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Thorns Among the Roses

Irwin M. Stelzer

“Everything’s coming up roses,” a mother reassures her daughter in Gypsy, the 1970s musical chronicling the rise of burlesque dancer Gypsy Rose Lee. Were lyricist Stephen Sondheim surveying the American economy, he might want to extend the reassurance to the rest of us. For it does seem as if, at long last, as we celebrate the seventeenth anniversary of then-Federal Reserve Board chairman Alan Greenspan’s “irrational exuberance” speech, everything is indeed coming up roses.

Yesterday the government reported that 203,000 jobs were created in November, taking the unemployment rate down to 7.0 percent from 7.3 percent in October. The labor force participation rate-the portion of the civilian population that is either employed or looking for work-seems to have stabilized after a long decline from 67.1 percent in 2000, to 65.6 percent at the start of the recent recession, to a four-decade low of 62.8 percent in October, with 16-24 year-old workers leading the drop outs. That rate ticked up last month to 63.0 percent.

If current job-creation trends continue for another year, and the labor force participation rate stabilizes, the unemployment rate will fall to 6.5 percent sometime in late 2014, the level Fed-watchers say would have persuaded chairman Ben Bernanke to steer QE3 to dry-dock. If the members of the monetary policy committee agree at their annual review on December 17-18 that the economic recovery is on track, and the unemployment rate indeed headed to 6.5 percent, they might begin to taper early in 2014, or by mid-year. But that is not a certainty: the incoming chairman might prefer to see the unemployment rate at 5.5 percent and inflation above 2 percent before slowing or ending asset purchases and relying on the alleged growth-inducing effects of low short-term rates and inducements to banks to increase lending.

The labor market is not the only source of good news. The Fed’s recent survey of business conditions notes that the economy continues to expand, and that “manufacturers in many districts expressed optimism about near-term growth prospects. That is “a bit more upbeat” than earlier reports according to Goldman Sachs’ economists.

Share prices are over six times the level prevailing when Greenspan introduced his now-famous phrase, but remain reassuringly lower or at least no higher relative to corporate earnings than they were in 1996, suggesting that any exuberance just now cannot with certainty be called “irrational.” The estimate of third-quarter GDP growth has been revised from a healthy 2.8 percent annual rate to a positively robust 3.6 percent. The index of manufacturing activity rose in November to its highest level in over 2½ years, with both new orders and backlogs showing substantial gains, and fifteen of the eighteen industries surveyed reporting growth. “The positive growth trend characterizing the second half of 2013 is continuing,” reports the Institute for Supply Management, which compiles this index.

Auto sales last month ran at their strongest annualized pace in six years, 16.4 million vehicles compared with 15.3 million last November. Sales at Ford, Chrysler, and General Motors all topped last year’s figures, by 7 percent, 16 percent, GM 14 percent, respectively, although it took a bit of promotional pricing to achieve those increases. Daimler’s Mercedes brand (+14 percent) seems about to reclaim the title of best-selling luxury marque that it temporarily ceded to BMW (+1.7 percent). Sales of new homes have returned to the level recorded in June, before a three-month slippage. Exports are up and the trade deficit is down, in part due to the displacement of imported oil by increasing domestic production resulting from fracking. Little wonder that consumers are increasingly cheerful.

There is even good news from our politicians. Democrats and Republicans seem set to agree on a budget deal. Although modest in scope and amount, the agreement, if reached, would suggest that when grown-ups regain control of negotiations from headline-seeking hardliners in the White House and the congress, the road to agreement need not end in a fiscal cliff.

Unfortunately, where there are roses, there are bound to be thorns. Many job seekers are being pricked by just such thorns as they attempt to gather their share of roses. Add to the 10.9 million unemployed the 9.8 million workers who are involuntarily working part-time, or too discouraged to continue job-hunting, and the broader-based unemployment rate is 13.8 percent, down from recent levels but still unacceptably high. Also, what seems to have become a reserve army of the unemployed-workers jobless for more than 27 weeks-seems stuck at about 4 million.

Unemployment among blacks (12.5 percent), Hispanics (8.7 percent), and teenagers (20.8 percent) remains high. The non-profit Opportunity Nation coalition, an organization of businesses, individuals, and educational and faith-based institutions, reports that six million young people, 15 percent of those aged 16-to-24, are neither in school nor working. That means they are not acquiring the skills needed to get off the dole and the couch, or off the stoops and benches of high-crime areas.

Finally, men are doing less well than women. Almost two million fewer men are in work than at the June 2007 male-employment peak, whereas more women are working today than in early 2008, their prior peak-employment period, in good part because they dominate growth industries such as retailing, health care and hospitality.

This uneven impact of the good news coming from the economy explains part of the problem that is becoming the central issue, after Obamacare, in American politics: the increasing gap between the skilled and the unskilled, the educated and the under-educated, owners of assets and those with no such holdings-all summarized as the 1 percent vs. the 99 percent by liberal (or progressive, as they now prefer to be called) politicians.

So here is the state of play. The economy is growing, with almost all sectors contributing. The jobs market is improving, although the gains are not evenly distributed. It is becoming increasingly obvious that Taper Day looms in our future, although just when and how rapidly the Fed will slow the printing presses is anybody’s guess. The bond market seems to have taken that prospect into account even before tapering begins, driving up long-term interest rates, thereby avoiding a negative jolt when tapering begins. The politicians are on the verge of proving that they can agree on a budget, which businesses say will give confidence a shot in the arm even if the agreement is modest in amount and scope.

So Sondheim’s lyrics are indeed applicable to today’s economy-almost. It is fine for an owner of assets and a job to sing to another fortunate soul “Everything’s coming up Sunshine and Santa Claus, Everything’s coming up roses for me and for you.” But not quite applicable if his audience includes the unemployed and under-employed millions, and unwilling recruits in the army of the long-term unemployed.

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