MyDD

The U-6

Sat, 07 Nov 2009 06:53:19 GMT

Earlier in my post on US Unemployment Reaching a 26-Year High, I said this about the U-6:

Among all groups, the U6 underemployment rate -- a broader measure of the jobs shortfall which includes people whose hours have been cut, those working part-time for lack of full-time work, and those who have given up looking -- is 17.5 percent. This is the number that I prefer to use as the real unemployment number. This reflects those individuals who can no longer find work in their chosen careers and have instead been forced back to school or to take lower paying jobs in the service sector. The lack of manufacturing jobs and a collapse in even high-paying white collar sectors such as finance and legal services poses a particular worry for the US economy and ultimately for the Administration.

David Leonhardt of the New York Times has some more color on our serious underemployment problem. Here are some of the lowlights:

In all, more than one out of every six workers -- 17.5 percent -- were unemployed or underemployed in October. The previous recorded high was 17.1 percent, in December 1982.

This includes the officially unemployed, who have looked for work in the last four weeks. It also includes discouraged workers, who have looked in the past year, as well as millions of part-time workers who want to be working full time.

The rate is highest today, sometimes 20 percent, in states that had big housing bubbles, like California and Arizona, or that have large manufacturing sectors, like Michigan, Ohio, Oregon, Rhode Island and South Carolina.

The new benchmark is a sign of just how much damage financial crises tend to inflict. A recent book by Carmen M. Reinhart and Kenneth S. Rogoff, two economists, found that over the last century the typical crisis had caused the jobless rate in the country where it occurred to rise for almost five years. By that standard, the jobless rate here would continue rising for two more years, through the end of 2011.

Officially, the Labor Department's broad measure of unemployment goes back only to 1994. But early this year, with the help of economists at the department, The New York Times created a version that estimates it going back to 1970. If such a measure were available for the Depression, it probably would have exceeded 30 percent.

Here's more and it is somewhat paradoxical.

One of the more striking aspects of the Great Recession is that most of its impact has fallen on a relatively narrow group of workers. This is evident primarily in two ways.

First, the number of people who have experienced any unemployment is surprisingly low, given the severity of the recession. The pace of layoffs has increased, but the peak layoff rate this year was the same as it was during the 2001 recession, which was a fairly mild downturn. The main reason that the unemployment rate has soared is the hiring rate has plummeted.

So fewer workers than might be expected have lost their jobs. But those without work are paying a steep price, because finding a new job is extremely difficult.

Second, wages have continued to rise for most people who still have jobs. The average hourly wage for rank-and-file workers, who make up about four-fifths of the work force, actually accelerated in October, according to the new report.

Even though some companies have cut the pay of workers, the average hourly wage has still risen 1.5 to 2.5 percent over the last year, depending on which government survey is examined. Average weekly pay has risen less -- zero to 1 percent -- because hours have been cut. But average prices have fallen. Altogether, the typical worker has received a 1 to 2 percent inflation-adjusted raise over the last year.

In the other two severe recessions in recent decades, workers with jobs fared considerably worse. At the same point in the mid-1970s downturn, real weekly pay had fallen 7 percent; in the early 1980s recession, it had fallen 4 percent.

It is a strange combination: workers who still have a job are doing better than in other deep recessions, but the unemployment and underemployment have risen to their highest level since the Depression.

As I noted in my earlier the long-term unemployment rate remains troubling and suggests a continuing structural imbalance. The average length of unemployment reached 26.9 weeks, a record. This is consistent with a plummeted hiring rate.

Tags: Unemployment, US Labor Market (all tags)

Senator Sanders Introduces a TBTF Bill

Sat, 07 Nov 2009 06:31:36 GMT

Vermont Senator Bernie Sanders, the left-leaning Independent who caucuses with the Democrats, today introduced legislation that would give the government the power to identify and break up financial firms that are "too big to fail."

The story from Reuters:

An independent U.S. senator on Friday introduced a bill that would give the government the power to identify and break up financial firms that are "too big to fail," an idea that is catching on.

"If an institution is too big to fail, it is too big to exist," said Senator Bernie Sanders in a statement.

"We should break them up so they are no longer in a position to bring down the entire economy," he said.

Sanders is an independent outside the U.S. political mainstream. But he is not the only one looking at break-ups.

Representative Paul Kanjorski, the Democratic chairman of the capital markets subcommittee in the U.S. House of Representatives, is working on a break-up power amendment.

It would give a new government systemic risk council break-up power, with clearance from the president.

"It's the natural action of capital to grow and exceed. Now we're going to contain it," Kanjorski told CNBC television.

He said large banks oppose his amendment because it would threaten them. But, he said, mid-sized and smaller financial institutions would be helped by it because they would be better able to compete if mega-firms were downsized.

"When the people's money is being used to bail out these large companies ... We certainly have to have someone to tell them what to do in order to save them," he said.

House Financial Services Committee Chairman Barney Frank said earlier on CNBC that a bill he is working on, which Kanjorski wants to toughen, would let a systemic risk regulator "break up" risky financial firms.

The Obama Administration has proposed regulating large firms' risk-taking much more tightly to prevent them from failing, while setting up new protocols for managing failure if things go wrong. Senator Sander's approach, however, would be to prevent the firms from getting so big in the first place.

The legislation introduced by Senator Sanders would give Treasury Secretary Timothy Geithner 90 days to list commercial banks, investment banks, hedge funds and insurers that he deems too big to fail.

The bill defines that as "any entity that has grown so large that its failure would have a catastrophic effect on the stability of either the financial system or the United States economy without substantial government assistance."

A few quick thoughts. One, I think it important to separate investment banks from commercial banks. Two, exotic derivative products need to be regulated. At times it is difficult to tell the difference between Wall Street and the Vegas Strip. Three, don't allow commercial banks to grow via acquisition. Make them grow organically. That's part of the Canadian banking model and the Canadian banking model is worth studying closely. From an April 2009 Brookings Institution report:

In Canada, over-leveraging is discouraged. The ceiling on leverage ratios (assets to capital) for Canada's financial institutions is capped well below the U.S. norm (an average of 18:1 compared to over 25:1, respectively).

Second, the requirements for mortgage loans are relatively stringent. Down payments of at least 20 percent are ordinarily required, unless the bank obtains mortgage insurance through the Canada Mortgage and Housing Corporation (CMHC). The CMHC exerts a prudential influence over mortgage underwriting. Banks rely extensively on it for default insurance, which is conditioned on comparatively strict criteria for creditworthiness.

The Canada Mortgage and Housing Corporation transparently plays a role in circumscribing residential mortgage securitization. The great bulk of all lending in Canada takes place within the banking system itself, not through a largely unsupervised secondary market for bundles of loans and securities supposedly backed by other bundles of loans and securities--the "shadow banking system" - hedge funds and buy out firms - that has burgeoned in the United States.

Senator Sanders Unfiltered: Break 'Em Up!

Tags: Too Big To Fail, Senator Bernie Sanders, US Banking Sector, Financial Regulation (all tags)

NY-13 Representative Michael McMahon to Vote No

Sat, 07 Nov 2009 04:00:16 GMT

Congressman Michael McMahon, the first term Representative from the NY-13 Congressional District that covers Staten Island and parts of Brooklyn, will vote against the historic Democratic healthcare legislation that the House leadership intends to bring to floor as early as this weekend.

From Staten Island Live:

Rep. Michael McMahon will vote against the sweeping health care reform bill, in an expected House vote tomorrow, bucking the White House and Democratic congressional leaders who are heavily invested in seeing it pass.

"As a candidate for Congress in 2008, I ran on the platform of reforming our healthcare system while containing costs and improving access for Staten Islanders and Brooklynites," McMahon (D-Staten Island/Brooklyn) said in a press release. "This legislation contains laudable reforms which I support; it allows individuals to keep coverage when they leave a job and young people to remain covered under their parents' plan, and bans discrimination based on pre-existing conditions. However, I believe that the net negatives of this bill outweigh the positive effects for Staten Island and Brooklyn residents and I will be voting no when the House considers the legislation."

Sources said voters on both sides of the bridge are "overwhelmingly opposed" to the bill -- and have let McMahon know it.

At a raucous public forum he hosted here last month, dozens of agitated Islanders decried the bill as a form of socialism. Reaction in Brooklyn has been slightly less vitriolic, but nearly just as opposed.

A source said e-mails, phone calls and letters to McMahon's congressional offices have been running 60-40 against the bill.

McMahon, a first-term Democrat in what has been a reliably red Republican district, has had Tea Party protests staged across the street from New Dorp office on the issue.

I am surprised that e-mails, phone calls and letters to McMahon's congressional offices have been running 60-40 against the bill. You can contact Congressman McMahon here.

Congressman McMahon and 39 other Democrats can say no. Any more than that and we're sunk.

Tags: US Healthcare Reform, Representative Michael McMahon (all tags)

Gore: Optimistic on Enacting Climate Legislation

Sat, 07 Nov 2009 03:34:02 GMT

Former Vice President and Nobel Peace Prize winner Al Gore has given an interview to the UK Guardian in which he expresses his optimism that the US will enact meaningful climate legislation.

He notes that "I was in China two days ago, and the premier of China asked me, in essence, why I'm optimistic that the Senate will pass legislation when the conventional wisdom says otherwise. And the answer is that I have been a part of conversations between Democrats and Republicans that give me a very different view from what the consensus is in the journalistic community." Gore then cites the recent op-ed by Democratic Senator Kerry of Massachusetts and Republican Senator Graham of South Carolina in the New York Times as evidence of wide bi-partisan support for climate legislation. He then added that "There are other surprises like that in store."

Even so, the former Vice President expects a hardening tone from climate change deniers. He attributes this to "the sunset phenomenon, where there's a spectacle just before the subsiding": as the remaining climate change doubters and vested interests begin to realise that the game is up, he suggests, they're bound to make one last stand. "This self-interest on the part of some of the carbon polluters - who are becoming a bit intense in their efforts - reflects their awareness that public opinion has been shifting very significantly," he says. "When I say 'they', I don't mean to indict all of them, because the business community is now very much split... but that realisation has produced a desire on the part of some of these carbon polluters to dig in their heels."

Asked about the recent mass protests and civil disobedience for the climate across the world, Gore responded, "Civil disobedience has an honourable history, and when the urgency and moral clarity cross a certain threshold, then I think that civil disobedience is quite understandable, and it has a role to play. And I expect that it will increase, no question about it."

The article is strongly recommended.

Tags: Al Gore, Climate Change, Cap and Trade, Environmental Issues (all tags)

DiFi Pondering

Sat, 07 Nov 2009 02:24:08 GMT

Per the San Jose Mercury News:

Democratic Sen. Dianne Feinstein said Thursday she will base a decision on whether to run for California governor next year largely on the solutions the announced candidates put forward to deal with the state's fiscal problems.

Polls indicate she would be a heavy favorite if she chooses to run. Feinstein told The Associated Press in a brief interview that she is grateful for that support, but it will not be a significant factor in her decision.

"What does affect it is watching to see what precise programs are put forward by various candidates to handle what is a very serious structural budget deficit in this state," Feinstein said. "It's of major consequence and California is in considerable distress, and there have to be reforms."

Feinstein said she would take a close look at candidates' dedication to enacting their proposals as well as their ability to develop enough support to enact the changes.
The state's Department of Finance is anticipating a $7.4-billion deficit in 2010-11, even after lawmakers enacted deep budget cuts this past summer. Those cuts were so hard to come by that the state had to issue IOUs to continue operating.

Republicans have three candidates running for governor: Insurance Commissioner Steve Poizner, former eBay chief executive Meg Whitman and former congressman Tom Campbell.

Democrats have no announced candidate so far, though Attorney General Jerry Brown has formed an exploratory committee.

Two thoughts cross my mind. One, she and Jerry Brown are close friends. I suspect that if he runs, she won't. Two, she is at the pinnacle of her Senate career and the chair of the Intelligence Committee. If that's not her dream job, I don't know what is.

Tags: California Governor 2010, Senator Dianne Feinstein (all tags)

Markos Crushes Tom Tancredo on MSNBC

Fri, 06 Nov 2009 23:35:22 GMT

We're still waiting for the video to be clipped, but folks watching MSNBC earlier this hour saw what will undoubtedly be an instant Youtube classic: Markos hitting Tom Tancredo so hard in response to Tancredo's attacks on the Veterans Affairs department that Tancredo scampered off set. Here's what Markos had to say that set Tancredo into flight:

"Tom, I'm a veteran. I did not get a deferment because I was too depressed to fight in... Vietnam."

The video...

Tags: Markos, Tom Tancredo, MSNBC, Healthcare (all tags)

Unemployment Reaches a 26 Year High

Fri, 06 Nov 2009 22:31:36 GMT

The Bureau of Labor Statistics released its October 2009 unemployment report. The numbers were worse than expected.

The unemployment rate rose from 9.8 to 10.2 percent in October, and nonfarm payroll employment continued to decline (-190,000), the U.S. Bureau of Labor Statistics reported today. The largest job losses over the month were in construction, manufacturing, and retail trade.

Most analysts had expected the unemployment rate remain just shy of 10%, instead it shot past that barrier reaching a 26 year high. In October, the number of unemployed persons increased by 558,000 to 15.7 million. The unemployment rate rose by 0.4 percentage point to 10.2 percent, the highest rate since April 1983. Since the start of the recession in December 2007, the number of unemployed persons has risen by 8.2 million, and the unemployment rate has grown by 5.3 percentage points. Factory payrolls dropped by the most in four months, and the average workweek held at a record low.

Since President Obama took office in January, the economy has lost 3.49 million jobs. Overall the US economy has lost 7.3 million jobs since the recession began in December 2007, when the unemployment rate stood at 4.9 percent.

On the positive side, the number of temporary workers increased by 44,000 in October, adding to gains in the previous two months. This suggests that that businesses have squeezed as much production as they can out of their existing workforces and thus bring in temporary workers to fulfill orders. On the other hand, businesses seem reluctant to make permanent hiring decisions.

As the Wall Street Journal reported last week, companies are postponing major investments in either capital equipment or labor and instead holding more cash reserves. In the second quarter that ended in June, the 500 largest nonfinancial U.S. firms, by total assets, held about $994 billion in cash and short-term investments, or 9.8% of their assets, according to the Wall Street Journal's analysis of corporate filings. That is up from $846 billion, or 7.9% of assets, a year earlier. In the third quarter quarter that ended in October, cash assets increased to 11.1% of total assets, from 10.1% in the second quarter. The good news is that companies have cash to invest; the bad news is that so far companies don't seem to have a better use of cash other than to pay down debt. Translation, orders remain soft.

The October job report provides the depth of the problems. Unemployment is greater among men, who suffered a 10.7 percent unemployment rate in October, as compared to 8.1 percent among women. Among African American men, unemployment reached 17.1 percent in October. In communities such as Detroit, unemployment rate is well over 35 percent. On the one hand while unemployment among African-Americans is higher than the nationwide rate, it is much lower than it was back in 1982-83. This reflects both positive and negative trends, according to Roderick Harrison, a senior research scientist at Howard University. On the positive side, there is a larger black professional middle class that is less subject to layoffs than was the case 26 years ago, he said. But on the negative side, more African-American men have dropped out of the labor force after giving up looking for work, Harrison said - that means they aren't reflected in the unemployment statistics.

Unemployment reached 9.5 percent among white Americans, 13.1 percent among Hispanics and 27.6 for teenagers. Unemployment rate in October 2009 for those without a high school diploma is 15.5 percent versus 4.7 percent for those with college degrees. Still the proportion of college graduates among the unemployment has been steadily climbing now reaching 14.7 percent. In 1983, only 6.8 of the unemployed were college graduates.

Michigan continues to report the highest levels of unemployment at 15.3 percent followed by Nevada at 13.3, Rhode Island at 13.0, California at 12.2 and South Carolina at 11.6. Back in the 1982-83 downturn, unemployment was highest in Michigan, West Virginia, Alabama, Ohio and Illinois.

Among all groups, the U6 underemployment rate -- a broader measure of the jobs shortfall which includes people whose hours have been cut, those working part-time for lack of full-time work, and those who have given up looking -- is 17.5 percent. This is the number that I prefer to use as the real unemployment number. This reflects those individuals who can no longer find work in their chosen careers and have instead been forced back to school or to take lower paying jobs in the service sector. The lack of manufacturing jobs and a collapse in even high-paying white collar sectors such as finance and legal services poses a particular worry for the US economy and ultimately for the Administration.

Here is the household data from the report:

Among the major worker groups, the unemployment rates for adult men (10.7 percent) and whites (9.5 percent) rose in October. The jobless rates for adult women (8.1 percent), teenagers (27.6 percent), blacks (15.7 percent), and Hispanics (13.1 percent) were little changed over the month. The unemployment rate for Asians was 7.5 percent, not seasonally adjusted.

The number of long-term unemployed (those jobless for 27 weeks and over) was little changed over the month at 5.6 million. In October, 35.6 percent of unemployed persons were jobless for 27 weeks or more.

The civilian labor force participation rate was little changed over the month at 65.1 percent. The employment-population ratio continued to decline in October, falling to 58.5 percent.

The number of persons working part time for economic reasons (sometimes referred to as involuntary part-time workers) was little changed in October at 9.3 million. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job.

About 2.4 million persons were marginally attached to the labor force in October, reflecting an increase of 736,000 from a year earlier. (The data are not seasonally adjusted.) These individuals were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey.

Among the marginally attached, there were 808,000 discouraged workers in October, up from 484,000 a year earlier. (The data are not seasonally adjusted.) Discouraged workers are persons not currently looking for work because they believe no jobs are available for them. The other 1.6 million persons marginally attached to the labor force in October had not searched for work in the 4 weeks preceding the survey for reasons such as school attendance or family responsibilities.

The long-term unemployment rate remains troubling and suggests a continuing structural imbalance. The average length of unemployment reached 26.9 weeks, a record.

The essence of the problem for the Obama Administration from the New York Times:

Though the economy grew at a 3.5 percent annualized rate between July and September, much business activity was stirred up by special programs aimed at encouraging consumers to spend, not least the cash-for-clunkers program that provided taxpayer-financed cash incentives to people trading in their cars.

As the effects of this and other stimulus programs fade over coming months, fundamental weakness may reemerge, with consumers -- whose spending accounts for 70 percent of overall economic activity -- confronting enormous debt, the loss of wealth and fears about job security.

I see little reason to be optimistic with an Administration that seems to think band-aids can cure cancer. The problem is systemic and reflects a broken economic model that focuses on the aggrandizement of financial assets over the creation of real manufacturing capacity. Priority one is jobs. Priority two is more jobs. The Administration requires a serious a wake-up call and a reorientation of its focus. Dismissing Timothy Geithner and Larry Summers, who have failed the President with their failure to adequately assess the gravity of the situation, is no longer a matter of if but when.

Here are the thoughts of a sickened to his stomach Paul Krugman:

Back in the first few months of the current administration, when I was writing piece after piece urging the new administration to adopt a more aggressive economic policy, what I had very much in my mind � and wrote about on a few occasions � was the possibility of a sort of political economy trap. If unemployment continued to rise, I feared, Congress wouldn�t draw the right conclusion � that we needed more stimulus. Instead, the verdict would be that Obama�s economic policies weren�t working, so we needed to do less. And high unemployment would also lead to Democratic electoral losses, further undermining the ability to act (since the fact is that today�s GOP is the party of economic ignorance). The result would be a persistently depressed economy, and a fading out of Obama�s promise.

I really, really wish I had been wrong about this � and for a while, as banks seemed to regain their footing and stocks went up, it looked as if the administration�s softly, softly policy might work out after all. But on the things that truly matter, above all jobs, reality has played out even worse than I feared. Today the unemployment rate passed 10%, a sort of brutal milestone.

The thing to do, I guess, is to keep making the case for doing more; in particular, we can hope that centrist Democrats will finally realize that timid economic policies are hurting their own electoral prospects. But it�s an uphill fight.

Who�s to blame? The buck stops with the president. But did his economic advisers make it clear to him that the proposed stimulus was way short of what the math suggested we needed, even given what was known in January? Or was Mr. Obama really led to believe that his stimulus proposal was as bold as he claimed it was?

I don�t know. But I�ve got a sick feeling about the whole situation.

Government is no place for the timid. It is disheartening to realize that too many Democrats yet subscribe to a free market ideology that has eroded the lifestyle of an overwhelmingly number of Americans. It's time for a more public-private partnership. Walter Mondale proposed a comprehensive industrial policy in 1984. We currently have one by default. Instead of seeking to restore our manufacturing prowess or build new technological sectors, Washington has steadily protected and advanced the banking and finance sector. These are protected from perils and rescued from insolvencies. Instead of picking winners as a sane industrial policy dictates, in our insanity we save losers.

Tags: US Labor Market, Unemployment (all tags)