A rather lackluster employment report this morning. The unemployment rate stayed at 6.7% and payrolls grew by 192,000. This was somewhat below economists' expectations of 200,000 new jobs. The number of involuntary underemployed (part time for economic reasons) increased slightly in March. Both the number of workers part time because of slack work and the number of those who could only find part time work rose. Involuntary underemployment remains well above pre-Great Recession levels.
The trade deficit unexpectedly jumped up by $3 billion to $42.3 billion in February from $39.3 billion in January, according to BEA's data release this morning. February imports were up by $1 billion and export down by $2 billion. Economists had expected the deficit to fall to $38.5 billion. The slowdown in exports is an especially unwelcome event, but not necessarily one that is seen as continuing.
Our trade surplus in pure intangibles also moved the wrong way, declining by $688 million to $15.5 billion. The decline was solely due to a surge royalty payments (imports) that swamped the increase in royalty receipts (exports). The trade surplus in business services grew as exports rose faster than imports. At least part of the increase in royalty payments was the result of payments for the television rights to the Winter Olympics.
The good news is that the deficit in Advanced Technology continued to improve, declining by almost $1.5 billion to $3.2 billion. And once again the improvement was due in large part to a drop information and communications technology imports. A more worrisome fact was the decline in the trade surplus in aerospace technology as imports rose and exports fell slightly.
Advanced Technology goods also represent trade in intangibles. These goods are competitive because their value is based on knowledge and other intangibles. While not a perfect measure, Advanced Technology goods serve as an approximation of our trade in embedded intangibles. Adding the pure and embedded intangibles shows an overall surplus of approximately $12.3 billion, up from $11.5 billion in January.
Note: we define trade in intangibles as the sum of "royalties and license fees" and "other private services". The BEA/Census Bureau definitions of those categories are as follows:
Royalties and License Fees - Transactions with foreign residents involving intangible assets and proprietary rights, such as the use of patents, techniques, processes, formulas, designs, know-how, trademarks, copyrights, franchises, and manufacturing rights. The term "royalties" generally refers to payments for the utilization of copyrights or trademarks, and the term "license fees" generally refers to payments for the use of patents or industrial processes.
Other Private Services - Transactions with affiliated foreigners, for which no identification by type is available, and of transactions with unaffiliated foreigners. (The term "affiliated" refers to a direct investment relationship, which exists when a U.S. person has ownership or control, directly or indirectly, of 10 percent or more of a foreign business enterprise's voting securities or the equivalent, or when a foreign person has a similar interest in a U.S. enterprise.) Transactions with unaffiliated foreigners consist of education services; financial services (includes commissions and other transactions fees associated with the purchase and sale of securities and noninterest income of banks, and excludes investment income); insurance services; telecommunications services (includes transmission services and value-added services); and business, professional, and technical services. Included in the last group are advertising services; computer and data processing services; database and other information services; research, development, and testing services; management, consulting, and public relations services; legal services; construction, engineering, architectural, and mining services; industrial engineering services; installation, maintenance, and repair of equipment; and other services, including medical services and film and tape rentals.
BEA has released its third (what was formerly called the "final") estimate of US GDP. And once again there was a large change in the growth rate for intellectual property products (IPP), i.e. research and development; entertainment, literary, and artistic originals; and software. This latest estimate shows a 4.0% growth rate. Last month's second estimate had an IPP growth rate of 8.0% and the advanced estimate's growth rate was 3.2%. So the advanced estimate turns out to be closer to the real number. No explanation from BEA as to why the spike in the second estimate. But we really need to understand why the fluke occurred. The IPP data is a new addition to GDP and we need to make sure we get it right.
On the macro side, the third estimate shows a 4th Quarter 2013 growth rate of 2.6%. That is slight revision upward from the second estimate last month of 2.4% but still below the advanced estimate of 3.2%. The growth rate for the 3rd Quarter had been 4.1% - so the economy did slow somewhat at the end of last year. The latest revision is in keeping with economists' forecast of a 2.7% growth rate.
Alan Krueger, Judd Cramer and David Cho have written a devastating analysis of the long term unemployment problem Are the Long-Term Unemployed on the Margins of the Labor Market? (full paper available here and the infographics here). As they point out, the long term unemployed are similar to the short term unemployed. But unlike the short term unemployed, a cyclical economic recovery does not lead to lower rates of long term unemployment. The long term unemployed suffer from more structural difficulties than just low labor demand.
Even in good times, the long-term unemployed are on the margins of the labor market, with diminished job prospects and high labor force withdrawal rates. Even after finding another job, reemployment does not fully reset the clock for the long-term unemployed, who are frequently jobless again soon after they gain reemployment. Only 11 percent of those who were long-term unemployed in a given month returned to steady, full-time employment a year later.
As the authors note:
The portrait of the long-term unemployed in the U.S. that emerges here suggests that, to a considerable extent, they are an unlucky subset of the unemployed.
This represents a huge waste of human capital and requires special attention. As the authors conclude:
Overcoming the obstacles that prevent many of the long-term unemployed from finding gainful employment, even in good times, will likely require a concerted effort by policy makers, social organizations, communities and families, in addition to appropriate monetary policy.
One of the findings of the study highlights the problem facing any such concerted efforts. The study notes that:
The subset of the long-term unemployed who do regain employment tend to return to jobs in the same occupations and industries from which they were displaced, suggesting that significant challenges exist for helping the long-term unemployed to transition to growing sectors of the economy.
This is a disturbing finding given that our displaced workers training system is built upon the premise that these worker will easily find work in new areas. It points out that the system is not working very well.
Maybe we need a new approach. Too often it seems that we ask the unemployed to throw away all their formal and tacit knowledge to chase the latest hot occupational trend. We need to recognize the specific skills and intangible asset that displaced worker have, and build upon those assets. Successful companies often build upon one set of knowledge assets to enter adjacent markets. Maybe we should structure our re-training system along the strategy as well.
As a side note: much of the press cover of the report has been on target. For example, the WSJ ran this summary: "Long-Term Unemployment Calls for Aggressive Policy Response"
Of course, there are those who just don't seem to get it -- like this unfortunate headline in the Washington Post "Five reasons why the long-term jobless don't matter to the economy".
With thinking like that, no wonder we end up wasting precious human capital.
Yesterday, the Center for American Progress (CAP) released a report on Progressive Pro-Growth Principles for Trade and Competitiveness. According to CAP, any new trade agreement needs to address five key areas: currency manipulation; state-owned and state-supported enterprises; investor-state dispute settlement mechanisms; high-road labor and environmental standards; rules of origin. They also point to the need to strengthen enforcement.
The report, however, goes on to talk about what else is needed specifically to address our competitiveness challenges. They call for a bill that ties trade and competitiveness together, as we did in the Omnibus Trade and Competitiveness Act of 1988. Having worked on that bill, I can vouchsafe that the desire/need to give the Administration trade negotiation authority can be a powerful engine to pull a number of other policies along.
The specific proposals for the competitiveness part of the bill include reauthorization of the Export-Import Bank, worker training, investment in infrastructure, and increasing R&D. In addition, the report restates an earlier proposal for a quadrennial National Economic Strategic Assessment. As I've commented before, I strongly support this idea. A decade ago, I called for a Commission on the Future of the U.S. Economy to assess our competitiveness and make recommendations. A quadrennial economic assessment would help accomplish the same objective. I would also note that establishment of a quadrennial economic assessment does not need to wait for the passage of legislation. It can be done by executive order.
So while Congress considers CAP's excellent suggestion of an omnibus trade and competitiveness bill, the President should move ahead with part of that agenda that are already under his control. The quadrennial economic assessment would be a good starting point.