China Trade, Outsourcing, and Jobs
Growing U.S. trade deficit and outsourcing with China cost 3.2 million jobs between 2001 and 2013, with job losses in every state. Read more
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Growing U.S. trade deficit and outsourcing with China cost 3.2 million jobs between 2001 and 2013, with job losses in every state. Read more
Yet strength of ISM index might be overstated, some say
Manufacturers in the U.S. barely slowed down in November even as major competitors around the world continued to scale back production. Read more
Walmart has pledged to buy an additional $250 billion in US-made products. But finding quality, low-cost US made goods is proving a challenge. How Walmart is acting as a catalyst for ‘Made in the USA’ manufacturing.
I mapped the state data below. While all states showed steep drops in new firms, New York stands out for its much smaller decline in the share of new companies than other states — only 18 percent, compared with the 50-state average of 47.2 percent. Illinois, Texas, New Jersey and Missouri round out the top five.
At the very least, the Brookings findings strongly suggest that when it comes to luring new businesses to a given state, there are a lot more factors at play than straightforward calculations of corporate tax rates.
“It’s just what the doctor ordered in terms of a further piece of confirmation that the winter was abnormal,” said Eric Lascelles, chief economist at RBC Global Asset Management. “We can just expect further economic normalization.”
Wall Street opened higher on the news, but the major U.S. indexes were mixed at mid-day. The blue-chip Dow Jones Industrial Average inched into the red, while the broader Standard & Poor’s 500-stock index was up slightly. The tech-heavy Nasdaq gained 0.2 percent.
The jobs report contained at least one ominous note. The nation’s workforce shrank by more than 800,000 workers in April, sending the labor force participation rate plummeting 0.4 percentage points to 62.8 percent. The Labor Department said most of that decline was due to fewer people joining the workforce.
“People are not giving up in the labor force,” U.S. Labor Secretary Thomas E. Perez said in an interview. “That would be a fundamentally different diagnosis of where we are now.”
The number of re-entrants — people looking for a job after being out of the labor market — plunged by 417,000, the largest drop on record. New entrants declined by 126,000. Many high school and college students typically begin entering the job market in April, but the number of people younger than 25 in the workforce fell by 484,000. The participation rate for teens ages 16 to 19 hit the second-lowest level ever.
“I would actually say that this big drop in the unemployment rate is not consistent with a really robust labor market because that labor force participation rate did not rise, and the employment-to-population ratio is shockingly low,” said Tara Sinclair, an economics professor at George Washington University and economist at Indeed.com, one of the nation’s largest sites for job postings.
Another factor driving the smaller workforce could be the expiration of benefits for the long-term unemployed at the end of last year. To qualify for the payments, workers have to show they are looking for jobs. Without the incentive of unemployment benefits, many of them might have ended their search.
The U.S. Senate voted in April to extend unemployment benefits through May for workers who have been out of a job for six months or longer, but the measure faces a rocky road in the House. On Thursday, Sens. Jack Reed (D-R.I.) and Dean Heller (R-Nev.), the bill’s sponsors, urged the House to move quickly.
“Emergency unemployment insurance is a lifeline for job seekers, and restoring it will strengthen the recovery by bolstering demand at a critical time,” Reed said.
April’s pickup in hiring also helps validate the Federal Reserve’s decision this week to continue scaling back its support for the recovery. The nation’s central bank is reducing its monthly bond purchases by $10 billion to $45 billion — about half the amount it was pumping into the economy every month last year. The Fed has tied its stimulus to the health of the labor market, and Friday’s data clearly show it is improving.
The construction industry provided one of the biggest boosts to job creation last month. The sector added 32,000 jobs, concentrated in heavy and civil engineering and residential building. Over the past year, it has hired 189,000 workers, with the bulk of those gains coming within the last six months.
The main hiring engine was the professional and business services sector, which created 75,000 net jobs. Retailers and bars and restaurants each added more than 30,000 jobs. The health care industry gained 19,000 positions.
This day, of course, was always going to arrive. The ascent of China to the world’s No. 1 slot has been inevitable ever since the country embarked on its great quest for wealth in the 1980s. With a population heading toward 1.4 billion, the question has been when, not if, China will topple the U.S. from its lofty perch. Still, we can’t ignore the historic significance of that switch. The U.S. has been the globe’s unrivaled economic powerhouse for more than a century. The fact that China will replace the U.S. at the top is yet another signal of how economic and political clout is rapidly shifting to the East from the West.
That quickly gets everyone’s passions boiling over. To many Chinese, becoming No. 1 is vindication for what they feel has been two centuries of humiliation at the hands of an aggressive West and proof that its authoritarian, state-capitalist economic model is superior to the democratic, free-enterprise systems of the U.S. and Europe. In the U.S., losing the top spot is seen as a symbol of America’s decline on the world stage.
Yet we shouldn’t get ourselves too worked up. These new figures don’t mean as much as many people think. Leaving aside the obvious statistical questions the report raises about the value of GDP figures generally, where the U.S. and China rank misses the more important point: bigger isn’t necessarily better.
On the flip side, if the U.S. slips from its No. 1 position, it doesn’t spell doom. The U.S. still has a substantial lead in innovation, and its dominant position in many industries and sectors is not about to vanish. New York City will remain the world’s premier financial center, and the dollar will reign supreme on the world stage for some time to come. Still, wherever the U.S. ranks, its economy too is badly in need of reform. Better infrastructure, a smarter tax code, an improved education system and more determined efforts to close the income gap would also strengthen the economy’s foundation for growth.
Workers at most of Cambodia’s more than 500 garment factories are on strike, demanding an increase in the minimum wage to $160 a month, double the current rate. The government has offered $100 a month.
The local human rights group LICADHO said in a statement that at least four civilians were shot dead and 21 injured in what it described as “the worst state violence against civilians to hitCambodia in 15 years.”The statement said that security forces used live ammunition to shoot directly at civilians.
“The use of live ammunition was prolonged and no efforts appear to have been made to prevent death and serious injury,” it said. “Reports suggest that security forces were also injured after being hit with stones.”
It was not clear whether those killed were workers or local residents who had joined in the protest. “They are anarchists, they have destroyed private and state property,” Chuon Narin, the deputy police chief, said by phone. “That is why our forces need to chase them out.” The protesters were cleared from the street, at least temporarily, by early afternoon. The violence comes at a time of political stress in the country, with the opposition Cambodia National Rescue Party holding daily protests calling for Prime Minister Hun Sen to step down and call elections. |
Although the wage and election issues are not directly linked, the opposition has close ties with the country’s labor movement. Last Sunday, many workers joined a massive political rally organized by the opposition.
The workers represent a potent political force, because the garment industry is Cambodia’s biggest export earner, employing about 500,000 people. In 2012, Cambodia shipped more than $4 billion worth of products to the United States and Europe.
Mak Vin, a 25-year-old worker, said he was among those protesting for more than a week over the wage issue. He said that on Friday morning, as the workers burned car tires and shouted slogans, “hundreds” of armed police arrived and opened fire.
“They fired live bullets directly at us. I am very scared,” Mak Vin said.
There had been an earlier clash overnight, with no known fatalities.
Mak Vin said the workers were protesting only for higher wages, and would return to work once that demand was met. He said most workers were not cowed by the shooting, and would continue their strike.
Violent suppression of social and political protests has not been unusual under Hun Sen’s authoritarian government, but there have been few incidents in recent years where more than one person has been killed.
The authorities also usually shy away from using live ammunition in Phnom Penh, where the population is largely hostile to the government.
But the U.N. special rapporteur on human rights in Cambodia, Surya Subedi, said it was the third time since the disputed elections that authorities have shot into a crowd and caused fatalities. He called for an independent investigation into whether excessive force was used. He also expressed concerned about increasing violence by some demonstrators.
The standoff over wages presents Hun Sen with a dilemma, as increasing violence could drive the workers into a tighter alliance with the opposition, providing a vast pool of people for their increasingly confident street demonstrations. But the government is also close to the factory owners, whose exports fuel the economy and who are generally seen as financial supporters of Hun Sen’s ruling Cambodian People’s Party.
Last week, violence erupts in Cambodia when the Garment Manufacturers Association in called for factory owners to close their plants, ostensibly for fear of damage by protesters. The situation puts pressure both on the striking workers, who are not being paid, and the government, which relies on garment exports to power the economy.
That enormous trade deficit with China presents the single biggest impediment to a true manufacturing recovery for the U.S. While the December jobs report showed some promise for manufacturing after nearly a year of weak hiring, January could offer an early clue to what the year ahead will look like. This Friday’s jobs report will tread a fine line: A soft report would suggest that we aren’t yet close to a true economic recovery; another boost, on the other hand, could build the case that manufacturing is gaining some forward momentum.
But even a strong report for manufacturing should be taken with a grain of salt. A hindsight assessment shows that the sector has only recovered a fraction of the jobs it lost during the Great Recession. And looking ahead, the economy hasn’t generated enough steam — nor has Washington generated the right mix of policy — to keep pace with President Obama’s campaign promise to create one million new manufacturing jobs during his second term.
Still, the trade deficit probably won’t make it into the president’s State of the Union speech. It’s a sum that’s easy for policymakers to dismiss as a simple fact of life, one whose impact tends to be indirect. But connect the dots and its effect is clear: As manufacturing shifts from the U.S. to China, that means factories shut down in many American communities. Those laid-off workers, if they were lucky enough to get another job, take significant pay and benefits cuts when they shift to lower-income retail and service employment. That loss of income also means less revenue flowing into the U.S. Treasury, as well as an increased demand for public services, when you factor in those who remain unemployed.
That’s only the direct effect. The indirect one is less spending in and around those former factory towns — at the hardware store, the flower shop, local restaurants — impacting the bottom lines of other businesses. Manufacturing’s multiplier effect of wealth production can work in a very unfortunate, opposite direction, too.
There’s no serious economist out there who thinks a trade deficit this large is a good thing. So the real issue is what should be done about it. There’s a lot we could do, all well within our rights as a trading partner and without fear of provoking that modern economic unicorn, the mythical “trade war.”
First, we could get our own house in order.
The White House and Congress have focused some attention on manufacturing. The president has an advanced manufacturing initiative in place, albeit with modest funding thanks to a stingy Congress. And a significant number of Senate Democrats have launched a manufacturing initiative, echoing their House colleagues who first proposed a “Made in America” plan in 2010. If either plan became law, it would do a lot to increase employment in the sector. And it would put us on par with just about every other industrialized nation; our government is fairly unique in lacking a national manufacturing strategy.
Then, instead of simply pointing to the growth of U.S. exports, and the purportedly dire need to negotiate more trade agreements, the White House should address the trade deficit directly. That starts with a real focus on the surge of imports that keeps boosting our trade deficit, particularly with China.
The administration could back sensible legislation to deter deficit-inflating currency manipulation, which passed the House in 2010, and the Senate a year later in a different Congress. If brought to the floor in either chamber today, it would pass overwhelmingly and would give America’s manufacturers new tools to help confront the undervalued imports that are effectively stealing U.S. jobs.
The administration could block China’s unfair trade practices through a series of actions, using both international and domestic trade laws. President Obama made a big splash in Ohio during his 2012 re-election campaign by announcing a case against China’s unfair trade practices in the auto parts sector. The follow-through in that case is largely missing, however, and little else has been done since then to restore a level playing field for other American companies facing such skewed competition.
The White House could also set objective criteria for reducing the trade deficit with China. For example: Cut it in half over the next three years, through a combination of more value-added exports and fewer subsidized imports. Unfortunately, without such a clear goal, it’s hard to measure any progress besides the monthly ups and downs of the jobs report.
It’s past time to put displaced American workers back on the job. We have an unemployment rate hovering around 7 percent, and our long-term unemployment rate, combined with the number of jobless who have simply stopped looking, shows that the true rate of joblessness is much higher.
America’s workers deserve a government that will fight for them in the trade arena. And the Obama administration should act boldly, instead of offering more of the same. That won’t happen, though, unless the White House pursues an aggressive trade agenda that places the focus squarely on lowering the trade deficit. Otherwise, we’ll know the administration is more serious about its factory photo ops than actually going to bat for American manufacturing.
Before writing his State of the Union speech, I hope the president absorbs the trade data, and starts to envision what a $315 billion annual goods deficit with China means to his constituents on Main Street USA. He might just change his tune, and begin to chart a better course for Made in America in 2014.
Originally published on the Huffington Post, by
Scott Paul on January 7, 2014.
Follow Scott Paul on Twitter: www.twitter.com/ScottPaulAAM
A three-month extension proposal survived yesterday when, in a surprise 60-37 vote, six Republicans joined with Democrats to provide the 60 votes needed to advance the bill. Several of those Republicans said they may vote against final passage without a way to cover the price tag.
Maine Republican Senator Susan Collins said she told President Barack Obama, when he telephoned to court her vote on Jan. 6, that the “bill would definitely pass if there were a pay-for.”
“We need a concerted effort to find an offset,” Collins said in an interview at the Capitol yesterday.
Senate Majority Leader Harry Reid, a Nevada Democrat, told reporters that if Republicans “come up with something that’s serious, I’ll talk to them.”
The emergency jobless benefits expired for 1.3 million Americans. The push to extend them marks the start of the party’s election-year focus on income inequality, in which Democrats also will push to raise the minimum wage and increase spending on infrastructure projects to create jobs.
‘Way Forward’
Republican House Speaker John Boehner of Ohio hasn’t said his chamber will take up the measure, though he said any extension of the jobless benefits must contain financing. Senate Republican Leader Mitch McConnell told reporters yesterday that if both parties can agree on a way to fund the extension, “there may be a way forward.”
In a sign that House Republican leaders are wary of potential political ramifications, they sent a memo to members yesterday urging them to be careful about how they talk about jobless benefits. “For every American out of work, it’s a personal crisis for them and their family,” read one of the talking points in the memo received from a House leadership aide who requested anonymity.
The expanded program started in 2008 and at one point provided as many as 99 weeks of benefits for the long-term unemployed. At the end of 2013 the maximum was 73 weeks, including 26 weeks of state-funded benefits.
11 Renewals
The emergency benefits have been renewed 11 times since President George W. Bush put them in place in 2008, when the U.S. jobless rate was 5.6 percent. All extended benefits are covered by federal dollars, while initial jobless insurance comes from federal, state and employer funds.
Besides casting the measure as a moral imperative, Democrats are stepping up efforts to demonstrate the economic benefits of restoring the weekly payments. After yesterday’s Senate vote, Obama emphasized that argument in a speech at the White House.
“There’s a whole lot of people who are still struggling,” Obama said. He was joined by a group of 20 people who the administration said were affected by the expiration of the extra benefits. “This is not an abstraction.”
Democrats say extended jobless benefits are an emergency measure that doesn’t need funding. “Congress has done this before, many, many times,” White House spokesman Jay Carney told reporters yesterday.
Six Republicans
In addition to Collins, Senate Republicans who supported advancing the legislation were Dean Heller of Nevada, Dan Coats of Indiana, Kelly Ayotte of New Hampshire, Lisa Murkowski of Alaska and Rob Portman of Ohio.
Collins is the lone Senate Republican seeking re-election this year in a state Obama won in 2012. Coats, Heller and Portman all represent states where the November jobless rate was higher than the nationwide rate of 7 percent.
Coats said his vote on final passage will depend on whether the bill is amended to offset its cost.
“Why end the process before it’s even started?” he told reporters in explaining his vote to advance the measure.
“I would like to see offsets, yes,” Murkowski said, adding that she voted to take up the bill because it’s “an important issue” to Alaska.
Ayotte and Portman are among Republican senators planning to announce today an amendment to pay for the jobless benefits extension by requiring those who seek additional child tax credits to have Social Security numbers. The measure is aimed at stopping undocumented immigrants from collecting the credits.
Finding a way to cover the benefits’ cost may be difficult. In a conference call last week, Representative Steny Hoyer of Maryland said last year’s budget compromise left few options on the table.
‘No Secret’
“There is no secret back-pocket” way to offset the cost of extending benefits, Hoyer said.
Heller said Republicans haven’t determined what they might ask for in exchange for an extension. Options may include restrictions on collecting disability and unemployment benefits at the same time, or reallocating money from funds that federal agencies didn’t spend before the end of the year.
South Dakota Senator John Thune said he would back a payroll tax break for businesses that hire long-term unemployed workers. Thune’s proposal would include low-interest loans to long-term unemployed workers who would have to relocate to take a new job.
None of those proposals have gained much support so far, and neither have ideas from Democrats. New York Senator Charles Schumer, the chamber’s third-ranking Democrat, has floated paying for the benefits by ending a tax break that lets U.S. companies deduct expenses when they move operations overseas. Republicans have opposed that idea.
Subsidy Cuts
Maryland Representative Chris Van Hollen has suggested paying for the plan with cuts to agricultural subsidies.
Many Republicans say the expanded benefit program is a disincentive for those without jobs to gain long-term employment and that it feeds a culture of dependency.
Before the Senate’s procedural vote, McConnell proposed paying for the extended aid by delaying for a year the 2010 health-care law’s requirement that most individuals obtain insurance. Reid told reporters that was “a non-starter.”
McConnell faulted the economy during Obama’s presidency, saying “record numbers” of poor and working-class people “have been having a perfectly terrible time.”
Democrats are seeking to help U.S. workers weather the longest period of high national unemployment since the Great Depression, and if they fail, to put Republicans on defense before the election. Amid talks, Jobless Benefits Bill stays alive.
For every dollar the U.S. government spends on unemployment insurance, $1.55 returns to the gross domestic product, said Reid, citing an analysis by Mark Zandi, chief economist
of Moody’s Analytics.
To contact the reporters on this story:
Kathleen Hunter in Washington at khunter9@bloomberg.net;
Heidi Przybyla in Washington at hprzybyla@bloomberg.net
To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net
Stock-index futures fluctuated after equities rebounded yesterday from a three-day retreat. The contract on the Standard & Poor’s 500 Index expiring in March rose less than 0.1 percent to 1,830.8 at 8:39 a.m. in New York. The yield on the benchmark 10-year note climbed to 2.99 percent from 2.94 percent late yesterday.
Survey Estimates
Estimates in the Bloomberg survey of 36 economists ranged from gains of 170,000 to 225,000 after a previously reported increase of 215,000 in November.
The December gain brought the 2013 average to 179,600 compared with 163,000 per month in the previous year, according to ADP data.
Construction increased headcount by 48,000 in December, the biggest gain since February 2006. Factories added 19,000 jobs. Goods producers in 2013 added 286,000 workers, with almost 75 percent of the gains coming from the construction industry, ADP said.
Employment in trade, transportation and utilities increased 47,000, today’s report showed. Professional and business services employment rose by 53,000 last month, the most since November 2012.
Payrolls at service providers climbed by 170,000 jobs in December.
Company Size
Companies employing 500 or more workers added 71,000 jobs. Medium-sized businesses, with 50 to 499 employees, took on 59,000 workers and small companies expanded payrolls by 108,000.
The Labor Department will release its December employment report on Jan. 10. The economy probably added about 195,000 jobs after 203,000 a month earlier, according to the median projection in a Bloomberg survey.
“Consumer spending has accelerated and sentiment has improved, which is likely indicative of better labor market conditions,” Bank of America Corp. economists led by Ethan Harris wrote in a research note last week. “We look for notable gains in manufacturing, retail and construction jobs.”
A pickup at factories is helping to support the expansion, now in its fifth year. Manufacturing grew in December at the second-fastest pace in more than two years, according to the Institute for Supply Management. The purchasing managers group’s factory index eased to 57 from the prior month’s 57.3, which was the highest since April 2011, the Tempe, Arizona-based group said last week.
Factory Orders
Orders reported by purchasing managers were the strongest since April 2010 and an employment gauge reached its highest level since June 2011 in the ISM data.
Among companies pointing to a brighter economic outlook is Dearborn, Michigan-based Ford Motor Co., even as the automaker’s December sales trailed analysts’ estimates.
“We’ve had pretty good growth in manufacturing, ongoing, well sustained,” Ellen Hughes-Cromwick, Ford’s chief economist, said on a Jan. 3 conference call. “Housing sector gains likely to improve again this year. Job and income gains have been relatively stable. Inflation has been well contained and long-term interest rates are likely to be edging up, but remain low by historical standards.”
Housing Market
Sustained momentum in the housing market recovery is supporting payrolls in the construction industry.
Purchases of new homes exceeded projections in November, holding near a five-year high. Sales declined 2.1 percent to a 464,000 annualized pace from a revised 474,000 rate in October that was the strongest since July 2008, according to Dec. 24 figures from the Commerce Department.
“The housing market remains on track for a solid recovery and is likely to continue to improve over an extended period of time,” Stuart Miller, chief executive officer of Miami-based homebuilder Lennar Corp., said on a Dec. 18 earnings call. “The short supply of available homes and pent-up demand, along with a generally improving economy, will continue to drive the housing recovery forward.”
ADP in October 2012 changed the method it uses to calculate its employment figures dating back to 2001. The report is now derived from a larger sample, and is released jointly with Moody’s Analytics.
To contact the reporter on this story: Michelle Jamrisko in Washington at mjamrisko@bloomberg.net
To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net
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