dark days

Employment in U.S. Lags Where It Was in 2007

Indeed, contrary to the widespread view that the United States is an island of relative prosperity in a global sea of economic torpor, employment in several other nations has bounced back more quickly, according to a new analysis by the Bureau of Labor Statistics.

The government reported Friday that the nation added 175,000 jobs in May, continuing a 32-month run of job gains. The unemployment rate moved up slightly to 7.6 percent, from 7.5 percent in April.

But overall employment in the United States remained 2.1 percent below where it was at the end of 2007, according to the statistics bureau. By comparison, over the same period, between December 2007 and March 2013, the number of jobs was up 8.1 percent in Australia; Germany, the biggest economy in the troubled euro zone, has managed a 5.8 percent gain in employment.

“The United States is way below where it should be,” said Lawrence F. Katz, a professor of economics at Harvard. “We had a massive downturn and a tepid recovery.”

Still, Friday’s jobs report appeared to be just what Wall Street was hoping for. Major stock market indexes jumped by 1.3 percent as traders bet that the modest employment gains and the uptick in joblessness meant that the Federal Reserve would be forced to keep pumping money into the economy in a bid to stimulate greater growth.

The Fed’s push to keep short-term interest rates near zero and flood the economy with trillions of dollars since the onset of the recession has been credited with staving off a far deeper downturn. It also has helped stabilize the housing market and given Wall Street a major lift since the dark days of early 2009, when the Dow Jones industrial average was below 7,000. On Friday, the Dow closed at 15,248.12, more than double the recession low.

The United States economy is performing relatively well by some yardsticks — a steady increase in economic output, a surge in corporate profits and new stock market highs — but the robust job market that is a key focus now of Ben S. Bernanke, the chairman of the Federal Reserve, and other Fed policy makers remains out of reach.

While several European countries have fared worse, Canada, Sweden and even Britain, which is trapped in yet another recession, have enjoyed healthier job gains than the United States. In fact, of the nine countries surveyed by the Bureau of Labor Statistics, only perennially-troubled Italy and Japan performed worse.

A big part of the problem, economists say, is just how big a hole the American economy fell into in the first place. Not only did the global economic downturn begin here, it also enveloped the housing market and the banking system, sectors that were largely spared in many other countries.

“Canada didn’t really have much of a housing bust,” Mr. Katz said.

A new paper by two economists from the University of British Columbia, Florian Hoffmann and Thomas Lemieux, concludes that over half of the recent variation in employment trends between the United States on the one hand, and Canada and Germany on the other, can be attributed to the construction sector.

Although the construction field gained 69,000 jobs in the first five months of 2013, with 5.8 million jobs in May, that was still nearly two million fewer jobs than in 2007, according to the Labor Department.

Other countries have generated jobs on the basis of strong exports. Germany’s economy, for example, was powered until recently by shipments of machinery, cars and other products of its high-end manufacturing industries. Australia emerged largely unscathed from the downturn, thanks to booming Chinese demand for raw materials.

The German government also went to great lengths to discourage outright layoffs, instead encouraging employers to keep workers in a part-time capacity. At the same time, letting workers go in Europe is a much more costly proposition for big employers than it is in the United States.

Another challenge in the United States, Mr. Katz said, is the fiscal squeeze in the public sector, as the government continues to shed jobs at a rapid rate.

Reporting was contributed by Catherine Rampell, Annie Lowrey and Binyamin Appelbaum.

Article source: http://www.nytimes.com/2013/06/08/business/employment-in-us-lags-where-it-was-in-2007.html?partner=rss&emc=rss

Pressing All the Buttons for a Panic Attack

No, really. Mr. Alford just hit the key on his computer that initiates the Wall Street equivalent of the nuclear option: Sell everything.

He was acting on orders from two wealthy clients who became so alarmed by the troubled outlook that they simply wanted out. Over the last 10 days or so, they asked him to sell all of their stocks and invest in a mutual fund he oversees that is somewhat insulated against a potential market collapse.

“I have never, ever done it before,” says Mr. Alford, who is the chairman of Alpha Capital Management and has been managing money for 22 years. “This was unprecedented.”

The pros on Wall Street are forever telling us to keep socking our money away in that 401(k) plan and to keep believing, whatever the market’s daily ups or downs. But after a week like the one we just had, the worst since the dark days of 2008, even the smart-money crowd seems to have second thoughts about the old steady-as-she-goes approach.

As the Dow Jones industrial average plunged 513 points last Thursday, then gyrated wildly on Friday, all of Wall Street seemed to be asking the same question: What the heck is going on? Evidence that the American economy is bad and growing worse has been piling up for a while now. And it’s not as if we didn’t know Europe had a debt problem. Why, then, all these crazy swings?

One possible answer comes from, all of places, the fields of psychology and neuroscience. In recent years, an area of study called neurofinance has tried to use brain science to explain how our primal circuits can, and often do, override our reason when it comes to investing.

It’s a heretical thought on Wall Street, where most people insist that logic prevails. The economic theory of rational expectations has enshrined the principle that people make judicious economic choices and learn from their mistakes. As a result, our collective expectations about the financial future — from the price of T-bills next week to the earnings of Google next quarter — are, on average, accurate.

Or so the theory goes. In practice, we do stupid things all the time. Some of us gamble away money, doubling down when logic tells us to quit. Others let their winnings ride when any rational person would cash out.

But many experts say the 2008 financial collapse recalibrated investor psychology. After living through the collapse of Lehman Brothers and the panic that followed, some investors are apt to sell first and ask questions later. Wall Street’s notion of worst-case scenarios has darkened considerably.

The result: the markets go wild. After a little good news on jobs on Friday — new figures showed the jobless rate slipped a notch in July — the Dow bolted higher. But by noon it had plunged more than 400 points from its morning high. It closed at 11,444.61, down 5.75 percent for the week and 1.15 percent for the year. Like most major markets, the American stock market has now officially entered a “correction,” one of those mini-bear markets that sometimes prove fleeting and, sometimes, are a harbinger of worse to come.

FINANCIAL markets rarely move in straight lines, and whatever the pundits say, it’s not always easy to pinpoint what made them move this way or that on a given day. But in New York, London, Tokyo and beyond, a broad shift appears to be occurring. All those graphs and charts are, basically, a representation of our collective financial neurocircuitry getting a bit panicky.

Some large investors, including wealthy individuals who lost big during the 2008 collapse, have more or less been stashing money under the mattress. They have been selling investments aggressively and seeking safety in cash. Over the last three weeks or so, hedge fund managers have been betting that stocks will fall further.

Dick Del Bello, senior partner of Conifer Securities, a company that provides administrative support to hedge funds, says funds have started to place more wagers against the markets, if only to protect themselves. But as a whole, he says, they are still betting that stocks will go up, rather than down.

“Hedge funds decided to add to their short positions and play more defensively,” he says.

And yet it seems clear that Wall Street is finally realizing what many ordinary Americans have been feeling for a while: these hard times are turning harder. Sure, major American corporations are making fistfuls of money. But smaller businesses aren’t. The American consumer confronts a toxic mix of weak home prices and high unemployment. Confidence is fragile.

Article source: http://feeds.nytimes.com/click.phdo?i=5312d89ddcfe160bc3058ff8d83ef7b4

Employment in U.S. Lags Where It Was in 2007

Pressing All the Buttons for a Panic Attack

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