The economy is slow as a snail, but it just might win a marathon

By Michael Randle, EDITOR

Politically speaking, we are in some kooky times. There is a new meaning to the word “unpredictable” in today’s national political stage. We have an ex-FBI Director, Robert Mueller, acting as special counsel to investigate the Russians, the president and his campaign staff. He is also investigating whether President Trump attempted to obstruct justice.

Mueller has hired a high-powered team of lawyers, some of which have worked on cases ranging from Watergate to the Enron scandal. Kenneth Starr, who investigated President Bill Clinton in the 1990s, told ABC News in the spring quarter, “That is a great, great team of complete professionals, so let’s let him do his job.”

Ultimately, and I am sure it’s going to take quite some time, it will be up to Mueller and his team to decide if there is enough evidence to recommend charging anyone that he is investigating. Wait, a sitting president in his first year in office, his staff, as well as the Russians are being investigated by a former FBI director? That can’t be a good thing, right? Certainly it can’t be a good thing for the nation’s economy.

But this is no ordinary economy. Although unpredictable, the moon and the stars have been aligned for eight years now. There is little evidence that this recovery will end anytime soon, unless labor constraints slow it down to zero growth, but that won’t be a real concern for months. Not years, but months. We have enough labor for this year. After that, if the economy keeps growing as it has, the labor shed will be bare.

At 96 months, the U.S. economic expansion that began in the summer of 2009 is currently the third longest in history. Only 1961 to 1969 (106 months) and 1991 to 2001 (120 months) were longer. And at 80 consecutive months, this is by far the longest sustained period of job growth in U.S. history, or since the government started keeping track in 1939.

Can the current economy beat the longest ever U.S. expansion (120 months) that was set in the go-go 1990s? That is going to be up to the consumer, because a tight labor market will undoubtedly slow job generation. In fact, it already has.

Even though the economy since 2009 has seen on average only about 2 percent growth annually, if not less, it has been stunningly resilient. There have been no spurts of growth, instead methodical, gradual, therefore secure gains. There are a few signs that the economy is extended, like a sluggish automotive industry, but that is following the longest stretch of positive vehicle sales since the 1920s. For the most part, housing, capital investment, inflation and overall consumerism are on solid ground.

The Fed and most economists agree this expansion will keep going at a moderate pace for the next two to three years. In short, the United States is as competitive as it has ever been when it comes to recruiting industry, and the last three years (see cover story) have seen unprecedented project activity. So, mark your calendars. To beat the all-time U.S. economic expansion record of 120 months, GDP will need to grow until July 2019.

What are the chances? Bloomberg conducted a survey of economists in the spring quarter. Respondents gave a 60 percent chance of the growth streak continuing through July 2019. Since labor will essentially be non-existent at that point — unless immigration is doubled — I give it a 50-50 chance that this expansion will set the record for the longest expansion ever.

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Immigration, the automation bomb and taxing robots

By Michael Randle, EDITOR

The economy keeps rocking along. Housing is on fire, as is the stock market. Manufacturing is adding jobs, the financial services sector is hiring like it is 1997, the Chinese set a record for investment in the U.S. last year, and reshoring, while not achieving the predicted effect so far, proves that this country is very competitive. More telling is the fact that the number of Americans applying for unemployment benefits is at its lowest point since 1973. Not even the go-go ’90s could achieve that. Which means. . . yep, we are almost out of labor. Regardless, good times are here, finally.

This issue’s cover story focuses on economic myths. There are some things being regularly reported that are simply not true. In truth, there are two factors that could slow this economy, outside of the Federal Reserve.

Here is the ultimate myth: “We have 95 million people outside the workforce,” inferring that there are 95 million Americans without a job who want one. Nothing could be further from the truth. Here is a breakdown of who is counted as “outside the workforce,” according to government sources:

12.9 million family caretakers

15.4 million disabled

20.5 million college students

44.1 million retirees

Total: 92.9 million of the 95 million that are outside the workforce have a reason not to work, and that total doesn’t count high school students who are of working age (16 and over). There are about 12.5 million of those.

What is alarming is the number of retirees compared to the number of those in school, ages 16 to 25. We are seeing far more people leave the workforce than enter it. The American population is aging and at the same time, the birth rate is the lowest it has been in 78 years. Yes, the labor shed is almost bare. It doesn’t mean a recession is on the horizon. It just means the days of 200,000-a-month job growth are numbered.

So, where can we get an influx of new workers? One source — immigration. We bring in about 1 million people a year. That figure would have to double to meet the needs of today’s employers. Many will disagree, but not Federal Reserve Chair Janet Yellen. She said during her congressional testimony in February, “Labor force growth has been slowing in the United States. It’s one of several reasons, along with slow productivity growth, for the fact that our economy has been growing at a slow pace. Immigration has been an important source of labor force growth. So slowing the pace of immigration probably would slow the growth rate of the economy.”

Then there’s the second factor that could idle the current economy, if not bring it to its knees. Not unlike how mechanization took millions of workers off farms in this country, automation in factories and offices will do the same.

Scores of clerks, truck drivers and manufacturing workers, among others, will lose their jobs in coming years to robots, driverless vehicles and artificial intelligence. In fact, experts predict that by 2040, automation could eliminate 45 percent of jobs currently performed in the U.S. , which is freaking out governments. Why are governments freaking out? Simple — human workers pay taxes. Robots do not.

Bill Gates chimed in on the “automation bomb” in the winter quarter in an article published by Quartz Media. The article read, “Robots are taking human jobs. But Bill Gates believes that governments should tax companies that use them, as a way to at least temporarily slow the spread of automation and to fund other types of employment.” Tax robots? And we are worried about China, Mexico and trade deals taking our jobs?

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Full employment is both a blessing and a curse

By Michael Randle, EDITOR

Woohoo, with an unemployment rate of 4.6 percent in November, we are at full employment as a nation! Most economists, even the snootiest at the Fed, agree that a national unemployment rate of around 4.8 percent based on the U-3 model is the definition of full employment in this country. We are not at late 1990’s full employment, yet. Back then, the unemployment rate got below 4.0. At 5.0 percent in the South, we are close to full employment as a region, as well. It’s something to celebrate.

There are, however, still some issues in the American South. We do have some slack available in Alabama, Louisiana, Mississippi, Oklahoma, West Virginia and in sub-regions like Eastern Kentucky, where thousands of skilled coal miners have lost their jobs.

As this issue’s cover story suggests, we are almost out of labor in this country. Full employment is a blessing and a curse. For one, almost everyone who wants a job has a job, and secondly, full employment drives up wages as employers turn to pilfering employees from rival companies.

On the negative side, full employment also means that backfilling labor for large projects — manufacturing or otherwise — for five, 10 or more years out, is almost an impossible task. That means competing in the manufacturing arena with Mexico — or any country that can easily serve the U.S. consumer and backfill labor for large projects 25 years out — is going to get more difficult as the years go by and this country’s workforce gets older and older.

Since 2010, we’ve significantly added manufacturing jobs for the first time in years in an age when robots are taking boots off the factory floor in record numbers. Some say automation will eliminate 5 million jobs in the U.S. by 2020. Is that where we are going to find the labor to keep this advanced manufacturing momentum going?

The demographics have our backs against the wall. For decades, you could count on about 200,000 people entering the workforce (ages 16-65) each month. That has cratered to just 71,000 on average each month in the last two years. Census reported in the fall quarter that 71,000 will drop to an average of about 50,000 people entering the workforce monthly for the next 15 years. Not good.

With immigration sure to slow under the new administration, the only place we can find more labor is from within. That would be the 95 million Americans who are of workforce age, yet are not in a job or looking for one. Surprisingly, few realize those counted as “not participating in the workforce” include high school and college students, prisoners, retirees, stay-at-home moms or dads, and the disabled.

As of October, the U.S. had a labor force participation rate of about 63 percent. The record participation rate over the last 20 years is 67.3 percent, which was set in February 2000. If educators and economic development leaders can focus on training for unfilled jobs (we have 5.5 million of them), we might convince another four percent of those not participating to enter the workforce, tying the record participation rate seen in the last 20 years. That would give us another 4 million people entering the workforce in addition to the 600,000 who come of age each year. It’s not much, but it’s all we have.

So, let’s hear it for full employment! It’s a great achievement and certainly rarefied air when the manufacturing and the service sectors are both creating jobs at the same time for several consecutive years. But now the really tough grind begins; finding skilled labor for growing companies who want to plant their flag in the South.