Rate Watch #766 Jobs

March 11, 2011
by Dick Lepre
dicklepre@rpm-mtg.com
www.loanmine.com

Jobs

I do not really believe that the way markets reacted to Thursday's Initial Jobless number said as much about the jobs market as it did about the gullibility of investors.

In 2001 we had a mild recession. In fact that was a very mild recession. What was strange was that job recovery was weak even as the recession ended. The loss of jobs became a political issue which obfuscated the underlying realities. We may well discovery that emerging from the 2008 recession also has this annoying jobless feature.

A Keynesian-inspired stimulus bill in 2008 created a brief spike in GDP but little growth in jobs. If we had a recovery it was another jobless recovery. This is where the political view of the economy becomes useless or worse.

Presidents tend to pitch economic policies as creating jobs. That is politics much more so that it is economics. In reality job creation is little influenced by the President or Congress.

This line represents the extent to which a president affects the jobs market
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This line represent the extent to which the President is affected by the jobs market
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Jobs are, in essence, like any other commodity. There is a supply - the work force - and a demand. The demand for jobs varies according to the demand for the products and services of businesses. Businesses and, consequently, job creation run in cycles. These cycles are not some unseen or metaphysical force. They are a result of the nature of the way businesses work. Opportunity knocks, business builds, jobs get created, supply exceeds demand, business contracts, jobs are lost. It's that simple.

Business opportunities are seen by a number of different companies and individuals who devote time and capital to business creation and expansion and the cycle always results in an oversupply. The consequence is recession.

The recession of 2008 was particularly bad because what was in oversupply was bad mortgage loans which undermined the banking system and created a liquidity crisis which cascaded to other businesses. Some jobs will come back apart from whatever the government does. Construction jobs will return when there are signs that the current oversupply of housing has diminished. There may be some reticence because of tougher lending standards and the perception that construction is less likely to be profitable if values are flat.

New home constriction is hard to forecast for these reasons:

- there is a large inventory of foreclosures to clear. The head of BofA's Legacy Servicing division said this week that it will take them 3 years to work thought their backlog of delinquent mortgages.

- massive deficits will create inflation and higher interest rates not only for the Treasury Department but also for mortgages.

- uncertainty about the status of the GSEs and mortgage securitization will likely create pressure on mortgage rates.

- flat or lower home prices create no incentive to buy now.

Significant jobs growth will occur as the result of new technological breakthroughs which create new industries and the jobs which go with them. The problem is that this happens on its own schedule. The jobs expansion which went with the growth of the Internet was not a planned event. It also was not accident. The work of a lot of individuals came together and created opportunities. For the present, jobs are being eliminated by technology: book and music retail stores close, ATMs replaced tellers, retail stores have automatic checkout

This past recession was nefarious because it corrected the housing bubble which unlike the dot-com bubble was a borrowed money bubble. This recession hurt the banking system and only extraordinary liquidity interventions by the Federal Reserve kept disaster from occurring. Nonetheless, until the housing inventory created in the bubble is cleared the housing sector will not recover and home-building is a large jobs creator.

The ability of Keynesian deficit spending to affect the economy and jobs is severely limited by a structural problem. Government moves at too slow a pace to meaningfuly identify and affect jobs of the future. Instead entrenched industries and unions lobby for the past. The Kurzweil ideal of an increasing rate of technological development decreases the effectiveness of Keynesian notions.

On thing is sure about jobs. When companies think that hiring someone will produce more profit they hire people It's that simple.

 

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Dick Lepre
RPM - SF
1400 Van Ness Avenue
San Francisco, CA 94109
DRE License # 01143973
NMLS Individual ID 302379
dicklepre@rpm-mtg.com
Web site: www.loanmine.com
Blog: economy.typepad.com
(415) 244-9383
(866) 488-2051 fax

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