This article was posted on Sunday, Dec 01, 2013

Economy Gaining Ground or Treading Water?

Recent economic reports continue to be mixed overall, which argues that this lackluster recovery will continue to disappoint. However, some forecasters are feeling a little more upbeat in the last few weeks. Here are a couple of reasons why. First, there are hopeful signs that consumer spending could improve in the months ahead. Retail sales in June rose a solid 0.6% which led to some optimism about the rest of this year.

Yet the retail sales report for July released on August 13th showed a net gain of only 0.2% which was disappointing. However, if we look at “core” retail sales – minus auto sales and gasoline sales – the July number came in at a respectable +0.5%. This plus the sales report for June led some forecasters to increase their estimates on consumer spending in the third quarter to 2.5%.

That tidbit of optimism brings us to the second quarter GDP estimate which is widely expected to be revised higher. In the “advance” report in late July, the government estimated that the economy expanded at an annual rate of only 1.7% in the second quarter. But based on additional data since that time, the pre-report consensus now suggests that the second estimate will be revised upward to 2.1%. That’s encouraging, I suppose, but it’s not a suggestion that the economy is really on the mend.


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America is Becoming a “Part-Time Nation”

Part-time work accounted for a whopping 77% of the jobs the US economy created from January through July this year, according to household survey data from the Bureau of Labor Statistics. Specifically, this data showed that the US economy has created 953,000 jobs so far in 2013. Of that sum, 731,000 were part-time jobs versus only 222,000 (23%) full-time jobs.

So how does this compare to the same period last year? Based on the same survey, from January to July 2012, the USeconomy created 1.4 million jobs. Of that sum, 764,000 (53%) were part-time jobs versus 658,000 (47%) full-time jobs. So not only are we producing fewer new jobs this year, over three-quarters of them (77%) were part-time jobs.

President Obama likes to brag that the USeconomy has been adding on average 200,000 jobs a month, and that was true in the first seven months of 2012. But this year through July, that number has plunged to only 136,000 new jobs a month on average, with three out of four being part-time work. Worst of all, most part-time jobs are in the low paying retail world, such as food services/bars, hospitality, temporary staffing firms, home health care, etc. Economists cite these low-paying jobs as the main reason why median household income continues to decline.

A rising number of companies are citing healthcare reform as the reason for the growing part-time workforce. The new healthcare law defines a full-time worker as one who works on average 30 or more hours per week. Those workers must be given healthcare coverage or the employer faces government fines and penalties.

And no one knows what healthcare coverage will cost employers when Obamacare is fully implemented over the next two years. As a result, the USworkforce is rapidly restructuring toward “29-ers” – employees working just under that 30-hour full-time threshold. In addition, an estimated 1,200 companies and a growing number of unions have either sought or won temporary waivers from the new healthcare mandates.

GOP members of theHouse Waysand Means Committee report that since January 2009 the country has added seven times more part-time jobs versus full time jobs. TheUSnow has a historically low labor force participation rate, with 116.1 million full-time workers and a record 28.2 million part-time workers.

The rise in the part-time workforce is a significant reason whyUSworker pay and median income has dropped since the Great Recession ended in June 2009. That trend held up again in the July unemployment report.

US employment trends are a warning, as the US has a retiree population growing faster than its working population, a pattern former President BillClinton noted when he said the Baby Boom was about to become a “Senior Boom in his 1999 State of the Union address.

Leading economists have warned that theUSeconomy has been restructuring since the 1980s away from higher paying jobs into lower-paid service industry jobs, in restaurants, retail, lodging, entertainment, education, etc. With lower median incomes in these fields, this puts a drag on GDP growth since consumer spending is approximately 70% of theUSeconomy.

Government data shows that retailers, restaurants and bars delivered more than half of July’s job gain. These low-paying industries account for 39% of theUSworkforce, according to government data analyzed by Moody’s Analytics. Moody’s also notes that mid-level jobs have contributed just 22% of job creation so far in 2013.

Companies are also relying increasingly on technology or outsourcing to low-wage Asian countries to replace US workers in order to lower costs and boost their bottom lines. Restaurant, hotel, retail, and home health care jobs typically can’t be exported, and this is another reason that more of the new jobs created are in these low-paying fields.

Welcome to Part-Time America, a trend that has been exploding since 2009.

[Note:  According to a recent article, UPS announced that they will end health insurance coverage of employee’s spouses, if they can get coverage elsewhere – a result of Obamacare.  In a memo put out to their employees, UPS said that increased medical costs, combined with the costs associated with the Affordable Care Act, have made it difficult to continue providing the same level of health care benefits to employees at an affordable cost. UPS estimates that this will affect an estimated 15,000 working spouses at the company but will save them about $60 million dollars a year. A growing list of other large companies are following suit. ]

Welfare Pays More Than Work – Revisited

A new study found that in at least 35 states, a person on welfare can get more cash benefits than a person who works 40 hours a week at the minimum wage. In some states, a whole lot more than the minimum wage.

That study has drawn quite a bit of attention, as well it should. Many who read the study’s conclusions reacted by saying that the poor are simply lazy, stupid or both. I find such generalizations offensive. Admittedly, there are some poor people who are lazy and/or stupid, but there are some well-off and even rich people who are also lazy or stupid or both. Yet I would argue that the reason there are more people on welfare today than ever before is much more simple than blaming it on stereotypes. I boil it down to this:  If you pay people more not to work than they can earn at a job, many won’t work.

The question is, how did we get to this point? Let’s go back and see how a successful program went so wrong. Back in 1996, a Republican House led by Speaker Newt Gingrich, working with Democratic President Clinton, helped enact genuine welfare reform that included three main elements, the most important of which was the “work requirement.” Within five years of the law’s implementation, stagnant welfare rolls were cut by half, employment among low-income Americans soared and child poverty rates plummeted.

The 1996 law turned the federal welfare program into state block grants under the Temporary Assistance for Needy Families program, and for a while it worked very well. A safety net was provided for those truly unable to work or lacking basic skills, but the able-bodied were incentivized to seek work and most found that getting up and going to work each day could be rewarding in both self-esteem and remuneration.

Enter the Obama administration and the beginning of the “fundamental transformation” of America, with its emphasis on redistribution of – rather than the creation of – wealth. Once again, the poor were told they were poor because the rich had taken their money and had rigged the zero-sum game to their advantage. We were soon on our way to becoming a “food-stamp nation.”

Matters were made worse in July 2012, when the Obama administration released a directive from the Department of Health and Human Services announcing that states would be able to waive the law’s work requirements. The requirement that able-bodied adults work, prepare for work or look for work in order to receive benefits was deemed too much of a burden for some states and the poor to bear.

So what we have is a colossal double-whammy. President Obama creates an economy with a disincentive to create new jobs due to taxes, regulations and ObamaCare. And at the same time, he waives the work requirement to qualify for welfare benefits. In essence, “Don’t worry about those nasty work requirements, the government will take care of you.” This is how we got to a record number of Americans on welfare, with many in at least 35 states making more than (some a lot more than) a full-time job paying minimum wage. I could go on for hours on this subject, but I had better leave it there for now.

Holiday Spending Plans May Not be Affected by Shutdown

Economic forecasters have worried that the government shutdown and the debt ceiling battle might cause consumers to pull in their horns this holiday season. But maybe not, so says the latest annual survey by Gallup. Americans, on average, expect to spend $786 on Christmas gifts this year, which is actually a little more than in each of the past two years.

Nearly nine in 10USadults say they will spend some amount of money this year on Christmas gifts. Some 30% plan to spend at least $1,000 this year, and half plan to spend at least $500. Only 3% intend to spend less than $100, according toGallup.

Gallupis one of the most respected pollsters out there, and the latest poll may prove to be correct. Yet I am going out on a limb to predict that holiday shopping this year will be worse than expected. Why? The latest implosion in consumer confidence is very significant, as is the huge drop in non-seasonally adjusted September retail sales.

Gary D. Halbert is the president and chairman of Profutures, Inc.  Subscription rates for Forecasts & Trends is $197 for 12 issues and may be obtained by visiting his website at



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