U.S. Said Not Generating Enough Jobs to Rehire All Who Lost Them (9-3-10)
Just a day after President Obama’s top economic advisor conceded officials didn’t expect the Great Recession to have been severe, didn’t know how to fix it and still don’t, the chief economist of the U.S. Chamber of Commerce said the economy isn’t generating enough jobs to rehire all those made jobless over the past three years.
“We are growing,” Martin Regalia said. “The problem that it’s averaging about 3%, our long-term potential growth rate. When you don’t get above your long-run potential, you don’t generate enough jobs to rehire everyone who lost jobs. We’re going to have to create an economy that grows at a rate greater than our long-term potential.”
The key to the economy, he said, is whether people are working. In the last few decades, it has taken longer and longer for employment to get back to its pre-recession level. In 1991, he said, it took 24 months to regain employment. That lengthened to 30 months in 2003. The current recession has been going since December 2007 and the economy is just starting the gain some jobs.
Regalia noted some have said we are in a “new economy.”
“I don’t believe in the ‘New Economy’,” he said. “The economy adapts, it morphs, but it doesn’t turn on or off like a light switch.”
Among the problems facing the economy:
– Income growth has been relatively slow over the current cycle.
– Wealth is still negative. People have taken a huge hit to their stock portfolios, and housing is still below water.
“I don’t see us getting back until housing recovers,” he said. “Until that comes back, they won’t resume spending. The question is when housing values come back.” Not anytime soon, he suggested:
“The housing market is still moribund. There’s still considerable inventory to be foreclosed on and to work through.”
Investment has been strong, and thanks to innovation, businesses have been able to cut employment dramatically, improving internal profits, as was noted in a Thursday????? (9/2) story in The Wall Street Journal.
And, he noted, businesses are holding $1.8 trillion of cash on their balance sheets. “This isn’t normal,” he said, “because business isn’t earning on those assets.” Why aren’t businesses spending all that cash? “Policy and economy uncertainty,” Regalia replied.
Trade has deteriorated, Regalia said. He noted that imports have increased, but now we are seeing a decline in exports.
Inflation is low, he said. But the U.S. isn’t in a deflationary environment. “We’re in a disinflationary environment.”
The government’s budget problem is long-term, Regalia said. The deficit is the result of the sharp economic decline, but the question is what will happen in five, 10, 20, 25 years. “We have a structural deficit,” he said.
“The labor market is where this recession will end,” Regalia said, adding that he expects the unemployment rate to rise before it goes significantly lower. That’s because as the economy adds jobs, people who haven’t looked for a job start looking, and that will cause the unemployment rate to rise.
The duration of unemployment has been extraordinarily long, Regalia said, and unemployment is probably shifting from cyclical to a structural problem.
“To get back to where we were a year ago, we have to create 240,000 jobs a month, and we’re not anywhere close to that,” he said.
While people are happy to have a job, Regalia said wages and salaries have suffered, both real wages per worker and real employee total compensation, which is almost flat.
Obama Said to Mull New Tax Breaks for Business to Spur Hiring
The Obama Administration is considering a package of new tax breaks for business in an attempt to boost jobs, The Washington Post is reporting this morning.
Options being considered include a temporary payroll-tax holiday and permanently extending the research and development tax credit, the Post said.
The story notes that unemployment numbers are expected to rise when reported this morning, and that panic is setting in among Democrat candidates facing voters in two months.
Comment: Tax breaks don’t address the fundamental issue, which is a lack of demand for products produced in America. It’s goods and services produced here that provide jobs for U.S. workers. Nor do tax breaks address new-found thrift of Americans, which has seen spending on nonessentials plunge (witness lackluster back-to-school sales) and the U.S. savings rate soar to nearly 6%.
There are, we think, three steps that could spur demand.
The first is to find a way to limit imports. If U.S. trade was in balance, a lot more Americans would be working. Simply put, if a product is made here, it’s being made by U.S. workers. If it is made overseas, it’s not.
The second is to take actions that would spur rebuilding of personal and small business balance sheets. Having endured a two-year-long recession, Americans aren’t going to resume their free-spending ways until they have built their own personal safety nets. One thing that would help in this area is to refinance mortgages which are being paid now, but which for one reason or another (not enough debt-to-value ratio or sufficient income to meet guidelines, for example) to the current interest rate of 4.3%. Another thing that would help is to impose curbs on interest rates. With interest rates near zero, there’s simply no excuse for 12% or higher rates on credit cards.
The third is for government to help create that demand by doing what it said it would do nearly two years ago – engage in an aggressive public works program that would build facilities such as highways that will last for decades to come.
Morton’s, Mondavi Families Set Biggest Wine Dinner
Consumers will have the opportunity to take part in what may be the world’s largest wine dinner, when Morton’s The Steakhouse and the entire third and fourth generations of the Mondavi family join to celebrate the family’s 90 years in growing and crafting wine and to benefit the Make-A-Wish Foundation.
Using state-of-the-art technology, the dinner will be hosted in the Charles Krug Winery Carriage House in Napa Valley and simulcast to 54 Morton’s private dining rooms.
The event will kick off an online auction of the first red wine produced by the extended Mondavi family, a rare 27-liter bottling called Siamo Insieme.
Hosts for the event will include Michael Mondavi of Folio Fine Wine Partners, Tim Mondavi and Marcia Mondavi Borger of Continuum Estate, and Peter Mondavi, Sr., Peter Mondavi, Jr. and Marc Mondavi of Charles Krug Winery.
Guests in 54 Morton’s locations will be served the exact same menu and wine as guests at the Charles Krug Carriage House in Napa Valley.
Each private dining room is equipped with 1080i high-definition programming, a nine-foot screen and theater-quality surround sound. This technology will allow guests around the country to feel as if they are in Napa Valley, making it possible for almost 2,400 people to enjoy this groundbreaking event.
Members of the third and fourth generations of Mondavis will host the event at select locations around the country, from San Francisco, to Miami to New York. At each restaurant location, guests will be invited to bid in a silent auction for a three-pack of premium wines from Charles Krug Winery, Continuum Estate and Folio Fine Wine Partners, with proceeds to benefit the Make-A-Wish Foundation.
Honickman Organization to Rep Frontier’s Unwind
Frontier Beverage Co. said it signed Pennsauken, N.J.-based Honickman Organization, to distribute Frontier’s new low-calorie ultimate relaxation aid, Unwind, to the mid-Atlantic region.
Under the agreement, The Honickman soft drink operations — Canada Dry Delaware Valley and Canada Dry Potomac Corp. — will bring Unwind, which has 40 calories and only 10 grams of sugar in a 12-ounce can — to select stores in Virginia, Maryland, Washington, D.C., Delaware, Eastern Pennsylvania and Southern New Jersey.
“This distribution agreement opens up a huge territory for Unwind,” said Terry Harris, Chief Executive Officer, Frontier Beverage Co. “With the help of Honickman, one of the country’s largest Canada Dry distributors, we are going to be serving several large markets, which include some major colleges and universities and the mid-Atlantic beach communities, including the Jersey Shore.”
