http://bernie.house.gov/documents/document.asp?issueNum=4740
1/23/2006, MANUFACTURING & TECHNOLOGY NEWS
The Economic State of the Union
by Charles W. McMillion
The December jobs report confirms that since the bursting of the 1990s financial bubble the United States has faced the slowest job creation on records going back to 1939.
Indeed, because jobs lost paid for more hours worked per week than did the newly created jobs, the country ended 2005 with fewer private-sector hours worked than it had in January 2001.
This five-year loss of private sector hours worked is the first on record for the private sector and the worst recorded for the entire labor force. Reduced hours worked also explains why measured productivity growth is stronger than average even with output growth far weaker than normal. Productivity is a measure of output per hours worked.
Private firms added only 958,000 jobs over the past five years while state and local governments added 1.1 million jobs (schools, health care, prisons) and the federal government reduced (postal) jobs, for total growth of only two million jobs for the entire U.S. economy.
For the first five-year period on record, the private sector has lost supervisory/managerial jobs. And as everyone worries about runaway health care costs, health care providers accounted for 1.4 million new private sector jobs in the past five years.
Excluding health care, the private sector has lost 467,000 jobs since January 2001. And this includes 894,000 new jobs in bars and restaurants.
One-in-six (16.5 percent) manufacturing jobs were lost in the past five years, the worst losses since demobilization from World War II. Every manufacturing industry has lost jobs with the more capital intensive durable goods industries losing a slightly higher share of jobs than non-durable industries. The hardest hit industries were apparel (-46 percent), textile mills (-41 percent), communications equipment (-39 percent) and semiconductors (-37 percent).
The pattern that has emerged clearly over the past five years is that almost every industry that faces foreign outsourcing or import competition is losing jobs.
Some industries that face global competition, most notably the auto industry, are partly protected by union contracts that now may be quickly losing their effectiveness. Job growth, although sluggish, now occurs almost exclusively in industries that cannot be outsourced and that do not face global imports — health care, education, construction/repair, credit services and local government.
This pattern is reflected in the trade data that show the United States accumulated global deficits of $2.85 trillion over the past five years in all traded goods and services — the international “current accounts.”
U.S. economic growth was slower than world growth for the sixth consecutive year in 2005. Nevertheless, trade deficits — production shortfalls — have worsened sharply in recent years, reaching about 6.4 percent of GDP in 2005. This compares with a current account deficit equal to -3.4 percent of GDP in 1987, at the height of the “competitiveness” crisis.
The industry composition of U.S. trade deficits changed markedly in recent years. For the first time on record, the traditional U.S. surplus in manufactured Advanced Technology Products (ATP) was lost in 2002.
Even with a likely temporary spurt in U.S. export sales of large (Boeing) commercial airliners, which are still classified as ATP, the 2005 U.S. deficit in ATP was larger than any previous surplus. In fact, beginning in 2004, the U.S. deficit in ATP began to exceed the entire U.S. surplus in Intellectual Property licensing and fees. That is, U.S. technology goods and services no longer offset any portion of the U.S. import bill for oil or autos or clothing; the U.S. is now a net importer of technology and intellectual property.
China now accounts for 25 percent of the U.S. current account deficit and for the entire technology deficit.
Effects from these massive structural changes have been masked by equally massive borrowing and asset sales. The gross federal deficit first passed $1 trillion in late 1981 after 200 years of world wars, many regional wars, a civil war, depression, recessions, runaway inflation, a war on poverty and more. Now, the Federal deficit is $8.1 trillion with $2.5 trillion of that added in just the past five years.
Median household income fell for a record fifth straight year in 2004 — the last data available. Yet, aided by recent tax-cuts, consumer spending on non-tradeable goods and services has kept GDP growth at seemingly healthy levels. But this spending comes from the total elimination of current household savings and the accumulation of unprecedented debt. Households spent more than their current incomes in 2005 for the first time since 1933. Indeed, in the fall of 2005, for the first time since 1934, the nation as a whole spent more than it earned as, along with household dis-savings, the government deficit was larger than all business savings.
Income inequality is now the worst on record with the top 5 percent of households getting almost as much annual income as the bottom 60 percent.
The conventional wisdom is that households are now borrowing and spending like drunken sailors because the rising value of their homes are providing the “savings” for them. But Federal Reserve data show that much of the recent rise in home values have been offset by the very weak performance of stocks, money markets and other assets along with weak or declining current savings. As a result, the inflation adjusted rise in household net worth over the past five years is among the weakest on record.
Even with today’s low-but-rising interest rates, households are already paying a record share of their disposable income to service debts. Since the bursting of the financial bubble, household debt has soared as a share of total assets and remained at record levels throughout the past five years.
Where is the economy headed? The most worrying indicator is that policy makers do not seem to understand just where the economy is right now.
— Charles W. McMillion, president and chief economist of MBG Information Services, is a past professor and associate director in the Johns Hopkins University policy institute.