Unemployment Lies

No matter how you slice it, 6.7% unemployment (the November numbers from the Department of Labor) is a bitter pill, particularly when we all know that this statistic is rising rapidly. Hearing the 533,000 job loss figure for November, the largest single month fall since 1974, only makes this seem worse. But the truth behind the labor statistics should make you cringe.

Our unemployment numbers don’t count folks who are “underemployed.” Part-timers who are looking for full time. Lawyers and engineers working at the checkout stand until their industry starts hiring again. Or people who would love to find a job, but have just plain given up looking in this economy. Want some numbers on some of these folks? From the Department of Labor?

The December 6 New York Times: “The number of people out of the labor force — meaning that they were neither working nor looking for work and that the government did not consider them unemployed — jumped by 637,000 last month... The number of part-time workers who said they wanted full-time work — all counted as fully employed — rose by an additional 621,000… Already, the share of men older than 20 with jobs was at its lowest point last month since 1983, and it’s very close to the low point of the last 60 years. The share of women with jobs is lower than it was eight years ago, which never happened in previous decades.”

The Department of Labor also provides another measure of unemployment – including part-time workers seeking full-time jobs plus anyone who looked for a job within the last 12 months (at least people who are candid in government surveys, by the way). That “alternative measure” reached 12.5% last month – the highest since the Department began keeping this statistic (1994). Just think what that number will be if the projections of 8-9% unemployment from this recession prove correct.

I’m Peter Dekom, and I thought you should know.

COBRA is a Different Kind of Snake

The Consolidated Omnibus Budget Reconciliation Act of 1986, known as Cobra, in most cases allowed terminated employees to remain in the former employer’s health insurance plan for a limited time and at the terminated employee’s expense. That of course assumes that there was a health insurance plan and that the terminated employee had the resources to pay the exceptionally high cost of health insurance.

But what if the employer in question terminated the employee as part of a liquidation or reorganization under bankruptcy law? I’ve noted in earlier blogs that within even large to midsized companies (valued at over $100 million), experts project 10 times the number of bankruptcies in 2009 as there were in 2007. Surprise! The employee’s Cobra rights would no longer provide the continuing health insurance option, since the employer’s plan terminated at the bankruptcy.

The Census Bureau has already told us that in 2007, over 15% of America was uninsured – 45.7 million people (almost 30% of those children), and with 2.8 million recorded job losses in 2008 and many more predicted for 2009, the disaster in health care is obvious. According to the Kaiser Family Foundation, “The average annual premium for single coverage in 2008 is $4,704 and the average annual premium for family coverage is $12,680. These amounts are each about 5% higher than the premium amounts reported in 2007.” For older folks, not yet covered by Medicare, the numbers can even double. Big numbers for folks who just lost their jobs.

People are skipping required medications because they just cannot afford the high cost of pharmaceuticals. Others are living with easily curable diseases or wracked with easily correctible pain because they cannot afford the treatment and fall just short of the economic status to qualify for government assistance sufficient to pay for health care. Hospitals have seen huge escalations in “charitable” write-offs (as much as 40%) as more people fall into the health care abyss. Maybe that’s why the new Administration has not removed restructuring our national health care policies from the highest of priorities.

When people try to reassure you in bad times, they often say, “Well at least you’ve got your health.” Too bad they aren’t able to say that so much anymore.

I’m Peter Dekom, and I approve this message.

The Path

We’re all looking for it. The Department of the Treasury was supposed to provide it for us. Congress was informed that the Troubled Asset Relief Program (aka the $700 billion bailout bill) would launch it. And now we are informed about something that we all knew but were misdirected by the Administration for the better part of a year by carefully denying its existence: the recession – the one we’ve been in since December 2007. With unemployment for November rising even faster than projected (6.7% from 6.3% in October) – 533,000 jobs lost according to the Department of Labor (the biggest job loss in 34 years!) – bleak is an understatement.

The uptick of sales on the post-Thanksgiving “black Friday” showed us what a boost, however momentary, in consumer confidence was capable of doing. Despite a momentary rise, the subsequent markets told us that we are a long, long way from bottom (the place where “up” is really possible) – some economists suggesting that we might not find that sacred ground until as late as 2010. Fortunately, with the new Administration treating the failed economy like a war – placing the deficit reduction at a lower rung on the priority ladder (but we will pay, trust me, for years, perhaps even decades, for this deficit) – I think 2009 (somewhere around the middle) is more likely. And I expect the “bottom” to become a familiar experience once we get there… for much longer than people suspect.

The problem with the current lack of direction is that it extends and deepens this grave financial crisis. Fundamental, grassroots, solutions have not been significantly addressed. The local credit markets are still frozen. Retail sales, except for “black Friday,” have fallen well below expectations. Consumer confidence is clunking bottom.

Foreclosures are rising. Even Federal Reserve Chairman, Ben Bernanke (speaking on December 4) noted: “The public policy case for reducing preventable foreclosures does not rely solely on the desire to help people who are in trouble… More needs to be done.”According to figures released On December 5, close to 10% of American homeowners were in foreclosure or over a month behind in their payment (and that’s at the beginning of October).

Even when you take the subprime mortgage mix out of the mix and look at the solid borrowing based, traditional 30-year fixed-rate loan homeowner, delinquencies on those loans rose to 3.35 percent of the total in September from 3.07 percent at the end of June. The housing currently proposals being reviewed by the Department of the Treasury seem to be focused on providing subsidized rates (as low as 4.5%), based on federally-issued securities, for new home sales, but this does nothing other than create a market for the rising foreclosures.

Consumer solutions remain largely ignored – many of the “grassroots” programs seem only to target consumers in default and leave those capable of paying in the lurch. The Treasury, despite rhetoric to the contrary, remains focused on institutional solutions, even as the Congressional appetite for more “bailouts” is clearly on the wane. Despite promises to the contrary, solidifying balance sheets remains a priority over sending cash down through the system to local banks. Interbank lending, the fuel of business growth and operational necessity (banks sharing risks by pooling loan funds), remains a seemingly distant memory. Treasury’s entire institutional focus seems to have failed rather dismally. Even when Treasury finally got down to the local bank level, feeding capital to the smaller banks after the government let the consumers slide into a dark place where lending does not follow, it was too little, too late.

Banks and other financial institutions are laying off in droves. Credit card limits are contracting. Manufacturers are cutting back, and retail remains in shambles. We are watching the possible restructuring of the automotive sector of America and the probability that CitiGroup, one of America’s largest financial institutions, will either be broken up with various operating businesses segmented and merged with other institutions or perhaps a large mega-merger with a larger existing financial group. Fear remains the principal motivator in both the financial and consumer markets.

Is there some group out there that is monitoring the overall effectiveness of the Administration’s policies in handling this situation? There is now. Congress recently appointed a special panel to monitor the federal bailout, chaired by Elizabeth Warren (a Harvard law professor). Ms. Warren observed, in an interview reported in the New York Times on December 2, 2008, that Treasury seemed to be lurching from tactic to tactic without any clear or articulated strategy on how each move fits into the overall plan (or even if there is an overall plan).

The Times: “You can’t just say, ‘Credit isn’t moving through the system,’ ” she said in her first public comments since being named to the panel. “You have to ask why.” If the answer is that banks do not have money to lend, it would make sense to push capital into their hands, as the Treasury has been doing over the last two months, she continued. But if the answer is that their potential borrowers are getting less creditworthy with each passing day, “pouring money into banks isn’t going to fix that problem,” she said.

Bipartisan disappointment reigns supreme. On December 4, you could see the “bailout fatigue” in the frustrated faces of Senators listening to the groveling CEOs of the U.S. automakers – who drove from Detroit to Washington in hybrid cars, cut their pay to $1 a year, proposed union cuts and killing off entire brands of cars and later even accepted the appointment of an oversight board to administer emergency funding – to beg $34 billion (well more than they asked for on their last visit). The big three began to prepare “pre-packed” reorganizations under bankruptcy law, hoping to preserve consumer warrantees, as Congress mulled their fate.

Many advocated letting remaining companies fall without federal intervention. Republicans have long since distanced themselves from this Presidency, and Democrats have to be worried that with control passing into their hands, the American people expect a quick solution. As long as we think like Republicans and Democrats, as long as we think this is a quick fix and as long as we let idiots vacillate with irreconcilable policy shifts, disappointment will remain the only steady hand at the tiller.

With that brief glimmer of what consumer confidence can do in the bleakest of times – the black Friday lift – it seems that much more important that Americans have a sense that there is leadership, someone, some policy, to follow. Leadership and steady, consistent and clear direction will lift this country. Pushing up from the bottom seems a whole lot more important right now than tugging aimlessly from the top. Without solid, financially viable “people,” nothing can possibly “fix” the system. The score? Administration: 0; People: -10. We need to focus on jobs and home values. Now. Now. Now. It may be too late if the government waits much more.

I’m Peter Dekom, and I approve this message

Shock to the System

Even the massively funded endowments of universities like Harvard have been slammed hard by the falling economy. TheDeal.com (December 3) reported that: “[Harvard]'s endowment, the largest in the nation, lost 22% of its value since July 1. That tallies up to about $8 billion... and is expecting a 30% loss for the year, but it could be even greater than that as valuations for the fund's real estate and private equity holdings have yet to be updated.” The university is "reconsidering the scale and pace of planned capital projects… and are taking a hard look at hiring, staffing levels and compensation to consider how we can reduce overall spending."

If this meltdown hits the well-funded colleges and universities, the impact on public educational institutions has to be beyond devastating. States are reeling from the need to create jobs while their tax base slips – whether income tax, property tax, sales and transaction tax or extraction royalties (for harvesting and mining rights) – all of which is forcing cuts in college aid, support and putting pressure on increasing the effective tuition costs for students at the worst time to cut our ties to the future.

A recently-issued biennial report from the National Center for Public Policy and Higher Education, (a non-partisan group that supports higher education) reported in the December 3, 2008 New York Times, presents the scope of the problem for most Americans. The Times summary: “Over all, the report found, published college tuition and fees increased 439 percent from 1982 to 2007, adjusted for inflation, while median family income rose 147 percent. Student borrowing has more than doubled in the last decade, and students from lower-income families, on average, get smaller grants from the colleges they attend than students from more affluent families… ‘If we go on this way for another 25 years, we won’t have an affordable system of higher education,’ said Patrick M. Callan, president of the center… ‘When we come out of the recession… we’re really going to be in jeopardy, because the educational gap between our work force and the rest of the world will make it very hard to be competitive. Already, we’re one of the few countries where 25- to 34-year-olds are less educated than older workers.’” Currently, the United States ranks a mediocre 10^th in the world in per capita college graduates. Can we really afford to slip much farther?

And it’s not just university and college education that is needed; people with discernible skills, specialized training, are also required. Sheila Maguire, writing for CNN (December 3) wrote: “It may come as a surprise… that [even today] some employers are desperately searching for workers with the right skills… Hospitals looking for X-ray technicians, manufacturers looking for machinists, and energy suppliers looking for people to service rigs and keep them safe are all facing real worker shortages… These jobs require specific technical skills that can only be gained through focused training that is closely linked to the needs of local businesses. In fact, the largest portion of jobs in our labor market (nearly half) require some kind of technical training beyond a high school diploma, and these ‘middle-skill’ jobs are experiencing the greatest shortages of skilled workers.”

While blue collar trade schools aren’t plagued with the same capital requirements, everyone on the higher education side is clamoring for money public money or donations from institutions and alumni. After, we are incurring massive deficits to get out of this recession, but it is the economic value produced by the generations still in school that will be saddled with paying off this debt… they need the education and training to get this job done. Yet increased spending for higher education is competing with other recovery funds, and donations and tax revenues are plummeting. Perhaps we need to rethink how we pay for higher education.

With the exception of many public services jobs (particularly primary and secondary teachers, whom I think should simply be exempt from state and federal income taxes for the first $30K of their income to incentivize the recruitment of new teachers), a college degree generates a higher quality of life and a better income. The same is true for many trade schools.

While we already have progressive income tax (higher rates for higher earning individuals), perhaps it is time for us to examine another alternative, an optional education tax – a permanent percentage of adjusted gross income based on the number of years of college attended (or training programs in which a certification is generated) – that would eliminate the need for loans and tuition payments for students willing to accept this “slow payback” structure. Computer programs can address the issue through social security numbers; while the government would be funding the program at inception, eventually, it should be self-sustaining.

Whatever the solution, we will be struggling in an America we might not want to live in if we cannot train and education the people we expect to live here. It is about survival. I welcome other notions and ideas… this is just a “thought stimulus package” from me.

I’m Peter Dekom, and I approve this message.

Dissecting Unemployment – Auto-Style

I waltzed through the Los Angeles Auto Show with my wife, a young cousin and his friend on November 29; the place was packed. Gawkers – okay, I admit I was one – stared in envy at the Ferraris, the Aston Martins and a few of the exotics. They must be selling them, even though most of the scions of Wall Street aren’t buying such big ticket items these days. I wonder who still is; even the price of oil is down, so oil sheiks and barons have to reduce the number of supercars they buy these days – or do they just cut back on social programs for their “people?”

The Japanese automakers were expanding existing technologies and showing off new fuel efficient vehicles that remained relatively affordable in a down market. General Motors showed off its much touted Chevy Volt and paraded a fuel cell-powered car as a car of the future. They also showed how they were introducing hybrid technologies on lines of trucks, big SUVs and luxury Cadillacs, making gas guzzlers, well, slightly less “guzzly.” I’m even told GM engineers have some more pretty elegant solutions for the future. Why didn’t their bosses push these technologies earlier?

What was missing from the American carmakers, painfully obvious to anyone walking around this massive exhibit at the Los Angeles Convention Center, particularly at the GM section, was a tradition of energy efficient production cars. Even with prices at the pump the lowest they’ve been for a while, crowds around the tiny, fuel efficient urban mini-vehicles, the Smart Cars, exceeded anything around any General Motors product. I wondered about our reputation for engineering and invention; it didn’t make me feel particularly good. The Japanese carmakers have been selling these technologies for quite a few years now; Ford has a few in the market too, just not very many.

In a down market, inefficiencies and failed business plans fall first and fast. Detroit is a classic example of that phenomenon. I’ve already blogged about the 3-5 million jobs that could be lost if the American automotive industry collapsed, but today I’d like to focus on one part of that business that doesn’t have much control over Detroit’s failed choices – the dealers and their employees.

The November 30, 2008 New York Times noted: “The National Automobile Dealers Association predicts that roughly 900 of the nation’s 20,770 new-car dealers [have gone or] will go out of business this year, and automobile analysts say the number of failed dealerships could rise into the thousands next year.” GM’s U.S. dealers number 6,468 and falling. Folks can’t borrow money to buy cars that they don’t seem to want anyway. Projections suggest that once the November car sales are added to the mix, U.S. sales will have fallen for the year to 11 million cars, a drop of almost a third from last year – clearly the lowest in a quarter of a century.

We had a good black Friday, but the Times described idle car salesmen playing number games to pass the time. The underlying specifics they cited illustrate the magnitude of the problem: “The economic toll of a mass failure of dealerships around the country has already begun to harm the broader economy. In October alone, 20,000 employees of auto dealerships lost their jobs nationwide, more than half of those who were newly unemployed in the retail trade, according to the Labor Department… The auto dealers association estimates that new-car dealers produce a [direct] $54 billion annual payroll for 1.1 million workers and nearly 20 percent of the retail sales and sales taxes in small and large communities alike.”

So here’s the problem – all these folks’ jobs rest with a senior management that seems completely out-of-touch with America. Their best guess at what life is like for people who have lost or are worrying about losing a job is a computer-based statistical analysis. They believed they could keep making bigger and Americans would stupidly pay more for the pleasure. The unions’ complacency, their willingness to play ball in the mythical game of endless prosperity, didn’t make the fall any softer. Taxpayers are being asked by arrogant, overpaid, perk-invested CEOs to fund jobs for a lot of hardworking people who need the help and whose job loss would push our overall economic recovery back significantly.

Over the weekend, GM’s unions and board of directors had separate meetings to consider how to restructure the company for the near term. Both understand the need for significant cut-backs if Congress is ever going to take them seriously. Ford and Chrysler are offering different solutions for their issues as well. En route by car or commercial flights, CEOs from the big three American automakers will be providing their going-forward business plans for Congress to consider in connection with their funding requests. I sure hope we’ll see new models, a new wage and benefit package, a new executive pay/perk structure, a new business plan and… oh yes … at least for GM, new senior management.

I’m Peter Dekom, and I approve this message.