Taking the Pulse of Tough Times

Not long ago, a teacher at a large university in Pittsburgh — where I live — invited me to visit a class and speak with a group of students about, as he put it, “jobs and the economy.”

I spend much of my time reviewing energy and mineral development, which supports many good, well-paying jobs and investment opportunities. As longtime readers likely know, I foresee many great things happening in the years to come, certainly in the areas of energy and materials. There’s room for optimism.

So the idea was that, perhaps, I could offer an upbeat note to a group of young people as they finish school, calculate their student debt and plan their future. What I discovered, though, is that, for many of these young people, their view of the future is grim…

I met a group of bright, polite college students nearing graduation. Collectively, I saw only a few tattoos, and none that were garish. As for metal piercings? Well, just “normal” levels, and mostly with the females. On the surface, everything seemed OK.

Yet soon after we began our get-together, I was astonished at the group’s overall sense of worry and concern about the future. These young people are downright afraid of what’s out there.

One student noted that, according to news accounts, the U.S. added 88,000 net new jobs in March, according to Labor Department statistics. I quickly cautioned him about the vagaries of the government’s overcooked books.

That said, the young guy made a great point, which is that “There are 50 states. So even with the government number, 88,000 new jobs means an average of 1,760 jobs per state. That’s maybe two graduating classes from big high schools, or one graduating class from a small college. What about everyone else? Are we all going to work at Whole Foods or something?”

Who’s Hiring?

Good questions. What about “everyone else”? Where are the jobs? And actually, from what I know, it’s tough to get a job at Whole Foods. There’s plenty of competition for every slot that opens up, whether it’s in the fish department, the deli or just stocking shelves.

Based on population growth, the U.S. economy needs to grow and create over 200,000 new jobs per month. That’s just to break even, more or less. Yet GDP growth is anemic, and has been so since 2008. We’re living in the weakest recovery of any period since the Great Depression — which was “solved,” so to speak, by World War II, which didn’t so much end the Depression as end the worst excesses of the New Deal.

So who’s hiring these days? If you follow the U.S. economy, you know that so-called “big business” doesn’t do much hiring. If, say, Boeing or General Electric need engineers, managers or executives, they recruit them. But is there any large-scale hiring for what we used to call “factory jobs?” No way.

Where’s the Hiring Hall?

There’s no hiring hall anymore. Here in the U.S., we’ve spent 25 years closing factories and eliminating nearly 20 million former direct and related industrial jobs. Many of the jobs went overseas. The wonderful “service” economy was supposed to save us, remember? And how about that line about how “They work, we think”? Tell that to the laid-off bankers, brokers, lawyers and software engineers out there.

Now, as some economists glimpse manufacturing moving back to North America — the “re-shoring” movement — new factories are still few and far between. States and regions compete fiercely to land new investments that promise to create jobs. In some respects, such as with tax abatements and infrastructure buy-ins, the government end often gives away the store, so to speak.

But then, when companies set up factories, the new facilities are usually filled with robots and high-end work stations. Often as not, the jobs require people with far more knowledge and skill than what the “run of the mill” U.S. education system cranks out.

Aside from having the right education and skills — or not — one of the first things that many businesses do in the screening and hiring process is ask for a urine sample and test for drugs. (That’s certainly the case with the oil drillers I encounter in my travels around booming “Marcellus Country” here in Pennsylvania.) I seldom meet a hiring manager who fails to tell me how many people — young and old — fail the drug test — numbers like 75% for some types of jobs and applicants! This alone betrays a widespread, chronic cultural failure.

Or perhaps you’ve had a situation like this in your town or region. Let’s say that Home Depot or Wal-Mart opens a new location and they advertise for employees. The evening news might show video of long lines of people — hundreds, even thousands — standing in line for the chance to apply for a few dozen positions. It’s heartbreaking to see so many people so desperate to find work. And it’s scary. That’s a lot of people looking for… something.

Creating and Keeping Jobs

What creates new jobs for large numbers of people? Is there a secret formula? One method is when entrepreneurs set up small businesses and hire workers to staff up. Yet by any measure, U.S. business formation numbers are down. From what I’ve seen, both in gross statistics and as I travel around, employers are generally reluctant to hire new people.

Why is that? The increasing cost of overhead scares potential job creators — especially rising taxes and the vagaries of future medical costs (aka Obamacare). Then you get into issues like government regulation and licensure. I mean, you can’t open a lemonade stand anymore (if you’ve seen the news accounts of cops busting kids), let alone set up your own restaurant, hair salon, taxi service or such. And doing something industrial, like, say, drilling an oil well or opening a mine? You’ll encounter a Niagara of red tape.

Meanwhile, among the ranks of the employed, baby boomers tend to hang onto jobs for dear life. Many boomers are reluctant to retire because they haven’t saved nearly enough to afford not to work. That, and many employers want to retain experienced employees, even while shedding jobs to survive in an increasingly competitive economy.

Eventually, as people get old, they’ll throttle back, quit working and retire. Long term, baby boomers will inevitably reach the point at which they’ll form a demographic tsunami that swamps all those allegedly “untouchable” social programs out there, like Medicare and Social Security.

The View From the Classroom

Getting back to that group of students, high rates of unemployment are no secret to them. Indeed, the numbers are personal because they all seem to know people in their age cadre who are unemployed or underemployed — for example, someone delivering newspapers to earn a living after obtaining a master’s degree.

According to the Labor Department, the gross unemployment rate for youth aged 18–29 is 11.7%. According to another group, Generation Opportunity (GO), it’s much worse. GO tracks trends among young people, and recently noted that “If the labor force participation rate were factored into the 18–29 youth unemployment calculation, the actual unemployment rate would rise to 16.2%.”

Sticking with government figures, however, unemployment rates are still painful: 12.6% for Hispanics, and 20.1% for African-Americans. The Department of Veterans Affairs has an unemployment estimate north of 25% for Iraq-Afghan veterans. (Yes, thank you for your service to your country!)

All that and the figures don’t reflect the fact that large numbers of youth have dropped out of the workforce. Indeed, while job creation is stagnant, the government figures indicate that in one recent month, an astounding 496,000 people departed the workforce entirely. How many people is that? It’s nearly the entire active duty numbers of the U.S. Army. In one month.

Workforce contraction is among the scandalously underreported stories of this era. The mainstream media don’t dwell on it, probably because it’s not cool or sexy. Then again, when enough people can’t work or support themselves, things become — as the sociologists call it — “pre-revolutionary.”

Of course, the government statistic chefs work overtime to mask the phenomenon, because everything is political anymore. Part of the government hocus-pocus is to focus on the so-called “unemployment rate,” which has declined to a nominal 7.6%. Yet government spinmeisters accomplished this feat by purging the system of people who have given up a job search, gone on Social Security “disability” or otherwise vanished from the rolls. This effectively removes many warm bodies from the unemployment calculation.

U.S. civilian labor force participation peaked around 2001, will it recover?

For example, the recent “official” unemployment rate of 7.6% was achieved against a much smaller workforce than existed even one year ago. If we used the number of “workers” in the economy from just ONE year ago, the current unemployment rate would be 8.3%.

Still, even the Labor Department admits that in terms of the percent of working-age population employed, the current number is as low as it’s been since 1979 (see chart, above).

Other Problems, All Profound

Now add in the massive, trillion-dollar student loan bubble. Young people are not simply indebted for school loans. They’re virtually indentured, because absent paying the debt, they can’t discharge even a fraction of the sum owed in bankruptcy. Legally, there’s no possibility of a proverbial “fresh start” for America’s loan-encumbered youth.

Getting back to the cultural end of things, I have a feeling (no, it’s not quantifiable) that the decline of “traditional family” ties contributes to high unemployment among young people. In the olden days, for example, I knew people whose family network included friends — and friends of friends — who could help a young person get a start. Somebody knew somebody else and made a few phone calls. One more kid right out of school had that first job or kicked off on an apprenticeship.

Yes, I’m talking about the “good old boy” network, although it worked for “good old girls” too. It just doesn’t seem to be there so much anymore. It was tossed out, along with much other cultural baggage from the past. And what has replaced the old sense of family and friend networking? Social media, in which one’s formerly personal contacts can now be drowned out by the weight of mass communication.

Where Are the Opportunities?

You would think that in a growing nation with a rising population, there would be more opportunities, not fewer. Everyone is, in theory, a producer and a consumer. And we’re all children of God, right?

Yet more and more people are simply moving offline, off the grid, into the nether regions of the U.S. economy. Where are they? What are they doing? Will they ever return?

As for the young people I met, they’re looking for something to do in a few more months. They’re competing with people who graduated recently, who also have little to do just now — either unemployed or underemployed. Plus, they have to compete against middle-aged and older workers, with job skills from the past, all waiting in the wings.

Can politics help? Well, this is Agora Financial. If you’ve subscribed to any of our pubs for more than, say, a week, you know what we think along those lines. Begin with the idea that modern politics is part of the problem, not so much the solution.

Still, there are a few healthy “political” ideas for restarting economic activity. These include tax reform — and, yes, “cuts” — as well as wide-ranging deregulation, privatization and (dare I say it) getting rid of recent legislative toxins like Sarbanes-Oxley, Dodd-Frank and Obamacare. Good luck with that, right?

So how did I leave it with the college students? I wished them luck, because the truth is that our U.S. economy isn’t strong enough to face most of the looming challenges. At the same time, there are things happening in the energy and resource world, so I believe we can at least hope for surprises on the upside.

Thanks for reading. Have a great Memorial Day.

Byron King
Original article posted on Daily Resource Hunter