Ouch! US December employment report comes in way under predictions

[glenn1]

December jobs data

Payrolls plunge 101,000 in December, Jobless rate holds at 6 percent as expected
By Rachel Koning, CBS.MarketWatch.com


WASHINGTON (CBS.MW) - The U.S. economy shed an unexpected 101,000 jobs in December as retailers hired fewer people for the holidays than in years past and factory positions grew even scarcer. The decline in payrolls was the largest one-month drop since February, when 165,000 jobs were eliminated.

Economists expected payrolls to expand by 32,000 in the final month of the year. Some also looked for November's decline to be revised to show fewer cuts. Instead, November job cuts totaled 88,000 not the 40,000 lost jobs first reported. The unemployment rate held steady at 6 percent, which was what most economists expected. The payrolls number is calculated by a poll of businesses, while the jobless rate is derived from a survey of households.

"Despite modest growth in the spring and summer of 2002, payroll employment showed a net loss of 181,000 over the year," said Kathleen Utgoff, commissioner of the Bureau of Labor Statistics. Manufacturing jobs are down nearly 600,000 on the year. Air transportation lost a substantial 23,000 jobs in 2002.

Most economists think job growth will be slow to recover this year, considering the labor market is historically a laggard in a recovery. Further, penny-pinching and a productive workforce has allowed companies to meet weaker demand with a reduced staff. Most economists think the jobless rate will hover near 6 percent at least until the middle of the year.

Manufacturing jobs fell by 65,000 in December. Construction jobs rose a tepid 3,000, the government's report showed. Retail employment plunged 104,000 in December as retailers hired fewer workers for the holidays than in the past. Bars and restaurants cut back their staffs significantly that month.

Despite a 73,000 gain in services and 14,000 gain in government positions, the retail sector weakness pushed total service-producing jobs down 104,000. Healthcare and financial services - thanks to mortgage refinancings -- continue to buck the trend, showing relatively strong job growth.

The overall workweek fell by six minutes to 34.1 hours. The factory workweek increased by 18 minutes to 40.9 hours in December, while factory overtime rose to 4.2 hours. That rate of increase was essentially in line with increases seen throughout the year, Utgoff said. Average hourly earnings expanded 0.3 percent in December as expected.

 

[rudder]

In my town, a large number of manufacturers have left and went to Mexico or China. Those jobs won't be back anytime soon. The only jobs are in retail, but if there are no factories, no one has any money to be anything. So the retail stores are not even hiring. Thats why I am not getting much for the sale of my home. 🙁

But I think things will look up for younger people now in college. Lots of government workers will be retiring within the next 5 years. And in the next 10-15 years I have heard that the number of people leaving the workforce due to retirement will be almost twice the number of people entering. Sucks until then. Maybe we can convince some of these people to retire early.

 

[dullard]

Sadly until we can get a real economic stimulous plan, this trend will continue. I truely think many of the things being done are about the exact opposite of what really needs to be done. I'd expect a peak unemployment rate of 7.2% before this is done.

There are many factors that influence the economy. But here are a few things that I think are relavant in this situation.
1) Consumer spending. Obviously a good economy needs a lot of comsumer spending. The more they spend, the more money businesses make, the more they can pay their employees, so the employees get back the extra they spent. However there are practical limits (someone earning $40k per year cannot just go out and spend a million hoping to get the money back as this cycle progresses). Consumers cannot get ahead of themselves. Right now they are at that limit. To spend any more would require a fundamental bump in salaries in the vast majority of consumers. A minimum wage hike here would help. Or major tax cuts to the majority (not mostly the wealthy).
2) Business investment. Obviously you need good levels of investment. If a business isn't optimal, more investment can often take it closer to that optimum level. But there is a limit - too much investment is a drain on the economy. Take Japan for example - they have the most invested economy of them all. All the factories have tons of up-to-date equipment and can produce tons of goods. Unfortunately the demand isn't enough to warrent that. All the money spent in investment goes into increasing capacity when there is no demand for this excess capacity. We are dangerously approaching that same point. Government plans to make investment cheaper and easier isn't what our country needs at this point.
3) Confidence. This is a tricky and sensitive thing. Confidence is instantaneous too - a government doesn't need to pass a single bill and confidence can still sway dramatically. Take Clinton for example, between the time he was first elected and the time he got into office, confidence soared. Not because he passed any laws, but since he gave the country hope. Bush on the other hand isn't helping confidence. It isn't directly his fault for the things he does, but it is his fault for things he stands for. This is where presidents have the greatest immediate effect on the economy. Sure some laws can be passed which alter the economy years down the road - but confidence (or our lack of it) affects the economy now. A balanced budget or even a small surplus would help tremendously. This current plan will be going in the opposite direction.
4) Business profits. In order to hire people, businesses need money. Under intense competition, profits have dwindled away. Usually I'd perfer increasing consumer spending (topic #1), but as I said I think it is maxed out. The next choice is to reduce business costs. Thus at the moment, I highly would encourage business tax cuts. If topic #1 was possible, tax cuts for the consumer would be better, but it isn't possible right now. Suppose we want to get rid of double taxation of dividends. Here is where the choice is made: business cut or consumer cut. I strongly would urge getting rid of the double taxation by cutting the tax on the business side. That will instantly make them profitable again - letting them hire more employees and thus aid topic #1. But Bush wants to instead cut the dividend tax - giving the average millionaire $24000 which will most likely go into more investments (sadly we don't need those at the moment).

 

[Queasy]

Originally posted by: dullard
Sadly until we can get a real economic stimulous plan, this trend will continue. I truely think many of the things being done are about the exact opposite of what really needs to be done. I'd expect a peak unemployment rate of 7.2% before this is done.

Umm...so which are the bad parts? The elimination of the marriage penalty tax? The increase in child deductions from $600 to $1000? The increase in the first level of the progressive tax from $12000 to $15000? The reduction of tax rates across the board? The extension of unemployment benefits? The $3000 to help those most in need (and who qualify based on job skills and industry) find a job? The elmination of the dividend tax for stock holders? The increase in allowable contributions for IRAs?

 

[dullard]

The elimination of the marriage penalty tax? Good idea, but bad timing. Marriage penalty tax really only affects a small % of people. And then the marriage penalty is usually small. It should be done, but there are other ways of using this money that can be of better help now.

The increase in child deductions from $600 to $1000? I agree with this completely. This will put money in the hands of a large % of consumers, often the ones who need it the most. This will let them spend more and ease the limit in topic #1 above. I'd suggest speeding this up and making it larger than $1000.

The increase in the first level of the progressive tax from $12000 to $15000? Another good idea done backwards. The first tax cut moved this. And it gave rebate checks on that move. But the rebate checks only went to the richer half of the population. The poorer half had to wait 6 more months to get this tax cut when they filed their taxes. I think it would have been better to give the rebate checks to the poorer half and have the richer half wait. But that is a done deal - long gone.

The reduction of tax rates across the board? I'm not in favor of this. Everytime it has been done in our history the economy gets worse in the next year or two. Everytime there were accross the board tax raises the economy was spectacular for the next year or two. Sounds backwards doesn't it. But just look at the last two times: Clinton raised taxes and the economy soard, Bush just cut them and we are in the dumper. Why does it act this way? Confidence. Businesses especially are affected by the national surplus/deficit. Better confidence of a fiscally sound goverment helps more than you think.

The extension of unemployment benefits? Good to a point. I think they should be extended longer, BUT also add to spending in effective job replacement services (including getting new skills, not just focussing on out of date skills already had). You need to do both to be effective. There was a saying: You can give a starving man a fish and feed him for a day, or teach him to fish and feed him for life. Unfortunately that saying is flawed: what if I go to a starving man and just teach him to fish? He is too weak to reel the fish in and dies. We need both. Give him a fish AND teach him to fish. No party Democrat or Republican has ever pushed strongly for both at the same time.

The $3000 to help those most in need (and who qualify based on job skills and industry) find a job? Sadly there are too many restrictions to get this into the hands of people who will benefit. What about skills that are not needed anymore? We need to increase spending on getting new skills - not job shuffling around obsolete skills. They are unemployed for a reason. Otherwise it would have been a great plan.

The elmination of the dividend tax for stock holders? I don't think we need to eliminate double taxation, but as I said in the post above, right now we need to eliminate it on the business end instead. Give the economy 10 years and maybe we can switch it, but not now.

The increase in allowable contributions for IRAs? Great for the long run, horrible right now. Our factories have far too much capacity at the moment. More investment is the last thing we need. This will aid us when people retire, but that is decades away. We need stimulous now. Then when we are on our feet, increase the contributions.

 

[Queasy]

Originally posted by: dullard

The increase in the first level of the progressive tax from $12000 to $15000? Another good idea done backwards. The first tax cut moved this. And it gave rebate checks on that move. But the rebate checks only went to the richer half of the population. The poorer half had to wait 6 more months to get this tax cut when they filed their taxes. I think it would have been better to give the rebate checks to the poorer half and have the richer half wait. But that is a done deal - long gone.

The rebate checks went to those people who had paid taxes not those who had paid no taxes.

The reduction of tax rates across the board? I'm not in favor of this. Everytime it has been done in our history the economy gets worse in the next year or two. Everytime there were accross the board tax raises the economy was spectacular for the next year or two. Sounds backwards doesn't it. But just look at the last two times: Clinton raised taxes and the economy soard, Bush just cut them and we are in the dumper. Why does it act this way? Confidence. Businesses especially are affected by the national surplus/deficit. Better confidence of a fiscally sound goverment helps more than you think.

JFK cut taxes and the economy soared (he was quoted as saying that a rising tide raises all boats). Reagan cut taxes and federal tax Revenue doubled (unfortunately, spending exceeded that). Bush's tax hasn't really gone into effect (very piddling amounts overall), especially no where near the level of JFK's or Reagan's. The only result has been a softening of the blow of the downturn instead of pulling the economy out of it. Plus add all the special occurences like a sudden surge in corporate scandals and 9/11 and it is no wonder the economy hasn't fully recovered.

I think the Clinton tax raise (whatever happened to his promise to cut taxes for the middle class) also happened at an extraordinary time when the economy experienced an increased surged because of developments in technology. In otherwords, the Clinton tax raise benefited from a surging economy more than the economy benefited from the Clinton tax raise. Tax raises more often have debilitating effects more than positive ones. For example, when the luxury tax was created on items such as boats, the boating industry experienced a downturn because people stopped buying boats. The result of which caused many boat building jobs to be lost and the economies in the areas where boating was big to be affected.

The $3000 to help those most in need (and who qualify based on job skills and industry) find a job? Sadly there are too many restrictions to get this into the hands of people who will benefit. What about skills that are not needed anymore? We need to increase spending on getting new skills - not job shuffling around obsolete skills. They are unemployed for a reason. Otherwise it would have been a great plan.

From what I understand it is to be used to help those individuals who are in fading industries and have job skills that are obsolete. The money is to be used towards training, seeking employment, day care, and the like. Some states (such as Georgia where I live) already have programs to pay for training of unemployed workers. I was actually signed up for a program after being laid-off but found a job as I was in the middle of the signing-up process.

The elmination of the dividend tax for stock holders? I don't think we need to eliminate double taxation, but as I said in the post above, right now we need to eliminate it on the business end instead. Give the economy 10 years and maybe we can switch it, but not now.

The increase in allowable contributions for IRAs? Great for the long run, horrible right now. Our factories have far too much capacity at the moment. More investment is the last thing we need. This will aid us when people retire, but that is decades away. We need stimulous now. Then when we are on our feet, increase the contributions.

The positive thing about this plan is that it addresses both long-term (IRA increases and dividend tax cuts) and short-term (elimination of marriage tax, increase in child deduction, $3000 unemployment help). One thing that this plan also does is elminate more individuals from the federal tax rolls. Families making $40,000 or less will have virtually no federal taxes to pay when all is said and done.

Unfortunately, so many states are in a bind right now because they increased their spending well past the rate of inflation during the economic surge, that the benefits from any federal tax cuts will likely be wiped out by increases in taxes levied by the states.

 

[dullard]

The rebate checks went to those people who had paid taxes not those who had paid no taxes.

Take me for example: the year before the tax cut, I paid ~$100 taxes. Yes it is a small amount, but I did pay taxes. The next year after the tax cut, I could have received the rebate. But instead of the rebate, I got a letter saying that I didn't pay enough tax last year for them to bother sending me the rebate. I ended up getting that rebate when I filed my taxes (About $450 with a $120 rebate, resulting in $330 in tax). I truely think it is families like mine who paid taxes and were going to get the rebate anyways who should have been given the rebate. But like I said, that is a mute point since it happened over a year ago.

Plus add all the special occurences like a sudden surge in corporate scandals and 9/11 and it is no wonder the economy hasn't fully recovered.

Yes the scandals and 9/11 did have an effect. That was no politicians fault. But the effect was small. The consumer spending was down in Sept, but by October had reached normal levels again. Thus it was just minor. The corporate scandals only affected a very small portion of individuals. It helped keep the stock market down, but the rest of the economy is basically unaffected. We are in a recession or on the brinks of one now. We need a real stimulous package now, before things get really bad. A lot of Bush's plans are great ideas when the economy is good, but they aren't going to help us much if any now. Thus I don't think his latest proposals will help one bit. The back loading of the 1st tax cut is a great example. I was ok with a tax cut, but the timing was really backwards. It should have been front loaded - when we definately needed stimulous. I'm not saying his ideas are wrong, but they are just in place at the wrong time, or done in the opposite way of what is needed.

Tax raises more often have debilitating effects more than positive ones. For example, when the luxury tax was created on items such as boats, the boating industry experienced a downturn because people stopped buying boats. The result of which caused many boat building jobs to be lost and the economies in the areas where boating was big to be affected.

There is a major difference between a small % income tax change and a 100% tax on one specific item (I may be off a bit with that number, but the tax was enormous). Targetted taxes are not what I'm after.

From what I understand it is to be used to help those individuals who are in fading industries and have job skills that are obsolete. The money is to be used towards training, seeking employment, day care, and the like.

Money toward training is quite useful, but at the same time overall spending on education was slashed at the state level. Thus it is too little to offset the state cuts. We need a much more money spent on this area - especially adding help for short programs like 9 week courses tech schools. The a net effect (state + federal) has been towards reducing money in this area. The states cannot afford to increase this much, but by rearranging his priorities, Bush could get the federal government to really increase spending here.

Families making $40,000 or less will have virtually no federal taxes to pay when all is said and done.

Yes I heard that statistic. A family making $40,000 and has 4 children will pay next to nothing. Sounds nice for that family. But with the average being just over 2 children and dropping, it isn't a typical family. It is the child tax credits that help here - which I am for. I'm pretty shocked, from your responces I'd think you would be against it.

Unfortunately, so many states are in a bind right now because they increased their spending well past the rate of inflation during the economic surge, that the benefits from any federal tax cuts will likely be wiped out by increases in taxes levied by the states.

The republicans have been pushing for years to get the control to the states. I'm not for or against that in itself, but it means high volitility. When the money is most needed, the states won't have it. Thus the states have to cut payments for job training when unemployment goes up. The states have to cut aid to the poor when the poor lose their jobs, etc. The federal government is large enough to ride the roller coaster ride - but states have to panick and do things that often are bad for the state just to make ends meet. Thus the recent shift towards more state control is the opposite of what we need in bad times. (Of course it maginfies the good times too...)

The key is what is good for one might not be good for all. Suppose you are in a stadium where everyone is sitting down. If you stand up, you get a better view - quite good for you. But if everyone stands up, then no one is better off - they are worse off since now they are uncomfortable standing. Sure a tax cut may be great for one type of family. But these tax cuts the way they have been done are making it worse for us all, hurting the economy (since the money then isn't available to go where it can do good).

 

[SuperTool]

That $300 check was a joke. I just put it in the bank and haven't changed my spending a bit.
It's just scary to go out and spend any large chunks of money if there is so little job security, and economic outlook is muddy at best, and miserable at worst.

 

[dullard]

JFK cut taxes and the economy soared (he was quoted as saying that a rising tide raises all boats). Reagan cut taxes and federal tax Revenue doubled (unfortunately, spending exceeded that).

Reagan cut taxes in 1981. Now lets look at the federal tax revenue, and see if it doubled.

(numbers in billions of dollars)
1980: 721
1981: 766.6 - tax cut made in this year, takes effect in 1982.
1982: 738.2
1983: 684.3
1984: 730.4
1985: 776.6

Thus it took 4 years for tax revenue to catch up to what it was before the tax cut. Revenue didn't double - it dropped significantly.

JFK cut taxes in 1965 (The tax cut takes effect in 1966). The US GDP was growing between 2.2% and 2.7% in 1965. GDP grew between 1.8% and 2.3% in 1966. GDP grew between 1.3% and 1.7% in 1967. That is two years of declining GDP growth right after the tax cut. The third year was good: GDP growth varied from 2.0% and 2.4% in 1968 (but still less than right before the tax cut). But then it dropped back down to the mid 1% range all the way until 1972 - a full 7 years after the tax cut.

Note: those growth numbers were 1/2 year moving averages to smooth out spikes.

Did you know that in the early 1900's 95% of American's didn't pay taxes? Only the top 5% paid a thing (and for the very top the tax was 73% of income). Now a family of 2 earning $16000 pays taxes. Think about how much the poor has increased in taxes in that time, while the rich's tax has dropped. I'm not saying to raise the tax on the wealthy, but lets just keep it steady until the recession is over.