Saturday, July 8, 2017
The Tea Leaves of Fear
The old adage, “look at what I do, not what I say,” is part of “tea leaf” economic analysis. You may hear about how much we are “winning” or “going to win,” but those tea leaves tell you an entirely different story. Like that recent announcement of the opening of a Pennsylvania coal mine (one that specialized, not in fuel-directed mining, but the much smaller “extraction of a component of steel manufacturing” sector). Not only did this new mine create fewer than 100 additional jobs, but two other, much larger coal mines shut down permanently at about the same time.
Remember Donald Trump’s taking credit, shortly before assuming office, for saving all those Indiana (Mike Pence country) manufacturing jobs with U.S. based, Carrier air conditioner-maker? Well, here’s the reality according to the June 23rd CBSNews.com: “A promise made before Christmas is fizzling before the Fourth of July.
“In December, then-President-elect Trump told hundreds of workers at the Carrier manufacturing plant that he had worked out a deal to save their jobs… But it's not working out that way. A steady downpour today did little to wash away the fact that the jobs of 600 union employees are going south.
“‘They're going to Monterrey, Mexico,’ said Robert James, president of the local union… Reynolds said he felt betrayed, since Mr. Trump told workers during his December visit to the plant that 1,100 jobs would be saved… ‘And by the way, that number is going to go up very substantially as they expand this area, this plant,’ Mr. Trump said. ‘So the 1,100 is going to be a minimum number.’
“Blasting companies for moving American jobs abroad was a feature of the Trump campaign, and saving the Carrier jobs was touted as a sign of Mr. Trump's bargaining prowess… ‘You're going to have a good Christmas,’ he said at the plant… But the truth is that 400 of the 1,100 jobs Mr. Trump mentioned were white-collar positions that were never going away.
“Only 700 union jobs were saved. Six hundred others will be lost, and Carrier is not paying a price. The company actually received a $7 million incentive package from Indiana to keep the plant open with a reduced work force.” Oh, and the GOP Congress made it clear that they would never support extra border taxes on U.S. companies who have moved their operations to cheaper countries. When we can “reshore” manufacturing to the U.S., exactly who does benefit? Workers or “other”?
In fact, just about any reshored manufacturing is coming back to fully-automated plants where most of the anticipated working “wage gains” are really going to the owners of those labor-saving machines. Rich folks. What’s equally troubling is the shift from full-benefits jobs – as Congress debates slashing and burning healthcare benefits for independent contractors and workers who do not otherwise have employer-provided health insurance – to a part-time, piecework gig economy with zero benefits. The Uber/Lyft access to vehicle transportation, yielding slowly to driverless cars and trucks, is combining with artificial intelligence-technology to perpetrate massive additional disruption to our job market.
Meanwhile bricks and mortar retail chains are tanking left and right, facing new online shopping alternatives. Well-reflected in the massive growth of Amazon. Large bricks and mortar retailers, from Macy’s, American Apparel, Aéropostale, to Sears/K-Mart, Neiman Marcus and Staples, to mention just a tiny few, have either filed for bankruptcy or downsized to keep afloat, hoping to stave off having to file bankruptcy. Tons of jobs are tanking with this trend. Retail accounts for about 10% of our total economy.
But even with those online alternatives, American consumers are evidencing their fears of current and impending economic instability with their wallets, mirroring concerns over a job market with continuing contracting discretionary income (in real buying power) combined with higher food, medical and housing costs. Even as the first quarter 2017 has seen the first real increase in consumer buying power (on track for a 4.7% annualized increase in disposable income according to the Commerce Department), those higher costs and the rather justified fear of economic/employment uncertainty are keeping consumers from spending on most anything but basics. Remember when Americans bought a new car every 4 to 5 years? Yeah, well… today it has moved to an average of once every 11.4 years!
Without that consumer spending, creating greater demand that would in turn spur more hiring from suppliers seeking to fulfill that elusive need, the economy will simply not grow as promised. Likewise, tax cuts for the rich – in the absence of consumer demand – are even less likely to cause those mythical “job creators” to go on that hiring binge as Donald Trump and his “wrong yet again” supply-side economists have pledged.
The Sam Brownback debacle in Kansas – where tax cuts for the rich nearly bankrupted the state without concomitant job creation – would spread into a national disaster should the GOP Congress really pursue “tax reform” – the reverse “Robin Hood” of robbing the poor to pay the rich with no real benefits to most of us. The Laffer Curve – the economic theory that equates tax cuts with job growth that has been at the core of GOP economic policy – has become pretty consistently… er… laughable, but despite failure after failure, it has become GOP gospel.
The Los Angeles Times (July 1st), based on Department of Commerce numbers, explains what the consumer spending tea leaves mean: “Economists monitor consumer spending closely because it accounts for about 70% of U.S. economic activity. Despite the modest rise in May, analysts remain confident that consumers picked up their spending overall this quarter and will be eager to spend from their savings and higher incomes this summer…
“Consumers got off to a slow start this year. From January through March, consumer spending rose at a lackluster 1.1% annual pace, the slowest since the second quarter of 2013 and one reason that the economy grew at an annual pace of just 1.4% for the first three months of 2017. Analysts have been expecting a pickup in consumer spending this quarter.
“President Trump has pledged to push annual economic growth past 3%, but most economists are skeptical given America’s aging workforce and disappointing gains in productivity — output per hour worked.” Touting improved unemployment statistics (while ignoring the massive number workers who just gave up hope and dropped out of the job market), Donald Trump believes he can force growth, using what he perceives as America’s massive economic bargaining power, to reconfigure what he perceives to be one-sided trade agreements, reversing a long-standing GOP posture favoring free trade. He’s focused on China and Germany, even though any U.S. economic restrictions on Germany, based on E.U. law, requires a unified E.U. response against us.
Germany’s Angela Merkel has made a series of recent comments directed at Trump policies without naming the President directly, from chastising the United States for withdrawing from the Paris climate change accord to condemning Donald Trump’s anti-globalist threats to terminate trade agreements and erect trade barriers. The above Merkel-Trump handshake photo from the G-20 says it all.
The bulk of economic experts predict that if the U.S. in fact erects such barriers, the expected retaliatory tariffs and restrictions could easily trigger a global recession, which would further challenge Mr. Trump’s ability expand our economy. But remember what candidate Trump said last year during his campaign? “Who the hell cares if there’s a trade war?"
In a test of wills, there is a mounting global pressure to resist Trump’s tactics by holding firm, not giving in to his demands. In an effort to send a message to E.U. leaders France and Germany, Trump began his G-20 trip (which is traditionally centered on trade talks) in right-of-center Poland where he could not resist expressing his doubt as to the bona fides of the “big Russian hack” story. He elevated the “war on terror” to an existential threat to Western civilization.
Add to that his G-20 July 7th side meeting with Vladimir Putin (foreign ministers too), whom The Donald has often claimed is a strong admirer of his (like a fox in the hen house?). A 30-minute meeting that turned into 2 hours and 20 minutes. Topics ranged from terrorism to the “big hack,” with the Russian press reporting that Trump accepted Putin’s word that it wasn’t Russia. Aside from a pre-negotiated ceasefire in southwest, nothing much seems to have been accomplished except the boyz are talkin’. But Angela Merkel had other things on her mind.
Europe countered with a powerful “we really can continue without you” symbolic message to Mr. Trump, “Leaders from Japan and the European Union on Thursday [7/6] announced their agreement on the broad strokes of a trade deal that will cover nearly 30 percent of the global economy, 10 percent of the world's population and 40 percent of global trade… Coming on the eve of the Group of 20 meeting of global leaders in Hamburg, Germany, the announcement appeared to be a calculated rebuke of both the United States, which has spurned global trade agreements in favor of more protectionist policies under President Trump, and Great Britain, which voted to leave the European Union last year.” Washington Post, July 6th.
But while this “trade war” vector departs from GOP doctrine, Donald continues to hand his mainstream Republican constituency other policies that benefit business and the wealthy at the expense of everyone else. The degree to which governmentally-motivated wealth transfers to the already rarified, very small and severely polarized richest segment of our economy are accelerating should trouble each and every one of us. As reflected in my Stealth Wealth Redistribution June 25th blog, the resulting recent economic statistics are pushing us faster and faster into an economic model that looks increasingly like the hallmarks of old world “banana republics.” If you see any silver linings in all this, please let me know.
I’m Peter Dekom, and I am wondering if you are tired of “winning and winning” yet?