Tag Archives: unemployment

The coming Great Extinction – of jobs

Summary: News of the coming great extinction has the chattering classes agog with fear. But they’re (as usual) looking the wrong way. The rapid evolution of algorithms, software, and robots will make many kinds of jobs as extinct as the Great Auk. This will reshape the world into a wonderland — or unleash disastrous social turmoil. It’s up to us.

The Great Auk, last seen 1852. Lots of jobs will go extinct, just as they did.

Great Auk

Great auks by John James Audubon, from “The Birds of America”(1827).

Yet another of these coordinated-looking propaganda barrages warn us of the danger. These are all from June 2015…

These headlines are correct, but about the wrong subject. They are exaggerated speculation based on false claims about damage to the biosphere (e.g., 30 thousand species going extinct each year). The coming great extinction is of jobs. The drumbeat of automated has become background in the news, the unnoticed washing away of the foundation to American society. When it is seen, the job losses are often attributed to corporate oligarchies, free trade, or massive immigration.

It has just begun. To more clearly see this trend I recommend following the few experts charting the path to this new world. Such as Martin Ford.

Martin Ford interviewed by Knowledge@Wharton

Traditionally, robots have been in factories, but I think that over the next 10 to 20 years, automation in the form of robots, smart software and machine learning is really going to invade pretty much across the board. It’s going to start impacting jobs at all skill levels. It’s not just going to be about low-wage people who don’t have lots of education. It’s really starting to impact also professional jobs.

… we’re in the midst of a transition where in the past, machines have always been tools that have been used by people and made those people more productive, but increasingly, the technology is really becoming a replacement or a substitute for more and more workers. That’s going to be a huge issue over the coming decade.

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Mining and manufacturing are in recession. Will America follow?

Summary: The mining and manufacturing sectors of the US economy have rolled over. Perma-bear websites publish lurid descriptions of the horrific effect this will have on the US economy. What’s the truth? {2nd of 2 posts today.}

Recession

A warning. AP Photo/Mark Lennihan.

(1) The manufacturing collapse

Perma-bears often describe the manufacturing sector as in a downturn, sometimes as in a collapse, sometimes as in a recession. Here are the numbers describing the sector, indexed to the December 2007 peak before the recession. An explanation follows.

FRED: Manufacturing Sector Data

What does this tell us? Looking at these lines describing the manufacturing sector as of December, from top to bottom.

  • Inventories are high and stable.
  • Sales are down 8% from July 2014, and falling.
  • Its industrial production index is down 2% from July 2014, and stable.
  • Employment has grown slowly since March 2010 (+900 thousand); been flat as sales fell.
  • Not shown: average hours worked & overtime hours are flat since 2013.

It’s the new industrial revolution at work: tech and capex boost output without more workers. The level of activity in manufacturing (sales and IP) is back to the 2007 peak, but inventories are 15% above the 2007 peak — but employment is unchanged (increased productivity allowed output to increase without more workers).

What will happen if sales continue to fall? Production will drop even faster as companies reduce inventories. Employers will eventually cut hours worked and fire workers. We do not known when and how, but it manufacturing employment is too small to have a significant effect on the overall US economy. Even its output is only 12% of US GDP.

Bottom line: hold the hysteria.

(2)  Collapse of the mining sector (including oil & gas)

Output in red. Employment in green.

FRED: January 2016 Employment and Production of the Mining Sector

The US mining sector — which includes extraction of coal, oil, and natural gas — has hit hard times. Prices and volume are down. It’s a smaller sector than manufacturing (only 2% of GDP).

The mining story is the same as manufacturing’s — the new industrial revolution allows tech and capex to boost output without more workers since 2012. The decline has run in the opposite way as manufacturing, however: so far employment has fallen more than output (-16% vs. -11%). This is uncharted terrain; we can only guess what this will look like in a year or two.

The geographic concentration of mining means that a few states will suffer disproportionately: mining is one-third of Wyoming’s GDP, one-quarter of Alaska’s, one-sixth of West Virginia’s, one-eighth of Oklahoma’s, and one-tenth of Texas’ GDP (source: EIA).

So far the decline in mining output and employment has been in the non-petroleum industries. The below graph of oil & gas mining shows that since 2012 fracking boosted output with few new workers.

FRED: January 2016 Employment and Production of the Petroleum Sector

Now everything unravels. The price of natural gas (Henry Hub spot) peaked in February 2014; crude oil (WTI) peaked in June 2014, employment peaked in October 2014, it Industrial Production Index peaked in April 2015. A collapse will result eventually if prices do not rise — but we can only guess at its shape.

But the oil & gas extraction only employees 183 thousand people. The bankruptcies will affect investors. Some communities will suffer. But the national macroeconomic effects will be small.

Bottom line: no hysteria warranted.

Conclusion

The declines in manufacturing and mining have produced a clickbait extravaganza at some  popular perma-bear websites. However exciting, most of that exaggerates the national impacts.

Business investment and consumer spending are the powerful and volatile drivers of the US economy. When they turn down — and they have not yet done so — the overall economy will drop with them. There are indications that might happen in 2016. Keep your eyes on the center rings of the circus. Should the picture darken, do not delay taking steps to protect yourself.

For More Information

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And these about the US economy…

Surprises in the January jobs report

Summary: The monthly job numbers tell us much, but the headline number about which the press obsesses tells us almost nothing. This post looks at the trends that shape America as shown in this report, and especially the surprises.

Economy

 

Journalists and economists ask if we are in a recession. The tabloid investment media screams “yes”.  Last week Professor James Hamilton provided a clear answer: no.  It’s the wrong question. We should be like sailors, scanning the horizon to see the storm before it hits, taking incremental steps to prepare as the odds of a storm grow – eventually battening down the hatches and reefing the sails — before it’s too late to do so.

Macroeconomic data provides our best warnings of economic storms. The monthly payroll report — released today for January — gets massive attention, but we must dig to get the useful insights.

The headline job number is too volatile and too heavily revised for use (also, it is a lagging indicator), but the trend in the percent change year over year NSA tells us much – the rate of growth slows rapidly in the year before a recession, hence months before stocks roll over. Payroll growth peaked in February 2015 at 2.3%, steadily falling to 1.9% in January.

NonFarm Payroll - YoY percent change NSA

Let’s look below the headline number at some of the weaker sectors. Such as manufacturing, so far the center of the downturn. Manufacturing added 29,000 jobs in January, the second monthly gain and the largest since November 2014. What does this mean? I have no idea. It is an anomaly. Economists and journalists seldom point to anomalies in the data, although that should be a priority. Anomalies point to changes in trends and errors in our beliefs.

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The Fed watches the jobs report. So should we.

Today the Bureau of Labor Statistics released the December jobs report, among the most important of the economic numbers. It is timely and describes one of the core engines of US growth. It tells us much about the US economy’s strength (growing or fading) and about wages — affecting inflation and interest rates, corporate profits and wage inequality.

Economy

Understanding these numbers requires a broader perspective than financial journalists use, so the emphasis of the major news reports tends to the almost meaningless “horse race” aspects: better than expected! — rather than strong or weak, faster or slower.

This report is important for us both as investors and citizens. To see what this report tells us go to my analysis at Seeking Alpha (post your comments there).

This is the second of two reports today. The first was Drugs and machines making people smarter & stronger: boon or bane?

Recession Watch: a turning Point in Unemployment Claims?

A new era has begun for the US and global economy, trashing the simple rules of the post-WWII era. Instead of the business cycle (the “clock” analogy found in textbooks), we have secular stagnation interrupted by frequent bubbles alternating with bouts of debt deflation that are fought by massive government stimulus programs.

Since we have no playbook for this new economic regime, investors must watch the data. Bulls look at signs of strength; bears focus on signs of weakness. Survivors look at broad indicators, showing the net effect of the many cross-currents affecting the economy. The number of new claims for unemployment is among the best: close to real-time (weekly), hard data, and a leading indicator.

New unemployment Claims: YoY in 2015

See the analysis at Wolf Street. Second of 2 posts today.

We’re sending more kids to college, but does the economy create good jobs for them?

I will perform an unusual magic trick for you using the employment report. Rather than transforming something mundane (a bird, a hat, cards) into something spectacular, I will transform the spectacular October employment numbers (now sparking a thousand excited articles) into something mundane. The lessons learned from this will save you time in the future. Plus, at the end is a useful debunking of a myth about the employment numbers.

October’s non-farm payroll gain (aka the Current Employment Survey) was a blockbuster at 271,000, vs. the 3 month average of 187,000 and the 12 month average of 230,000. Better yet, it was a big “beat”, with Wall Street economists expecting 150-200 thousand. See this wonderful result on the graph showing the percentage change in jobs year-over-year, not seasonally adjusted (since the population grows, the percent change better shows the rate of improvement over time).

NonFarm Payroll

Not much change, is there?

See my full report at Wolf Street!

Three visions of our future after the robot revolution

Summary: During the past 2 years the robot revolution has come into view, and all but Right-wingers living in fantasy-land have begun to realize it might (like the previous ones) produce large-scale social disruption and suffering. But to prepare for these changes we must first image what kind of world they’ll create. Here we look at three visions about what lies ahead for us.  {1st of 2 posts today.}

“We did not come to fear the future. We came here to shape it.”
— Barack Obama’s speech to Congress, 9 September  2009.

Dark futures

 

Contents

  1. The center-left sees the problem
    ……and offers mild solutions.
  2. Realistic analysis and prescriptions.
  3. Visions of dark futures.
  4. For More Information.

 

(1)  The center-left sees the problem and offers mild solutions

Slowly, people have come to see the coming robot revolution (aka, a new industrial revolution), even economists. The Left has adopted this issue, as they have climate change, as a means to enact long-sought changes in the US economy. Like climate change, their solutions are far too small for the problem described.

(a) A World Without Work” by Derek Thompson in The Atlantic, July/Aug 2015 — “For centuries, experts have predicted that machines would make workers obsolete. That moment may finally be arriving. Could that be a good thing?” Typical of The Atlantic. Long, meandering, confused mish-mash of issues. Never confronts the core issue of how people will earn money to live. Lots of nonsense about people living by selling crafts to each other.

(b) The Future of Work in the Age of the Machine” by Melissa S. Kearney, Brad Hershbein, and David Boddy at the Hamilton Project, February 2015. See the slides and transcript from the seminar they held for academics and businesspeople. Their prescription is aggressive application of conventional methods…

The Project’s economic strategy reflects a judgment that long-term prosperity is best achieved by fostering economic growth and broad participation in that growth, by enhancing individual economic security, and by embracing a role for effective government in making needed public investments.

(c) The future of work in the second machine age is up to us” by Marshall Steinbaum at the Washington Center for Equitable Growth, 23 February 2015 — They show that the robot revolution has not yet appeared in the macroeconomic statistics. But it’s coming. Their conclusions are the standard center-left recipe, like those of the Hamilton Project…

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