Strategic Global Intelligence Brief for August 7, 2018
Short Items of Interest—U.S. Economy
Right to Work Litmus Test in Missouri
In 2017, the legislature in Missouri made the state a "right to work" state. Now the issue is on the ballot. It has become a national test for unions, while there has been an incredible amount of money spent to overturn the decision. The basic issue is whether somebody should be compelled to pay union dues because there is a union at their place of work. The right to opt out of the dues contrasts with the free loader argument that holds that nonpaying workers get the benefits others essentially paid for. This will be a major national story regardless of the outcome as it will propel attitudes towards unions in general.
What Is Up With Retail Hiring?
There has been a surge in the level of hiring in the retail community, which is quite unexpected. The vast majority of retailers are still working hard to reduce the number of employees as they seek to cut costs, but there are now some that have decided hiring is the only way to successfully compete against the online giants like Amazon. Consumers have been stating for some time that they would return to the brick-and-mortar store if they were really going to encounter people who could help them with a purchase. This has long been the case with luxury items and complex technical things, but it also applies to bookstores with a staff that actually reads or clothing stores with people who can actually fit clothes.
South Korean Deal in Trouble
There has not been much success as far as trade arrangements are concerned. Not that this has been a priority for the U.S. administration, but there had been some effort to cut a good deal when one was made available. The only real success story has been the deal struck with South Korea at about the same time President Trump was trying to arrange a meeting with the North Koreans. Now, that deal is in jeopardy over the threats to the car industry in South Korea. If it does not get exemptions to this ban, it has declared the deal will be called off. That will be the end of the only successful arrangement thus far.
Short Items of Interest—Global Economy
Germany Worried About China as Well
The U.S. has been taking steps to curb the engagement of Chinese companies in acquiring assets in the U.S.—especially those involving technology. The U.S. is not alone in wondering what level of engagement is too much. The Germans have taken steps to lower the veto threshold for foreign investment in German companies as a means by which to keep the Chinese at bay to some degree. This has also been the position taken by the French and most of the other EU states. The fact that the U.S. and EU are somewhat united on how to contend with Chinese investment may provide an opportunity for the U.S. and EU to calm some of the recent tensions.
Challenges Await Ivan Duque
As the new president of Colombia, Ivan Duque has the unenviable task of carrying on in terms of business development at the same time that he deals with a variety of lingering issues. He was backed by his former boss—Alvaro Uribe—and as a result, he is seen as far more conservative than the current leader. This is likely true, but it is important to remember that Juan Manuel Santos was Uribe's defense minister and was seen as a successor as well. Duque will need to continue to deal with the remnants of the insurgency as well as the remnants of the once all-powerful drug cartels, but with the added headache of contending with the accusations of Venezuela.
Italy Contributes to Libya's Navy
Italy has taken the unusual step of supplying ships to the Libyan government so it can assist in keeping migrants from Africa away from Italy. At this point, it is more gesture than real strategy given the lack of trained crew, but it also gives the Italians some distance should the ships engage the refugees in a violent way.
Australia and Migration—Another Interpretation
The rest of the world seems in constant crisis over the issue of migration. The British pulled out of the European Union primarily because the population had become alarmed at the number of new arrivals from places in Eastern and Central Europe as well as Africa and parts of South Asia. The U.S. is locked in a bitter "culture war" over migration from Mexico and Central America. The divisions are amply demonstrated by the chants of "build the wall" contrasted with the protests of the "dreamers." Europe has been in complete meltdown over the waves of migrants that have been arriving from all over Africa and South Asia. Governments have fallen over this issue and new political parties with radical agendas have formed over the issue. There has not been the overt crisis over migration in nations like China, Japan and South Korea, but that is simply because these states do not allow immigrants access at all. It would appear that one thing all nations have in common right now is the desire to keep people out at all costs. The one notable exception to this rule may be Australia.
Analysis: The population of Australia just hit 25 million. This development has taken place almost 30 years sooner than had been predicted just a decade or so ago. That was when the demographers were looking at the current population and computing how many children would be coming into the world. As with most modern and middle-class nations, that birth rate was falling as families got smaller and women waited longer to have kids. It was thought this pace of population growth would be insufficient for the economic growth considered desirable so discussion turned to immigration as a solution.
Today, the rate of immigration into Australia is as fast as it has even been—a new person arrives in the country every minute of every day. The rapid expansion of that migrating population has coincided with a remarkable 27 years of economic growth. This pattern of migration has made the country one of the most multi-cultural in the world as the vast majority of those who have come to Australia have been from the "Near North." They are overwhelmingly from China, Indonesia, India and other Asian states with a smattering of arrivals from Europe and the U.S.
While this has been a major contributor to the country's economic growth, it has not been without its challenges. The vast majority of those who arrive have migrated to the two biggest cities—Melbourne and Sydney. This has created some tension between the urban areas and the rest of what is largely a rural nation. The country has not been without its opposition to migration and calls for "Australians First." This has sometimes been an awkward position to espouse given the origins of most Australian families. The aborigine population is all for a "native first" policy, but they suspect that means something different to the white people protesting immigrants than it does for them.
In the early days of migration, the groups that arrived assimilated more rapidly than is the case now. There are large enough communities where people who don't want to adopt the culture of Australia can live in their own enclaves and reject the dominant language and cultural norms. Those who do not want to become a bigger part of the whole are still the distinct minority, but the numbers are large enough to attract attention. It has not helped that many of the immigrants have much larger families than does the average Australian. This will tip the population distribution even further in the future.
Crackdown Has Started in Venezuela
As expected, the attempt on Nicolas Maduro's life has provoked a swift and violent crackdown on all that could be classified as opposition. The speed with which various leaders have been rounded up gives a great deal of credibility to the rumor that the drone strike was carried out by Maduro himself and has been used as a pretext to assert a national crisis. Observers have now started to come forward and point out that various members of the group standing with Maduro began checking their watches just prior to the "attack." Some even seemed to be seeking cover before the bombs exploded.
Analysis: As is often the case with tyrants who are facing opposition, Maduro seeks outside enemies on which to focus attention. His own failures and mistakes are overlooked as the nation decides that Colombia is threatening its border. In the face of outside aggression, the nation is expected to rally around the leader, but the assertion that this was all faked is swirling around the country at record speed. That could make the tactic backfire in a spectacular way. Maduro is presiding over the utter destruction of his country due to his sheer incompetence and thorough corruption. Drone attacks aren't making him all that popular.
Conference Board Sounds Another Note of Confidence
For the second month in a row, the Conference Board indicators have been trending positive. This month, the data was all heading in the right direction. All eight of the indicators pointed to more hiring. That has been especially interesting given there is supposedly a very tight labor market. The four that seemed to power the progress of the survey included ratio of involuntary part-time workers to all part-time workers, initial claims for unemployment insurance, number of employees hired by the temporary help industry and overall industrial production. The other four categories also grew, but not quite as quickly as these. Those include percentage of people who say that jobs are hard to get, percentage of firms with positions not able to fill right now, job openings and real manufacturing and trade sales. Each of these provides a different look at the employment picture and what might be fueling activity or the lack of it.
Analysis: The changing ratio as far as part-time workers is important in that fewer people are getting sidetracked in jobs they really don't want. During the depths of the recession, there were a lot of people who were surviving by picking up a series of part-time gigs to make ends meet. These were not the jobs they wanted and not the jobs that would allow for much progress towards financial security. Now, there are more people migrating out of those part-time jobs and leaving those positions to people who really wanted part-time work. There will likely be some implications for business sectors that rely on the part-time worker—even Uber and Lyft could be affected as more people choose to enter the full-time world. A similar development has been on the rise in the number of temporary workers as there is very often a pattern here. As companies start to recover, they will try to get along with their existing staff as long as they can. This generally means more overtime. It can only be done for a while before the workforce starts to show signs of fatigue, but companies want to be sure of the recovery before acting. The next step towards real confidence is hiring more temps. These allow companies to expand and test the waters a little before making a big commitment. This can also be a way to essentially audition the workforce and decide if they want to offer a full-time position. The third step is hiring people full time. Many companies have already made it to that step.
Another of the robust four has been the data on initial claims for unemployment insurance. This is always important as it generally signals whether serious layoffs are underway. This is not something the economy sees these days. That has been very good news, but there is another element to this data that looks positive. This is the time of year when there is an expectation of more firing as the seasonal employees are being shed. The entertainment venues, hotels and even cruise lines start to downsize just a bit as the slow season approaches. This has not had a big impact this year in part because these sectors were frugal with their hiring in the first place.
Industrial production is not measuring employment directly, but without growth here, there will be little job opportunity. In the U.S., industrial production includes three important sectors—manufacturing, utilities and energy (mining). This latter category includes the production of oil and gas. Lately, this sector has been enjoying a small resurgence as per barrel oil prices have been rising. The manufacturers have been having a good year as well, but they are starting to worry about what happens when the trade wars and tariff battles get underway in earnest. The utilities are enjoying a high demand summer with record heat.
There was also movement in the other sectors such as those that assert jobs are hard to get. The reality is there are jobs all over the place in growing communities, but those who are trapped to some degree in those communities that are not growing are still involved in fruitless searches. There are not as many job openings as there have been in the past, but the number of unemployed people still outnumbers the opportunities—it is a matter of not having enough people with the right skills and training. Sales in most of the retail and manufacturing communities have been growing and are expected to do so for at least the rest of the year. The next big worry is inflation. That will actually stimulate for a while as people anticipate higher prices and will try to do the buying now that they had planned to do later.
Almost Perfect Storm for Refineries
The usual laws of energy production are not kicking in quite yet. That has allowed the U.S. refiners to make a significant profit the last couple of quarters. Usually when the crude oil prices start to rise, the news is bad for the refiners of gasoline, diesel and jet fuel. The higher-priced crude works through their supply chain and drives costs to consumers high enough that demand weakens. They are paying more for that input and have to deal with a limited market. That is not what is taking place right now.
Analysis: The first important factor is that demand has not fallen much at all. The consumption of jet fuel has risen sharply and drivers have continued to take to the road. The supply of domestic crude has been as strong as it has been in years since all the U.S. operations have been firing back up again as the price of crude rises. This has ameliorated the overall impact of that higher priced oil. There are also some temporary situations such as the congestion at the nation's pipelines. The capacity is just not there and the infrastructure has been overwhelmed. These bottlenecks have benefited the refiners at the expense of the producers. That has led to even more U.S. influence on global oil prices than in the past.
Behaving Like Animals
This is a phrase that I am no longer going to use—at least not in the context I once did. It was part of the vernacular when trying to make sense of some horrific behavior by humans. "They behaved like animals—it was tragic." The fact is that animals don't act in this way—ever. There are certainly predators and prey. Those of us that grew up on National Geographic specials have seen our share of animals brought down. These attacks are nothing more than simple survival. There is nothing personal about the attack—no desire to inflict pain for sport.
I have been watching a lot of shows about animals of late and am struck by the universal response to kindness and care. The most traumatized and frightened animal responds to the kind touch of people who are expressing their care and love. Last night, it was the flamingo that ran to her favorite person every time she came in sight. Then there was the zookeeper who had her favorite snake and was devastated to learn she had cancer and had to be put down. I once had a job at a nature center that had me interacting with a six-foot-long bull snake named Medusa. We took her to visit schools. That snake was a real companion—responding to me in ways she didn't for other people. I watch the feline five and see how much they all need my attention during the course of every day and how attentive they are when they see I am upset or sad. I will from this point look at people being kind and generous and comment that they are behaving like animals. Maybe we all should.
