Simply put, March was not a good month for job creation around the country. Numbers were down markedly from previous months while, as the Americans for Limited Government advocacy group pointed out, the labor participation rate tied a 37-year low.
The news was even worse in the manufacturing sector, where it contracted by 1,000 jobs. While Scott Paul of the Alliance for American Manufacturing blamed the strong dollar, calling it “a big loser for factory jobs in the United States,” it’s only a piece of the puzzle.
Paul would favor a more interventionist solution, adding:
There’s plenty that could be done to turn this around. The Treasury should crack down on currency manipulators, the Federal Reserve shouldn’t act prematurely, USTR should be assertive about enforcing our trade laws, and Congress must address currency and trade enforcement in the context of new trade legislation.
Based on Barack Obama’s promise to create a million manufacturing jobs in his second term, he needs to add 628,000 in the next 21 months – a Herculean task for any president, and almost impossible for this one. Let’s consider a few facts:
First of all, the continued low price of both oil and natural gas has tempered the energy boom to some extent. According to Energy Information Administration data, the number of oil and natural gas rigs in operation last week was 1,048. In terms of oil operations, the number is down 45% from last year and for gas it’s down almost 27%. While gasoline in the low $2 range is good for the overall economy, oil prices need to be between $60 and $80 a barrel for operators to break even, and the benchmark price has held lately in the high $40s.
As I noted, low energy prices are good for some aspects of job creation, but the energy boom is on a bit of a hiatus and that affects manufacturing with regard to that infrastructure. Throw in the unfair competition we’re receiving when it comes to OCTG pipe and it doesn’t appear this will be the cure to what ails us as far as job creation goes.
More important, though, is the financial aspect. Our corporate tax structure is among the most punitive in the developed world, which leads to capital flowing offshore despite the “economic patriotism” appeals of our government to demand it come back. Once you have the opportunity to take advantage of other countries’ willingness to charge 20% or even 15% tax, why should you willingly pay a 35% rate? Their slice of the pie may be less, but they get a lot more pies this way.
And then we have the aspect of regulations, particularly when it comes to the financial restrictions that Dodd-Frank places on the lending industry and the environmental mandates an overzealous EPA is putting on industry – look at coal as an example. If we went back to the conditions of 2006 the environment would likely not suffer serious harm and companies would have a much easier time with their accounting. I haven’t even touched on Obamacare, either.
Not all of this is Obama’s fault, but the majority of these problems can be laid at his feet. Alas, we have 21 months left in his term so many of these things will not change despite the presence of a Republican Congress which will be blamed for any setbacks.
So the question becomes one of just how many employers in general, not just in manufacturing, will be able to weather this storm. Even the recent news that both Walmart and McDonalds will be increasing their wages brought out the cynics and doubters. But it’s worth pointing out that both Walmart and McDonalds have stated they wouldn’t oppose a minimum wage hike. Such a move makes sense for them because their bottom lines can more easily manage a modest wage hike for their employees and they know their local competitors can’t. Both also have the flexibility to adopt more automation where they used to have a row of low-wage employees. As an example, most of the local Walmarts adopted a number of self-serve checkout lanes over the last year or so. If you hire a dozen fewer cashiers it’s easier to give the others another dollar an hour.
Change is a constant in the labor market, and we know this. But there are some circumstances under which businesses thrive and others where they struggle, and history has gone long enough to suggest the broad outlines we should follow. It’s unfortunate that some want to blaze a new trail when we know where the correct path is.