Here is some stuff I know, the “hanging around with economists” edition:
• To be specific, the economists in question were part of a panel at the yearly economic forecast forum sponsored by the local chapter of the Institute for Supply Management. In all there were four economists and one pundit (that would be me).
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It’s an interesting event to participate in, in that it requires participants to take a step back from the daily onslaught of random news items and organize them in a semi-coherent fashion to get some sense of broader, long-term trends and issues, such as, to get to the basics, whether the economy will keep growing. (For the record, the consensus was that, nationally and locally, yes it will, but not at a rate to throw parades for.)
It’s also an opportunity to pick up on some hitherto unremarked issues that are a big deal, and could be even more so.
Issues such as labor force participation.
This tip comes courtesy of fellow panelist Anneliese Vance-Sherman, regional labor economist for the Employment Security Department, who brought up an issue that has gotten considerable discussion — the percentage of Americans 16 or older who are “participating” in the civilian labor force. That is, they’ve got a job or are actively looking for one.
That rate has been in steady decline, from above 67 percent in 2001 to below 63 percent now, according to Bureau of Labor Statistics data. That’s not good news, not for the individuals who aren’t drawing a paycheck, building savings or advancing in their career, nor for society which benefits from having more people working and from the resultant economic activity.
The reasons are many but the blame can be put on such factors as the recession, restructuring and downsizing in certain industries and a mismatch between the skill sets of unemployed workers and what’s required for jobs that are being created.
But there is one demographic slice in which the participation rate is growing, as Vance-Sherman noted — Americans 65 and older, from 13.2 percent in 2002 to above 18 percent recently.
BLS expects that percentage to grow, and that wouldn’t be a shock. Some older Americans are working longer because they can and want to, since many contemporary jobs are not of a physically demanding nature and overall health and longevity is improving.
But a lot of older American workers are working longer because they have to. If the recession didn’t cost them their job (and pensions and benefits), it likely cost them wage gains that they could have used to pay off mortgages or build retirement savings. Working beyond the traditional retirement age is a way to recoup some of those losses, provided they can get jobs. It appears that some are, which will create some interesting workplace and job-market dynamics. We’ll also be watching to see if the over-65 labor-force participation rate levels off or declines as the modest recovery continues, or if this is part of the “new normal” we’re all having to get used to.
• Sigh. It appears we need to discuss interest rates.
Wait, wait, come back. Really, this stuff is important.
Not that the general public would notice, but there are some pitched battles going on in economic circles over when or whether the Fed can or should raise rates, and whether there’s enough inflation and economic expansion to warrant the Fed from doing so.
Out here in the rest of the world, though, the prospect of higher rates is met largely with shoulder shrugs. No pitched battles were to be found on our panel — the consensus was that a slight increase is coming, a viewpoint echoed in conversations with regional business leaders.
That’s indicative of what those of us who have been around a while have learned about interest rates — even at their extremes, their powers of influence are limited.
In the early 1980s, for example, a 30-year mortgage was going for 16 percent (part of the Fed’s campaign to throttle inflation, which really was a problem). That made buying a home a more expensive proposition, but housing construction and home sales didn’t evaporate. People who wanted to buy a home found a way.
Conversely, in the recent recession the Fed has pushed rates toward zero (savers would say the goal was reached) in an effort to spark the economy. Did it work? Not really. If consumers and businesses don’t have the economic confidence to spend money or make capital investments, it doesn’t matter what money is priced at.
Thus the Fed’s expected hike in rates will be mostly a non-event to most; just about everyone who can refinance a mortgage has done so, and if businesses see opportunity, a slight increase in borrowing costs won’t deter them.
There is one prominent exception — the aforementioned savers, who will welcome a move that has the effect of raising the return on their money. They too are looking to make up for lost time.
• On the way to the event, we stopped to fill up the gas tanks, paying $2.10 a gallon. That provided an excellent anecdotal illustration of the ramifications of an answer to a perennial question posed at this event: “What country will have the most impact on the U.S. economy in the new year?”
In past years the safe and rational answer would be “China.” But this year a panel pundit (that would be me) offered an alternative: “Saudi Arabia.”
It’s not broadly publicized, but the Saudis are engaged in a sort of economic Cold War with the U.S., over the issue of global oil prices. The supply boom in the U.S., a result of fracking and innovative drilling technologies, has driven world prices down.
The Saudis can tolerate somewhat lower world oil prices, for awhile. What they don’t want is world oil prices that stay lower than their comfort range for a long time. To constrict supply and drive up prices means forcing supply off the market — so the Saudis are conspicuously not cutting their own production, hoping that some short-term pain will drive higher-cost production off the market.
A lot of that production is in places such as North Dakota and Texas, and those states and other countries are already seeing effects including lower tax revenue and job cuts in the energy sector. At what price point do huge portions of domestic production get shut off? How long do the Saudis keep going with this strategy?
The answers to those questions will determine the impacts to household, regional and national economies around the globe. Who specifically wins or who loses, and how much, depends upon which end of the well-to-gas-pump supply chain their wallet depends upon.
Bill Virgin is editor and publisher of Washington Manufacturing Alert and Pacific Northwest Rail News. He can be reached at email@example.com.