. It’s the long-term view that’s scary, not the short-term. And it can be self-fulfilling.

Confidence is also ebbing in the system itself. I think something may be changing in the way investors look at the market as a result of the May 6 “flash crash”  when the market plunged 10% in 20 minutes, with some stocks falling to zero. It’s more than a month later and we still don’t know why the market went into cardiac arrest that day. I don’t hear much chatter about the roller coaster ride in May, but I think the after-effects linger. I’m wondering if the flash crash — along with the not-so faded memory of the 2008 meltdown — hasn’t helped to revive our sense of uncertainty in the plumbing of capitalism.

And it’s not just the plumbing of capitalism that worries. The fiscal battles in Washington don’t inspire confidence. We are witness now to an epic policy battle between those who fear more spending will drown us and those who assert more spending will revive the economy. It’s a battle that voters get. In the early days of the Obama administration, when his popularity was unassailable, I wrote that this very battle would challenge his stature more than any other. That moment has come.

Tomorrow, by the way, the June jobs report comes out. Once more, Census temporary hiring will make the report look weak as the agency releases workers. A Bloomberg survey of economists predicts nonfarm payroll will fall by 125,000 vs a 431,000  gain in May– including 411,000 temporary workers; but private payroll should rise by 110,000 vs 41,000 in May.

Click on graphic to enlarge. Via dshort.com.

The May jobs report: The bull, the bear, and the rational

The data-miners are still combing through the jobs report for May. Below, I present three savvy analysts — each with very different takes on how the economy is doing. I start with David Rosenberg, economist extraordinaire and bear; then move to bullish comments from “Davidson”, an anonymous contributor to the blog for value investor Todd Sullivan; and conclude with another investment advisor/blogger, Barry Ritholtz, who slaps down the bears but is pretty cautious in his outlook.

David Rosenberg – Disturbing tidbits:

A FEW MORE DISTURBING EMPLOYMENT TIDBITS

First, if it weren’t for the plunge in the labour force, the U.S. unemployment rate would have climbed to 10% in May. Second, the Household survey actually flagged a 35,000 outright decline in employment last month. Third, the 41,000 increase in private payrolls, about one-third of what was widely expected and the low-water mark for the year, was exaggerated by a 29,000 boost from the “birth-death” model. Fourth, the fact that the hottest sector of the economy, manufacturing, could only post a 29,000 gain, a sharp slowing from 40,000 in April is quite disconcerting — especially since it is clear that the ISM index has peaked for the cycle. Fifth, the declines in the financial sector, construction and State/local governments are a vivid reminder that the parts of the economy that were most affected by the bursting of the housing and credit bubble are still licking their wounds and cannot be relied upon to play any role in helping revive what is still very much a moribund jobs market.

It’s not just the labour market that is behaving poorly, but the housing market is too. It is remarkable that with interest rates so low that we would be seeing mortgage applications for new purchases down to a 13-year low. Take a look at page A6 of the weekend WSJ and you will see that Ivy Zelman, the country’s best housing analyst, is calling for nationwide home sales to slide between 25% and 30% in May and that is sequential, not year-on-year (that is very close to a 100% annual rate plunge. Even the usually optimistic National Association of Realtors is expecting “June and July to remain fairly weak”). A survey conducted by Credit Suisse (released on Friday) showed that in stark contrast to the latest National Association of Home builders survey, the traffic of prospective homebuyers in May was back to depths of late 2008 when the financial crisis was in full gear.

via Breakfast with Dave (by subscription only)

“Davidson”

Part 1: An anomaly:

…The fact that the [employment] surveys cover ~1% of the population which is then scaled to produce a current est. leaves plenty of room for statistical error. The accelerating employment growth since Dec2009 does not suddenly slow down. In recoveries they accelerate and are the source for consumer spending especially car and light truck sales which have been so strong of late. Economic cycles are slow ponderous things and do not start and stop. Measuring economic activity has always been fraught with errors which are corrected over time and even then becomes only our best estimate. I think the survey sample was an anomaly which will be corrected next month. The data shows similar patterns throughout its history.

via Todd Sullivan

Part 2: On good news from the Conference Board and help-wanted:

Help Wanted Online as tracked by The Conference Board has remained strong at elevated levels. This can only be good news eventually for equity investors. I pulled two excerpts of interest below. There is simply not much commentary to add when the news remains this positive.

The full press release is available at this link: http://www.conference-board.org/pdf_free/HWschoolout.pdf

Excerpts:

“After the large 223,000 April increase in online advertised vacancies that kicked off the spring hiring season, employers essentially held steady in May,” said June Shelp, Vice President at The Conference Board. “As the economy comes out of the recession, online demand has risen in a wide variety of occupations. Occupations commonly associated with office work (administrative, legal and computer jobs) as well as manufacturing and construction vacancies are improving but remain below their pre-recession levels, while online demand for workers in sales, education and training, entertainment, food preparation and service, healthcare support and personal care are all at or above their pre-recession 2007 levels.”

Online help-wanted on the upswing

via Todd Sullivan,

Barry Ritholtz — Soft Patch?

As the data confirms, there can be no doubt we have entered a soft patch. Indeed, the following data points confirm a general slowing:

• Jobs: Private sector hiring cooled off last month, with just 41,000 hires;

• GDP grew at a 3% in Q1 2010, down from 5.6% Q4 2009.

• Europe: The problems in Greek Spain and Hungary are likely to lead to significant austerity measures in Europe. Expect the Continent to see anemic growth at about 1% GDP, and that can shave 0.5% off of US GDP.

• Retailers showed a disappointing May, making no gains (outside of Autos).

• Homebuilders sentiment and mortgage apps have plunged, following the expiration of the home buyer tax credit.

• China appears to be guiding its credit and real estate sectors to slower growth.

• Conference Board Leading Economic Index (LEI) fell in April by 0.1% — the first downturn since March 2009; (May data wont be out for another 2 weeks, but it also appears to have softened).

Dr. Copper looks pretty sorry, as commodity prices plunge worldwide.

• Unemployment claims were declining, but that progress seems to have stalled

This is, historically speaking, normal. ECRI’s Lakshman Achuthan told Newsweek: “You always have a spurt in growth out of recession and then you throttle back. But we’d need to see a pronounced, pervasive, and persistent decline in the level of the leading indicators to start talking about recession risk.”

That “pronounced, pervasive, and persistent decline” is simply not present. Indeed, double dip recessions are actually rather rare. As Yale Professor Robert Shiller pointed out in a recent Sunday NYT article, “When inflation-adjusted G.D.P. has come out of a decline and posted three or four quarters of gains, it has never immediately begun to fall again — at least not since quarterly numbers began to be issued in 1947.”

From The Big Picture, Double Dip — Or Soft Patch?

Heads up: Census hiring to cloud May jobs data

The jobs report due out tomorrow marks the first major measure of the economy for the month of May. But beware: The Bureau of Labor report has a lot of noise from temporary hiring for the national census so it will mask underlying weakness in the jobs market. Economists are estimating that the economy added 540,000 jobs last month — the biggest gain in 27 years — but 415,000 are Census workers. Calculated Risk estimates about half of those workers will be leaving their jobs this month (see chart below).

To get a better measure of the core economy, “ex” out the Census Bureau hires, which would leave a skinnier gain of 125,000 workers in the nonfarm payroll category. In April, the economy added 290,000 nonfarm payroll workers, but that number drops to  224,000 without the census takers.

The expected slowdown in permanent hires in May is pretty much a mirror of all the other data that has been emerging in recent weeks, especially from jobless claims, which, after falling sharply late last year, have stalled out in recent months. Similarly, data from ADP, which does not include any government workers, reveals that hiring is far from what one would expect when emerging from a deep recession. If the economists are correct about the pace of May hiring, it will take about 7 years to recoup all the job losses of the Great Recession.

The analysts of Hedgeye have put together a graphic that shows just the job loss devastation: We are at record levels for anyone unemployed more than 27 weeks. Congress has extended unemployment benefits to an unprecedented 99 weeks (although it hasn’t appropriated the money to pay everyone — another story for another time.) Get an eyeful at the bottom of this post. (Click on the graphics to enlarge.)

Census workers will inflate then deflate the nonfarm jobs report

Census worker chart via Calculated Risk

Long-term unemployed chart via Hedgeye

Krugmanesia: (n.) An economic memory lapse

Long-term unemployment is the wrench in the recovery story

Long-term unemployment is the wrench in the recovery story (click to enlarge)

Nobel-prize winning economist Paul Krugman had a hissy fit in his column the other day, charging Republicans in the Senate with both intellectual and moral turpitude — especially when it comes to the question of extended benefits for jobless Americans.

More than 6 million adults have been out of work for more than 26 weeks — that’s 4.0% of the civilian workforce (see graphic above) or 40% of the unemployed. To date, Congress has extended jobless benefits to this unfortunate cohort. That would seem to be the course of compassion. But the compassion may be misdirected, which brings me to this story of Krugmanesia.

From his perch in the much-mortgaged New York Times glass tower in midtown Manhattan, Krugman gives a lesson in economics while soundly rapping the knuckles of any who appear indifferent to the plight of the unemployed.  Krugman extemporizes that those who support extending benefits (Democrats) live in one world while those who oppose extending benefits (Republicans) live in a Second Life-like world. Krugman lectures like the Princeton University professor he once was still is:

Take the question of helping the unemployed in the middle of a deep slump. What Democrats believe is what textbook economics says: that when the economy is deeply depressed, extending unemployment benefits not only helps those in need, it also reduces unemployment. That’s because the economy’s problem right now is lack of sufficient demand, and cash-strapped unemployed workers are likely to spend their benefits. In fact, the Congressional Budget Office says that aid to the unemployed is one of the most effective forms of economic stimulus, as measured by jobs created per dollar of outlay.

But that’s not how Republicans see it. Here’s what Senator Jon Kyl of Arizona, the second-ranking Republican in the Senate, had to say when defending… [Kentucky’s Sen. Jim] Bunning’s position (although not joining his blockade [to extend benefits]): unemployment relief “doesn’t create new jobs. In fact, if anything, continuing to pay people unemployment compensation is a disincentive for them to seek new work.”

via Op-Ed Columnist – Senator Bunning’s Universe – NYTimes.com.

The ever-curious James Taranto decided to investigate just exactly what classical economics textbooks say about benefits for the long-term unemployed. And here’s what he found in one popular economics textbook:

Public policy designed to help workers who lose their jobs can lead to structural unemployment as an unintended side effect. . . . In other countries, particularly in Europe, benefits are more generous and last longer. The drawback to this generosity is that it reduces a worker’s incentive to quickly find a new job. Generous unemployment benefits in some European countries are widely believed to be one of the main causes of “Eurosclerosis,” the persistent high unemployment that affects a number of European countries.

So those Second Life Seantors turn out to be quite up to snuff on economic theory. They might even be more than avatars when it comes to compassion. Of course, Krugman might dismiss this particular textbook; so many are laced with political bias. Not to worry. This particular tome, called Macroeconomics, was written by Paul Krugman and his wife Robin Wells.

It’s easy to make fun of economists — they are in the business of making predictions and models that often seem divorced from reality. It’s even easier to make fun of economists who contradict themselves on the basics. But in these extraordinary times we can’t afford to err on the side of generosity — or make dire missteps in rebuilding the labor force. No labor force, no real economic recovery. Period. In fact, consider these distressing facts: Transfer payments from the federal government now accounts for a record 18% of personal income in the U.S., says David Rosenberg, an economist few can mock (the worst you can say is that he’s a permabear). The outlays come at a time when monthly debt service for our national borrowings have touched $17 billion, or nearly 16% of monthly receipts, an alarming ratio.

Click here for Taranto’s podcast from his daily Best of the Web column. It’s worth hearing Taranto tell the story of Krugman and the two worlds of the cooked and the uncooked.

Graphic courtesy of Calculated Risk
H/T Gregor Macdonald and MacroTwits for Treasury data