Short Items of Interest—U.S. Economy
Gig Economy Is a Flop
At least that is the conclusion for the time being. It was just a few years ago that many thought the "gig economy" would totally transform the workforce and alter the relationship between employer and employee forever. After some 10 years of research, it is safe to say that the gig economy has barely developed and has had little impact on the overall job market. The original assumption was that people would end up combining several jobs (or gigs) and would exit the traditional system. The fact is demand for workers has been accelerating and most anyone who wants to work full time can do so. The exemplar of the gig economy was the ride share business. It is still going strong, but it isn't quite what was expected as the vast majority of drivers are just supplementing their regular income or retirement. Few really make their living at it.
Lower Mortgage Rates
Mortgage rates are at their lowest point in eight months and expected to have an impact on the overall housing market. This decline in rates is due in part to the volatility in the markets and the impact that has had on bonds. The expectation is rates will continue to decline, which may spark interest in refinancing again. There is still a significant increase in the price of homes. That will continue to price people out of some markets. On the other hand, the rising costs of rent will persuade people they are better off buying. The stock market chaos has affected the market for the higher-cost homes. That will be a major factor this year given the predictions for the market.
Wall Issue Starts to Bite Hard This Week
The partial shutdown of the government gets serious this week as the first round of paychecks will be missed by some 800,000 federal workers. They have known they are working for nothing or had been sent home, but this was the week they would have been paid. The other issue is that businesses that do work for the government will go unpaid. This not only causes stress for those missing their income, there will be reactions from those who have not been paid. It has been reported and confirmed that some TSA workers have called in sick so that they could work another job that paid. There will be more and more of that reaction and government services will be curtailed.
Short Items of Interest—Global Economy
Coup Attempt in Gabon
The attempt to overthrow President Ali Bongo has failed as troops loyal to the government had defeated the coup plotters. Bongo has been in Morocco receiving medical attention and it is not clear he will be coming back. He is the son of the long-ruling Omar Bongo—this clan has run the country for over 50 years. The issue for many around the leader is who would replace him if he is unable to resume office. Gabon is an oil exporting state, but the volumes are small. The majority of the population is involved in subsistence farming.
Concern as DRC Election Results Are Delayed
There is an impasse developing in the Democratic Republic of Congo (DRC). The elections are over and the results were supposed to be revealed this weekend. The result announcement has been delayed, however. Most think the government is still trying to fudge the results. The Catholic Church in the country deployed some 40,000 election monitors and they claim to know who won. According to the Church, there was a clear winner. Now it appears that it is not the favored candidate for the incumbent Kabila. The Church has promised a reaction if what it knows to be true is obscured in some way.
There is a picture circulating that purportedly shows a migrant who was detained with a case of smallpox. In the first place, the disease has been eradicated everywhere in the world and the virus now exists only in a few research labs. The photo shows a man with scabies, but it is from 2014 when there was a scabies outbreak in Honduras.
Shifting Positions in Foreign Policy
The fact that positions change as far as foreign affairs are concerned is certainly nothing new. These are, after all, discussions between countries and other international entities. They all have their own specific agendas. Several of the stated positions of the White House now seem more debatable than was the case a few months ago. There are many reasons for the changing stance—everything from progress in terms of the negotiations to the intervention of people who have been advising President Trump. There have always been elements of domestic policy that override international implications. Three that stand out include the U.S. withdrawal from Syria, the trade war with China and the U.S.-Mexico border. It is far from clear what the ultimate outcome will be and it is entirely possible that the original policy stands.
Analysis: At the time President Trump made his announcement that U.S. troops would be pulling out of Syria, there was intense opposition from within his own team. It seems the statement was the last straw for Defense Secretary Mattis. There was also intense criticism from a wide range of military and intelligence sources. It is clear to anyone who has been watching this region that the Islamic State is far from defeated and would be emboldened by this move. Pulling the U.S. troops out would cede the area to the Russians and Turks and the regime of Bashar al-Assad. There is now another voice that has urged caution and has been able to stall the withdrawal plans. National Security Advisor John Bolton has asserted troops will not be withdrawn until and unless Turkey pledges not to attack the Kurds that have been operating in Syria and Iraq. To Turkey, the Kurds are insurgents and terrorists, but to the U.S. they are key allies in Iraq and influential in Syria, as well. The U.S. pullout has been delayed if not canceled altogether as it is very hard to conceive of the Turks giving in to this demand.
There have been murmurs regarding trade talks between the U.S. and China. This is not exactly news as there have been on-again and off-again consultations between the two states, but observers have noted that both countries are starting to feel the pinch. That could make come kind of concession possible. U.S. farmers are feeling the impact as their market share has been eroding daily. This has been made all the more serious by the government shutdown as it has affected the payments farmers were supposed to be getting to help them deal with the trade war. The Chinese are looking at more stimulus efforts; some of them are massive. The country already has a serious debt issue and can ill afford many more of these. The U.S. debt to GDP ratio is close to 110%—dangerously high. China has one that is 240% of their GDP.
There has been no real progress on the government shutdown over the border wall, but President Trump has now indicated a steel fence would be adequate and a concrete wall is not required. This has not been enough to budge Democrats as they are balking at the $500 billion price tag. The hope is that at some point both sides quit using this as a political cudgel. The core issue is border security—far more than just a wall. Those charged with the border's security have long suggested a combination of tactics and techniques that include walls (300 miles already exist), fences, electronic surveillance, natural barriers and increased patrols. If the conversation ever shifts to what can actually be done to protect the border, there is much room for compromise, but thus far the issue is not really about the border at all.
As Oil Goes—So Goes Nigeria
There will be elections in Nigeria in less than a month. The issue this time will be almost entirely economic. Not that the economy is not usually an issue—it is always one of the chief concerns. In the past, there have been issues related to ethnic tension and there has been the role of terrorism as the country tries to contend with the impact of Boko Haram's influence. The collapse of oil prices decked the economy and has all but wiped out the middle class. For now, that is on everyone's mind. The candidates are offering some significantly different strategies for contending with unemployment rates of over 23% and growth that has fallen to less than 1%.
Analysis: The incumbent is running despite his age and the fact he has spent a significant amount of time under medical care in Europe. Muhammadu Buhari continues to assert that the solution to the nation's ills is more state intervention and more state-funded projects. The challenge is there is no money for all this. His challenger is a former vice president—Atiku Abubakar. His approach is more free market in orientation. He wants to attract more global investment by reducing the role of government. His assertion is Nigeria continues to pursue socialism even as the failures and shortcomings pile up.
Why Is the Job Market so Robust?
The December employment numbers exceeded all expectations. There were some economists who asserted the data would show some continued progress, but even these optimists didn't expect the best jobs report since February of this year. The year as a whole was the third-strongest growth year since the recession began as there was an addition of 2.64 million jobs. The best years for job growth were 2014 and 2015. Most had expected the pace to slow from that point. With unemployment rates down to 3.7%, it was asserted that the economy was at or very near full employment. The issues in the labor market have not been those associated with unemployment, but with labor shortages and the beginnings of serious wage inflation. The economy already has more jobs available than there are people looking for work. Given the concerns that have been expressed regarding the health of the economy in 2019 and beyond, it is a bit mysterious that job growth has been so strong this year and especially at the end of the year when many of those part-time jobs in retail and transportation come to an end.
Analysis: One factor stands out as most significant and will have far reaching implications. The addition of 312,000 jobs was coupled with a rise in the unemployment rate. That provides a very strong clue as to what has been happening in the job market. The rise in the U-3 rate from 3.7% to 3.9% took place at the same time that the U-6 rate went to 7.6%—far lower than it has been much of the last decade. This essentially means that discouraged workers and those who are classified as involuntarily part time are entering the workforce as full-time workers. The definition of discouraged workers is those who have been seeking work but not formally. They have been out of work for so long, they are not getting assistance. They no longer avail themselves of the job search opportunities because their search has been fruitless. The involuntary part-time worker has not been able to break into full-time employment even though they want to. They differ drastically from the part timer who wants that kind of job as it is more flexible. The involuntary part timer wants the benefits and security that comes with the full-time position.
The question is—what brought so many of these once-marginal workers into the full-time workforce? The short answer is that business has become more desperate for employees and has become willing to hire people they were not interested in before. In reviewing the data from this last month, it was quickly established that much of the hiring was in manufacturing and transportation. These are both sectors struggling to find workers for the last few years. This is a subject we have visited quite often in this newsletter. There have been all manner of suggestions as to what to do about this dearth of available talent. There have been calls for more training and more relevant education at all levels—from primary school all the way through college. Many have also suggested that the business community do its own training. The response has long been that many businesses can't afford to do that. They would have to find a way to pay somebody whose productivity is less than ideal until they eventually learn the job. Then there is the challenge of keeping the people that have been trained.
It is not that these challenges have vanished, but manufacturers and others have had to adjust their expectations if they ever expect to have the workforce they require. It has been described as hiring attitude as opposed to aptitude. One example I have cited in more than a few talks was the guy who found his latest welders in an International House of Pancakes. After looking for welders for almost two years, he decided that the two servers at the IHOP with the really good attitudes could be trained to be welders. He hired them both, but with the knowledge that they would not be fully contributing for at least a year and maybe more. In the meantime, his existing welding staff will be spending at least part of their time training the women. There is no guarantee they will like the work. That means that his investment may ultimately prove useless.
The good news is that people who have been out of work for a long time are getting their opportunity, but the burden and risk is being carried by companies with razor-thin margins as it is. For this tactic to work, these inexperienced new hires will have to learn fast and become valued employees. They will have to remain with the company in an environment where poaching is rampant. The guy who hired the two IHOP servers has reported that rival companies have already approached both women to offer them a job when their training is completed.
Wage Inflation Building?
One of the more vexing aspects of the employment situation has been the fact that wages have not gone up as quickly as expected. The Philips Curve was developed back in the 1950s and had been one of the more reliable measures in economics. It was logical enough as it simply stated that as the unemployment rate fell, the cost of wages and salaries went up. It was just another example of supply and demand. The vexing part is that until this year there was not all that much inflation when it came to wages.
Analysis: That situation has started to change. This was the year that finally saw significant gain in terms of wages—up by 3.2% on an annual basis. There have been months through the year when the rate was even faster. Part of what has been holding wages down is the fact that many new applicants lacked the skill and experience to claim higher wages, but now the competition is so fierce that even inexperienced people can command higher wages. The majority of economists have been asserting inflation will be a bigger issue in the coming year. For that prognostication to be correct, it is going to have to include some sharply higher wages and salaries. They have not been a big factor thus far, but that is likely to change in 2019.
What Can One Person Do?
I am once again referencing the actions of a good friend who shared her ideas with me. She and I have worked together a few times and we communicate often. I wrote about her attitude towards making new friends last week. This week, I am referencing her again. She has a quote she includes at the end of her messages. I find it very appropriate for the world where we live. "I am only one person, but I am one. I can't do everything, but I can do something." She then shared a story of how she made a difference in one person's life.
"In 2006 I added a younger woman (to her circle of friends) who is an abuse survivor, escaped from an abusive boyfriend when eight months pregnant with her second son, and then was raped in 2005. She had PTSD, dissociative identity disorder (DID), back and neck injuries from the rape, etc., was fired from a job at Truman Medical Center because of her DID and anxiety attacks. Her first suicide attempt was at age nine, and again in 2005. I connected with her on the Freecycle website, and took her under my wing … helped her get into Section 8 housing in Olathe, get her student loan from Wichita State (biology) discharged, and pay all the vet bills for her 14-year-old emotional support dog. She is now a voting rights volunteer and was elected as a Democratic committeewoman for her precinct. She will be 47 on Jan. 15."
There is a lot to be upset over these days. Scarcely a day goes by that we are not outraged by something. It is very easy to sink into a cynical depression. We are not in a position to change the world, but we can most certainly change the world for some people. It may be some kind of formal association or volunteer work, but it can also be as simple as looking out for one's neighbors or paying attention to the people we work with. I think we just need to be aware and care enough to help when we can.
The assumption that most make when discussing the economy of Nigeria is that it is all about oil and gas. The fact is this sector accounts for a little less than 15% of the country's economy while agriculture makes up over 40%. Most of the farms in the country are small and basically subsistence operations, but there are also very large operations that allow the country to feed the majority of West Africa and export to the rest of the world. Even the retail and wholesale sector is larger than oil. This means that real progress in the country will have to come from improvements in the agriculture community.