June 19, 2018

New Milestones in Jobs Report Signal a Bustling Economy

Fed policymakers are almost certain to raise interest rates when they meet this month, with at least one additional increase likely in the second half of 2018.

In May, average hourly earnings rose slightly, lifting the year-on-year gain to 2.7 percent. That’s healthy enough to assuage fears that wages are stagnating but not so strong as to change the Fed’s expected course.

“It was a stronger report than expected, but it wasn’t so hot as to lead the Fed to believe it’s behind the curve,” said Michael Gapen, chief United States economist at Barclays, adding that the Fed’s plans shouldn’t worry stock-market bulls. “It will keep the Fed on its gradual normalization path.”

Indeed, the stock market rallied in the wake of the news. The Standard Poor’s 500-stock index finished the day up more than 1 percent. Bond prices dipped slightly as traders braced for the possibility of faster economic growth, lifting the yield on benchmark 10-year Treasury bonds to 2.9 percent.

Mr. Gapen believes the unemployment rate could sink as low as 3 percent by the end of 2019. That would bring it to levels last seen in 1953, the height of the economic boom after World War II.

Source: Bureau of Labor Statistics

The only negative in the report was a slight drop in the share of Americans who are either working or looking for a job, paced by a 170,000 increase in the number of people not in the labor force. That, in turn, put downward pressure on the unemployment rate, which sank from 3.9 percent in April.

Still, the overall report painted a picture of a robust labor market by any measure. Unemployment among African-Americans fell to 5.9 percent from 6.6 percent in April, the lowest since the Labor Department began breaking out unemployment by race in 1972. Among college graduates, the unemployment rate is 2 percent, while it stands at 3.9 percent for workers with a high school diploma.

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“It was certainly a good number, with some weather-related bounce-back in construction,” said Diane Swonk, an economist with Grant Thornton.

Photo
A jobs fair last month in Holmdel, N.J., viewed from the township library. Average earnings last month rose by 8 cents an hour and are up 2.7 percent over the past year. Credit Stephen Speranza for The New York Times

Wages, Wages, Wages

Ms. Swonk said the great conundrum in the current economic environment was why wage growth had been so modest. After all, a tighter labor market should prompt employers to raise salaries to keep the workers they have and lure new ones, right?

Photo
People discussing job opportunities at the George Washington Bridge Bus Station in Upper Manhattan, where new stores are opening. Credit Gregg Vigliotti for The New York Times

In theory, yes, but in practice it hasn’t been working out that way — and everything from slow productivity growth to the decline of unions and digital disruption has been cited as a reason.

“This is the last shoe to drop in the labor market,” said Torsten Slok, chief international economist at Deutsche Bank. “It’s just a matter of time before wages start going up more strongly, but there’s frustration that it hasn’t happened yet, even though unemployment is the lowest it has been in almost 18 years.”

Source: Bureau of Labor Statistics

Besides the other potential causes, Mr. Slok has one of his own: While job switchers are being rewarded with raises, people who stay where they are not. Nearly 15 percent of what he calls “job stayers” saw no increase in wages in the past 12 months. At comparable periods in past economic cycles, that share was more like 10 percent.

“If you just stay around, you have less bargaining power,” Mr. Slok said.

Back From the Sidelines?

Sectors like construction, energy, transportation and hospitals have been especially tight, Ms. Swonk said, with some employers offering signing bonuses to lure workers. For evidence of the trend, she is watching teenage unemployment, which was 12.8 percent last month. In April, it stood at 12.9 percent, down from 14.7 percent in April 2017.

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The teenage unemployment rate is significant because this cohort is a prime beneficiary of tight labor markets, Ms. Swonk explained. When there was more slack in the system, teenagers had to compete with 50-somethings for scarce jobs. Now, as the latter group finds higher-paying positions, young workers are filling the gap.

In some regions, workers have grown particularly scarce, forcing companies to pony up to compete for new hires. Union Pacific, the railroad giant, has long struggled to find mechanics, electricians and other skilled trade workers. But now it is having trouble filling even unskilled positions in some areas.

In Council Bluffs, Iowa, where the unemployment rate is under 3 percent, Union Pacific has started offering $20,000 in hiring incentives for train crews — a job requiring no experience or education beyond a high school diploma. In some cases, the company isn’t even waiting for students to graduate to start the recruiting process.

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“We have communities where we work where the unemployment rate is a percent and a half,” said Lance Fritz, Union Pacific’s chairman and chief executive. “Finding people to do work there is mostly about getting them in high school and making them aware of the career path so that when they graduate and are in the work force, we get them.”

Turning to Trucking

In Wisconsin, workers like Chris Bogan are benefiting from a surprisingly tight labor market. When he was laid off last fall by Appleton Coated, a paper mill, he feared the worst. As his family’s main breadwinner, Mr. Bogan was earning $28.66 per hour, a solidly middle-class wage in the Neenah area, which The New York Times reported on in November.

As it turned out, a shortage of workers in one of the industries recently cited in the Fed’s Beige Book economic survey — trucking — came to Mr. Bogan’s rescue. The day the mill shut, he signed up for a course at Fox Valley Technical College to get a license to drive trucks. And the day after he graduated, he landed a job at a local trucking company.

“I didn’t wait around,” Mr. Bogan said. “I graduated on a Thursday night and went to the trucking company office on Friday morning.”

Trucking accounted for nearly 7,000 of the jobs gained nationwide last month. And the demand for workers that Mr. Bogan encountered is part of the larger economic picture in Wisconsin, which has one of the nation’s lowest unemployment rates. The jobless rate there stands at 2.8 percent, down from 3.3 percent a year ago.

In fact, after the mill resumed production and Mr. Bogan got a call asking if he’d like to come back, he politely declined. Under a Teamsters union contract, Mr. Bogan’s employer covers all of the cost of his health insurance, so he’s essentially earning the same take-home pay as before.

“Things are going pretty well,” he said. “I love it. Instead of just watching that machine turning, I’m outside, and it’s different every day.”

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Article source: https://www.nytimes.com/2018/06/01/business/economy/jobs-report.html?partner=rss&emc=rss

Trump Touts Jobs Report Before Official Release, Breaking Protocol

“Most sophisticated firms these days are following Twitter, and in the age of Trump, a lot of firms have trading models that are following him,” said Larry Tabb, founder of the Tabb Group, a financial markets research and advisory firm.

Still, some expressed concern that the president could turn one of the most important signals about the health of the economy into a trading game that could destabilize financial markets by prompting a rapid sell-off in advance of future jobs reports if Mr. Trump did not tout the upcoming release.

Before he became president, and began to celebrate strong jobs reports, Mr. Trump actively worked to undermine confidence in economic data. Throughout his run for the White House and even in the months before he took office, he often dismissed the reports as “fiction.”

Washington has long tried to prevent market-moving data like the employment numbers from being prematurely released. In 1985, the White House Office of Management and Budget issued a regulation governing the release of embargoed federal data like the jobs report, including a requirement that employees of the executive branch not comment publicly on the data until an hour after its release.

“All employees of the executive branch who receive prerelease distribution of information and data estimates as authorized above are responsible for assuring that there is no release prior to the official release time,” the regulation states. “Except for members of the staff of the agency issuing the principal economic indicator who have been designated by the agency head to provide technical explanations of the data, employees of the executive branch shall not comment publicly on the data until at least one hour after the official release time.”

It is unclear whether the regulation applies to Mr. Trump, some legal experts said. “I would be very cautious about assuming this applies to the president, who is generally not considered an employee” of the executive branch, said Adam Scales, a law professor at Rutgers University who teaches administrative law.

The Republican National Committee responded to the criticism of Mr. Trump on Friday afternoon by flagging an evening speech by President Barack Obama on Feb. 5, 2009, the night before the first jobs report release of Mr. Obama’s presidency.

Article source: https://www.nytimes.com/2018/06/01/us/politics/trump-jobs-twitter.html?partner=rss&emc=rss

White House to Impose Metal Tariffs on Key U.S. Allies, Risking Retaliation

Canada is the largest supplier of both steel and aluminum to the United States, and the supply chains for many products snake back and forth across the border. The United Steelworkers union, which represents members in Canada as well as the United States, said the decision called “into serious question” the design and direction of the administration’s trade strategy.

“The regular chaos surrounding our flawed trade policies is undermining the ability to project a reasoned course and ensure that we can improve domestic production and employment,” the union said in a statement.

The Aluminum Association, the industry trade group, also said it was disappointed. Heidi Brock, the group’s president, said the tariffs would do little to address the larger issue of overcapacity in China “while potentially alienating allies and disrupting supply chains that more than 97 percent of U.S. aluminum industry jobs rely upon.”

The steel and aluminum tariffs already appear to be hurting construction companies, retailers and manufacturers — by raising their costs and injecting uncertainty into the price and availability of the metals going forward.

The Federal Reserve’s latest Beige Book, a collection of anecdotes about the health of regional economies, contains more than two dozen references to business fears that the administration’s trade policies, and the steel and aluminum tariffs in particular, would hurt sales and profits.

“These tariffs are hitting the wrong target,” said Representative Kevin Brady, Republican of Texas. “When it comes to unfairly traded steel and aluminum, Mexico, Canada and Europe are not the problem — China is.”

In a more pointed statement, Senator Ben Sasse, Republican of Nebraska, called the tariffs “dumb.”

“Europe, Canada and Mexico are not China, and you don’t treat allies the same way you treat opponents,” he said.

Article source: https://www.nytimes.com/2018/05/31/us/politics/trump-aluminum-steel-tariffs.html?partner=rss&emc=rss

White House to Impose Metal Tariffs on E.U., Canada and Mexico

Canada is the largest supplier of both steel and aluminum to the United States, and the supply chains for many products snake back and forth across the border. The United Steelworkers union, which represents members in Canada as well as the United States, said the decision called “into serious question” the design and direction of the administration’s trade strategy.

“The regular chaos surrounding our flawed trade policies is undermining the ability to project a reasoned course and ensure that we can improve domestic production and employment,” the union said in a statement.

The Aluminum Association, the industry trade group, also said it was disappointed. Heidi Brock, the group’s president, said the tariffs would do little to address the larger issue of overcapacity in China “while potentially alienating allies and disrupting supply chains that more than 97 percent of U.S. aluminum industry jobs rely upon.”

The steel and aluminum tariffs already appear to be hurting construction companies, retailers and manufacturers — by raising their costs and injecting uncertainty into the price and availability of the metals going forward.

The Federal Reserve’s latest Beige Book, a collection of anecdotes about the health of regional economies, contains more than two dozen references to business fears that the administration’s trade policies, and the steel and aluminum tariffs in particular, would hurt sales and profits.

“These tariffs are hitting the wrong target,” said Representative Kevin Brady, Republican of Texas. “When it comes to unfairly traded steel and aluminum, Mexico, Canada and Europe are not the problem — China is.”

In a more pointed statement, Senator Ben Sasse, Republican of Nebraska, called the tariffs “dumb.”

“Europe, Canada and Mexico are not China, and you don’t treat allies the same way you treat opponents,” he said.

Article source: https://www.nytimes.com/2018/05/31/us/politics/trump-aluminum-steel-tariffs.html?partner=rss&emc=rss

The Economy Can Handle Steel and Aluminum Tariffs. The Real Risk Is Erratic Policy.

The administration first announced the tariffs back in early March, portraying them as an aggressive effort to fight the perfidious behavior of China and other countries to subsidize their domestic metals industries, undermining American national security.

Then, soon after they were announced, the administration gave exemptions to most major American allies, including the European Union, Canada and Mexico. It extended them by 30 days at the start of May, though that was a down-to-the-wire moment.

With those 30 days now elapsed, the administration has this time gone the other direction and removed the exemptions. It’s now tariffs for everybody, including the United States’ closest military allies. And even that is subject to change as the Trump administration continues to dangle relief on steel and aluminum tariffs in exchange for other concessions.

There has been extensive behind-the-scenes jockeying over those exemptions for the last three months, but there has been no real public accounting of what criteria led to those exemptions in the first place, or what led to their removal. And it is not at all clear how taxing imports of Canadian and European steel and aluminum is going to get China to cut subsidies for its producers.

The imposition of the tariffs on Canada and Mexico added another layer of complexity to the sluggish renegotiation of the North American Free Trade Agreement.

American negotiations with China over its trade practices have been even more erratic. One day, tariffs on $150 billion of imports from China appeared imminent, the next they were put on pause amid infighting by the president’s trade negotiation team.

Even more remarkable is that the Trump administration is willing to make threats against all the nation’s major trading partners at the same time. A trade war with China would be a big deal; a trade war with Europe would be a big deal; a trade war with Canada and Mexico would be a big deal. The United States is flirting with all three at once.

Article source: https://www.nytimes.com/2018/05/31/upshot/-us-tariffs-real-economic-risk-is-unpredictability.html?partner=rss&emc=rss

Teachers Find Public Support as Campaign for Higher Pay Goes to Voters

National Democrats are hoping to capitalize on the education funding consensus during this fall’s midterm elections, especially in states with key House and Senate races, like Arizona and West Virginia. Though most school funding comes from state and local sources, not the federal government, congressional Democrats have released a plan to repeal the Trump tax cuts for the top 1 percent of earners in order to spend $50 billion on teacher pay and recruitment and another $50 billion on school infrastructure needs.

“Teachers have huge impact in their communities, and they are mobilized and they realize the Democrats are on their side and Republicans have not been,” said the Senate’s Democratic leader, Chuck Schumer of New York. “The No. 1 way you can get better teachers is teacher pay. Even some Republicans realize that. It’s sort of a free-market concept.”

In Kentucky, Travis Brenda, a high school math teacher, defeated the speaker of the State House of Representatives, Jonathan Shell, in the Republican primary. Mr. Shell had drawn the ire of the teacher movement by backing a plan to make educators’ retirement plans more like the 401(k) accounts used in the private sector, and by passing a budget that teachers said devoted too little money to prekindergarten programs, textbooks, school transportation and teachers’ professional development.

Support for teachers hasn’t always translated into support for more education funding — at least when that funding meant higher tax bills. Oklahoma, for example, repeatedly cut taxes, leading to stagnant teacher pay, aging textbooks and a four-day school week in some rural districts. In 2016, voters there rejected a ballot initiative that would have imposed a 1 percent sales tax to help fund public schools. The teacher protest movement, which mounted a nine-day walkout, won an average raise of $6,000 per year for teachers, funded through new taxes on oil and gas production, online sales, gambling, tobacco and motor fuels.

The walkout movement first took hold in West Virginia among rank-and-file educators who organized on Facebook, but quickly became closely tied to unions, which provided much of the organizing and lobbying muscle. While the Times survey found broad support for teachers, opinions on their unions were split, with 34 percent of adults saying unions are “part of the problem” with public education, and an equal number saying unions are part of the solution. Views on teachers’ unions showed a clear partisan split, with a majority of Democrats in favor of unions and a majority of Republicans opposing them.

Doug Brown, a firefighter in Phoenix, where tens of thousands of picketing teachers rallied for a week at the State Capitol in April and May, said that educators deserved the raise they had won from state lawmakers, but that they had been too quick to strike.

Article source: https://www.nytimes.com/2018/05/31/us/politics/teachers-campaign.html?partner=rss&emc=rss

On Money: China Won’t Play in This World Cup. It Still Hopes to Profit.

When the World Cup opens in Moscow on June 14, soccer fans may notice something out of the ordinary. Alongside the slick ad campaigns for famous global brands — Visa, Adidas, Coca-Cola — there will be a proliferation of pitches from obscure companies with names like Mengniu, Vivo and Wanda. These newly minted World Cup sponsors aren’t selling much that is related to soccer; these three, for example, trade in dairy products, electric scooters and movie theaters. They all come from a country, moreover, whose national team has never scored a single World Cup goal and is not among the 32 qualifying teams this year, but which still sees itself as the future of soccer: China.

Beijing has made no secret of its soccer ambitions. Over the past few years, President Xi Jinping has vowed to turn China into a “soccer superpower” that will host, qualify for and, by 2050, hopefully win the World Cup. The last goal seems almost ludicrously unattainable: China’s men’s team languishes at No. 73 in the world rankings, behind juggernauts like Curaçao and Cape Verde. Yet the sudden appearance of Chinese companies as top corporate sponsors at this year’s World Cup hints at the country’s opportunistic rise in the world of soccer. Its incursion was precipitated by a crisis. Actually, two crises. The tournament host, Russia, and the sport’s governing body, FIFA, are beset by scandals and controversies that have cast a shadow over the event — and made it a struggle to attract corporate sponsors.

FIFA is still reeling from a hydra-headed corruption case that forced the resignation of its longtime president Sepp Blatter in 2015 and led to the indictment of more than 30 soccer figures around the world. Russia, meanwhile, has been excoriated in the West for everything from poisoning a former spy and his daughter on foreign soil to stoking wars in Syria and Ukraine and meddling in Western elections. When a member of Parliament in Britain compared this year’s World Cup to the Nazi Olympics in 1936, Boris Johnson, the foreign secretary, agreed, lamenting the “emetic prospect of Putin glorying in this sporting event.” The friendly veneer of the world’s most popular sporting event has been stripped away. “The Russians’ earlier rhetoric about the World Cup — ‘We want to welcome the world’ — is largely gone,” says Sven Daniel Wolfe, an expert on Russian sporting politics at the University of Lausanne. “Russian elites are done trying to integrate with the West. They are very content now to tout their ‘eastward pivot.’ ”

After television broadcasting rights, corporate sponsorships account for the largest portion of FIFA’s revenue — some $1.58 billion (out of $4.8 billion in total revenue) at the 2014 World Cup in Brazil. Companies have vied for sponsorship slots, eager to promote their brands before an audience that can number more than three billion over the course of the monthlong tournament. (The final game in Brazil alone attracted more than one billion viewers; the 2018 Super Bowl drew a little more than 100 million.) But scandals have changed the calculus. The fear of being associated with FIFA or Russia may have pushed away a few big partners (Sony, Johnson Johnson, Castrol) and scared off other potential sponsors. “We used to have top companies queuing up,” says Patrick Nally, a sports-marketing specialist who helped develop FIFA’s tiered sponsorship system. “Now they can’t attract any big names.”

Article source: https://www.nytimes.com/2018/05/30/magazine/china-wont-play-in-this-world-cup-it-still-hopes-to-profit.html?partner=rss&emc=rss

Economic Scene: The Profound Social Cost of American Exceptionalism

Republican orthodoxy is that inequality is not necessarily a problem. And if rising tides substantially lifted everybody’s boat, it might matter less that the yachts parked at the North Cove Marina a stone’s throw from Goldman Sachs rode a bigger swell. Tides in America don’t work like that anymore, though.

As my column has aimed to highlight, too many Americans are, well, sinking. Seventeen percent of Americans are poor by international standards — living on less than half the nationwide median income. That’s more than twice the share of poor people in France, Iceland or the Netherlands.

Forget about income, though. It’s hard to square Americans’ belief in their society’s greatness with the life expectancy of its newborn girls and boys. It is shorter than in Australia, Austria, Belgium, Britain, Canada, Chile, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Israel, Italy, Japan, Luxembourg, the Netherlands, New Zealand, Norway, Portugal, Slovenia, South Korea, Spain, Sweden, Switzerland and probably a few other countries I missed.

Or let’s measure our progress in terms of infant deaths. Scientists in the United States invented many of the technologies used around the world to keep vulnerable babies alive. So how come our infant mortality rate is higher than that of every nation in the Organization for Economic Cooperation and Development with the exceptions of Mexico, Chile and Turkey?

Our dismal rank, by the way, is not driven by the babies of white, affluent Americans. The impact of the nation’s fundamental paradox mostly fails the nonwhite and the poor. Black males born in the United States today will probably live shorter lives than boys born in Mexico, China or Turkey.

This set of facts seems to me problematic. Your heart doesn’t even have to bleed to care. The United States risks its prosperity by leaving so many Americans behind.

Article source: https://www.nytimes.com/2018/05/29/business/economy/social-cost-american-exceptionalism.html?partner=rss&emc=rss

Single-Payer Health Care in California: Here’s What It Would Take

About half that sum could come from existing Medicare and Medicaid dollars, according to the analysis. What employees and employers currently spend would cover another $100 billion to $150 billion. But the remaining $50 billion to $100 billion would require new taxes — such as a 15 percent payroll tax on earned income.

A separate analysis put the bill’s cost at $331 million, accounting for savings achieved through efficiencies and preventive care, among other things. Whatever the figure, even supporters concede that it would require a higher sales tax and increased taxes on large businesses.

Ardent proponents, like the California Nurses Association, are undeterred. “It really is about the political will,” said Catherine Kennedy, a longtime nurse who lives in Carmichael, outside of Sacramento. “We can find the money.”

‘Single payer’ has no single definition.

Democrats overwhelmingly favor single-payer plans in polls, but the phrase means different things to different people. To some, “single payer” is just a way of saying coverage for everyone. To others, it means eliminating the profit motive from health care. Or it represents simplicity — an end to paperwork, deductibles, co-payments and preapprovals.

“I do support a single-payer system,” said Steven Cohen, a retired engineer, who lives with his wife, Terri, a retired schoolteacher, in Valencia. Even though he is on Medicare, Mr. Cohen, 71, said a recent switch in his medication for rheumatoid arthritis caused his out-of-pocket drug costs to rise sharply. The insurance and pharmaceutical industries now have too much clout, he said.

When asked if he would still support single-payer if it meant higher taxes, however, Mr. Cohen said no: “Raising taxes to offset the cost of health insurance is not the best approach.” And he is unwilling to trade his Medicare coverage for a state-based version, “unless it changes for the better.”

A nationwide Kaiser Permanente survey last September found similar sentiments. A majority favored the idea of a single-payer national health plan. But when those surveyed were told that the role of employers in health care would be ended, that governmental control would grow, or that people would have to trade in their existing coverage, support fell below 40 percent.

Article source: https://www.nytimes.com/2018/05/25/business/economy/california-single-payer.html?partner=rss&emc=rss

Tax Break, or Kickback? Energy Benefit Becomes a Lightning Rod

“The whole purpose of the tax deduction was to incentivize owners, and our situation as a governmental entity is no different from Apple or any other corporate entity,” Philip Aldridge, vice chancellor for business development at the University of Texas, said. The University of Texas System and the University of Houston System have filed a lawsuit arguing that they were misled into transferring incentives worth millions of dollars without compensation.

“We own the building, we financed 100 percent of the building, and we, as the owner, determined whether the building was going to be energy efficient or not,” Mr. Aldridge said.

Jonathan Duchac, an associate professor of accounting at Wake Forest University, goes a step further. In a paper on the subject in The ATA Journal of Legal Tax Research, he and his co-authors argue that simply giving away the deductions violates most state constitutions, which have anti-gift provisions.

“Government can’t give away things of value without being compensated,” Mr. Duchac said.

There are fierce dissenters, especially among construction industry trade groups and the consulting firms that advise them. The American Council of Engineering Companies petitioned the Senate Finance Committee last summer arguing that the practice of public officials asking for compensation in exchange for a 179D transfer “raises a number of serious legal and ethical questions.”

A few lawmakers have also warned federal officials that asking for fees in return for allocating the deduction might amount to a “kickback.”

But more and more state agencies, public entities and others are pushing back against that interpretation.

In June, the California State University System changed its policy, requiring officials to negotiate reimbursement in exchange for allocating the energy deduction. In October, a Des Moines Register investigation into the tax break lamented that Iowa governments frequently “gained little or nothing for authorizing the deduction on taxpayer-funded construction.” And in December, North Carolina overturned a rule that had prohibited state officials from similarly asking for compensation.

Article source: https://www.nytimes.com/2018/05/25/business/economy/energy-tax-break.html?partner=rss&emc=rss