Harold Meyerson - The job machine grinds to a halt

I don't mean to keep writing about this but the economic picture is so different than anything we have ever experienced.

The S&P is up +8% this month. Corporate earnings are mostly coming at or above expectations. Yet unemployment - human capital - is way too high, and shows no signs of reversing.

The argument that we should be tightening our collective fiscal belts at this point seems to me to be the wrong solution. We need to create jobs, and corporate America just isn't going to do it.

Monetary policy isn't working anymore - the system is flooded with liquidity but no one wants to borrow. Mortgage rates are at generation lows, but the house market continues to suffer (the recent spurt in sales was only due to the new home tax credit which has now expired). Bernanke gets it, but he has no tools left.

So here's where we are (excerpt from the Post column):

Fully 46 percent of the unemployed have been without work for six months or more -- the highest level since the Bureau of Labor Statistics began measuring such things in 1947. Two years ago, just 18 percent of the unemployed were jobless for more than six months. America's private-sector job machine -- the marvel of the world since 1940 -- has clanged to a halt, and there's no place for it in corporations' new business model.

And yet corporate America is typified by General Motors, which our government just bailed out two years ago:

General Motors is going like gangbusters in China, where it now sells more cars than it does in the United States. In China, GM employs 32,000 assembly-line workers; that's just 20,000 fewer than the number of such workers it has in the States. And those American workers aren't making what they used to; new hires get $14 an hour, roughly half of what veterans pull down.

The GM model typifies that of post-crash American business: massive layoffs, productivity increases, wage reductions (due in part to the weakness of unions), and reduced sales at home; increased hiring and booming sales abroad. Another part of that model is cash retention. A Federal Reserve report last month estimated that American corporations are sitting on a record $1.8 trillion in cash reserves. As a share of corporate assets, that's the highest level since 1964.

In short, stocks can continue to rise, since the other alternatives (i.e. fixed income) offer such puny yields. However, the longer term outlook cannot be too exciting if more people can't find work. And right now there are five unemployed for every posted job opening.


Harold Meyerson - The job machine grinds to a halt