What are the country's employment prospects for the rest of the year? When you pick two economists, don't be surprised if you get three answers. That's what you'll hear this week as Mark Hamrick asks a pair of economists if they think hiring will stall in the second half of the year.
- Nayantara Hensel, of National Defense University, worries about the effects of federal furloughs and cutbacks on overall employment.
- Scott Anderson, of Bank of the West, says we're not in danger of becoming a nation of part-timers.
- Both think there's a chance for growth in retail, restaurants and hotels.
- Meanwhile, Bankrate's Doug Whiteman notes that this summer's blockbusters feature noisy explosions on screen, but all you hear is crickets in the box office. What does it mean for moviegoers?
Job market at stall speed or taking off?
Hear opposing views on whether the economy picks up through year-end. Bankrate's Doug Whiteman weighs on a summer of flops for Hollywood.
LISTEN TO AUDIO
Mark Hamrick: From Bankrate.com, this is your money this week. I am Mark Hamrick reporting from Washington. President Harry Truman once said, "It's a recession when your neighbor loses his job, it's a depression when you lose your own." Although the recession in the U.S. has been officially over for seven years, millions of Americans remain out of work. What are the prospects for the job market and for U.S. growth? This week we hear opposing views from experts on the outlook through year end. Both make compelling cases. And in our second segment, we dive into the question of the quality of jobs creation in our country. And Bankrate's Doug Whiteman weighs in on a summer of expenses flops for Hollywood. All of that, and more, on Your Money This Week.
In our first segment the case for concern about the outlook for the U.S. economy. Nayantara Hensel is a professor of industry and business at National Defense University in Washington. She is also the survey chair of the National Association for Business Economics, which means she is in touch with many of the nation's best minds on the subject of the economy. I asked her whether the economy is picking up momentum or whether we are at risk of stalling.
Nayantara Hensel: I think, Mark, we are at the risk of stalling. You know, the unemployment rate last month was unchanged at 7.6 percent and I suspect that in fact, we may be around 7.5 percent in the next announcement. I think that we are going to see some stalling in job growth, partially because of the impact of defense spending on the economy and the continuing need to continue to cut back. We are experiencing significant furloughing and sequestration cuts between July and Sept. 30, which is leading to some cutbacks. There is also a lot of cuts in the cases of operations and maintenance, evaluating deployments, things like that. So I think we would see that on that front. I also think that with the downside that we have seen in retail sales over the month of June, we are likely to see more cutbacks in the retail sales area and also with the slow earnings in some of the major companies, probably some slowdown in the manufacturing areas.
Mark Hamrick: So as you know Dr. Hensel, leading up to this period, there has been a lot of, sort of anticipation about what will the true impact of these mandatory federal budget cuts be. And because maybe the impact has not been as significant as some had feared immediately, I think some people might be thinking that, "Well, maybe there will not be an impact." But what you are saying, really, is that these have been, in some ways, back-end loaded and now we are really beginning to see the impact of this come to bear, correct?
Nayantara Hensel: Absolutely, Mark. I do think that we are going to see even slower real (gross domestic prodect) growth in the third and fourth quarters of this year. And we saw how the most recent third revisions of the first quarter real GDP was at 1.8 percent. I suspect that for the second quarter, it will be 1.5 percent. And in the first quarter of this year, real federal government spending decreased by by 8.7 percent and the actual defense spending decreased 12 percent and there was actually, in the fourth quarter of last year, a 22.1 percent decline in that. So I think that is a trend that is going to continue.
Mark Hamrick: And so you said you are looking for second-quarter growth of about 1.5 percent. What is your outlook on through the end of the year for that?
Nayantara Hensel: Through the end of the year, I would expect it to stay somewhere around the 1.5 percent range in the third and fourth quarters. Perhaps perking up a little bit in the fourth quarter of this year with the holidays.
Mark Hamrick: Yeah, and one of the things that we try to do here at Bankrate, is to, let us say, distill some of this information into actual information for investors, consumers and savers. And one of the key areas, of course, we have been monitoring forever is where, let's say market-based interest rates are. If the economy is really sputtering, do you see interest rates remaining steady or perhaps even heading lower in the market place?
Nayantara Hensel: Well, I think that what we are starting to see is a tendency on the part … a lot of concern on the part of investors that potentially (Federal Reserve) Chairman (Ben) Bernanke is going to be tapering off $85 billion bond program in the fall. And those concerns, already, are making us see an increase in the mortgage rates and as a result, I see that it is no accident, but we are seeing dips in the sales of existing homes. And also, even the falls in housing starts. I think that right now we are continuing to see growth in the (Standard & Poor's 500 index), we have not yet seen a collapse in that, but I think that should it, in fact, come to pass that Bernanke's plans are tapered off, I think it likely that we are going to see more of a collapse in the S&P 500 market.
Mark Hamrick: So, as you indicated, the market has been trying to anticipate the possible tapering of asset purchases that the Fed has been engaged in since last September. At the same time, Mr. Bernanke and some of his colleagues have said well we haven't really made our minds up on that. And having said all of that, the expectation is that the Fed does begin to taper in September. Is that your expectation as well?
Nayantara Hensel: I am not so sure that they actually will taper it off in September because I think that, really, what is impacting the economy, what will continue to impact the economy, is the expectation that in the coming months, in the fall, and perhaps into the early portion of next year, we are going to see some tapering off. But I am not entirely sure that that is going to happen because so much of that decision is dependent on seeing sustained, positive, metrics in economic growth. And while we have some positive metrics in economic growth, it is unclear whether or not they are going to be continuing in that direction. Whether they are going to be continuing to be strong. I think that we may see some slowing down in the housing market, which was a bright spot during this year.
Mark Hamrick: So, let's just say that the consensus is incorrect, that the Fed does not begin tapering in September. Does the market place have to adjust and would that bring the market-based interest rates back down a little bit?
Nayantara Hensel: I think that they might adjust and they might bring the interest rates down, just a little bit. It's possible.
Mark Hamrick: So, we are also watching economies around the world sputter, Dr. Hensel. And the U.S. is reliant on those economies. How do you see that dynamic shaping up?
Nayantara Hensel: Well I think that the trade data is going to continue to reflect a global slump. We have already seen a downgrade of the credit rating for France and for Italy, and we are seeing a slowdown in growth for China. So I think we are going to see that hitting trade next, and I think it is also going to be hitting a lot of the manufacturing firms that often times export materials and products overseas. Because that is going to continue to drop off.
Mark Hamrick: And so we have at least the federal government sector is not going to be a tremendous contributor to the U.S. economy. We have a global demand being a question mark, so where are there any bright spots in the economic outlook?
Nayantara Hensel: Well, I think that the only bright spots really lie in hopefully some improvement, in the coming months, in retail sales. There is a lot of pent-up demand for certain types of products still out there. And if so far, that occurs, then it is like we will have some hiring in that sector. Also, I think that some of the leisure and hospitality areas here in the summer, are likely to have continued growth in the sense of restaurants or hotels. And that may be a bright spot as well.
Mark Hamrick: You know, we had seen such ratcheting back in employment during the financial crisis, and in several years after that. Do you feel like in some ways, the private sector is at, kind of a nominal position right now, where it is almost corollary to the old notion just-in-time manufacturing, where things are sort of tuned so tightly, that if there is a modest drop-off in the economy, employers have to adjust, and if there is a modest pickup, employers have to adjust there as well?
Nayantara Hensel: Absolutely. And I think that that is why we haven't seen such substantive employment hiring recently. Because companies have been sort of unsure of which way to go. And so they have been trying to fine-tune whether or not they are going to reduce their products' production, or they are going to increase them.
Mark Hamrick: Well Dr. Hensel, it is always an enlightening experience to be able to chat with you and we really appreciate your time. Thanks so much.
Nayantara Hensel: No, well it is a pleasure. Thank you for asking.
Mark Hamrick: Nayantara Hensel, professor of business and industry at National Defense University in Washington. Next, what might be a more optimistic view on the outlook. We begin with a look into the controversy whether the recent jobs creation in the U.S. has been dominated by part-time work. Scott Anderson, chief economist with Bank of the West, is our guest. I noted in our conversation that he has been fielding a lot of questions about the composition of the U.S. workforce. And whether the hiring of part-time workers has come at the expense of full-time workers. Scott Anderson, chief economist for Bank of the West, he spoke with us from his office in San Francisco.
Scott Anderson: Yeah, that's right. You know people are not as worried about job growth, they are more worried about the quality of job growth. I guess that is a sign of progress. But, yeah, so I took a closer look at the (Bureau of Labor Statistics) data, household survey data going back since the start of the expansion, tried to see if we could reach some conclusions about this very valid question. I found little evidence in the data to support the claim that the quality of job growth is in steep decline or the majority of jobs being created in this expansion are part-time jobs. So I do not think we are becoming a part-time nation. Yes, we have created a lot of part-time jobs in recent months. Since March we have created about 617,000 part-time jobs. But that is not unusual.
We have seen periods in the recent past, between March and May of 2012, for example, the U.S. economy created over 1 million part-time jobs. And usually what we find is that as part-time employment increases, three or four months later we see full-time jobs accelerating. So, I went and looked at part-time employment as a share of total employment to see if the composition or structure of the labor market is changing at all. And really it has been very stable. Part-time employment right now is a little over 28 million jobs. That is about 19.5 percent of total U.S. jobs, and that is about the average since 2009. So there is no real evidence we are looking at a longer time frame that the labor market is a lot different today than it was just a few years ago.
Mark Hamrick: So a couple other questions then seem to arise from that. One is, are these people underemployed? In other words, are the part-time workers suffering because in a sense, they wish they were enjoying full-time employment? And then secondly, how are the wages associated with these part time jobs?
Scott Anderson: Well there is an elevated level of part-time employment for economic reasons, so that remains elevated. We are still looking at about 7 (million) or 8 million people that are part-time employees that would like would to work full time. So that higher than it was before the recession, and before it was about 4 million, before the Great Recession hit. So that is still elevated. So yeah, there are some people that are suffering that are forced to take part-time jobs and that does affect benefits and wages in some cases. So I am not saying there is not any impact here, but the point I am trying to make is that we are in a lackluster jobs recovery. But the jobs recovery seems to be improving over time and I do think the part-time employment will lead to full-time jobs down the road.
Mark Hamrick: Now, some particular detractors of Obamacare have said that perhaps one of the reasons that we are seeing a significant number of part-time jobs is because of the definition of full-time workers being as those who work 30 hours or more a week. Do you buy into that argument at all?
Scott Anderson: You know, it is possible. We just don't have enough data to conclude that at this point. Like I said, we have seen other periods in 2010 and 2012 where we created over 1 million part-time jobs when we had very little full-time employment growth. So just the last few months of data does not really settle the question. As a share, the economy part-time employment isn't really on the rise, it is stable. And that suggests that Obamacare has not really changed things all that much.
Mark Hamrick: Now my sense is that you have been more cautious than some about near-term growth prospects for the U.S. economy, and yet in the recent past, maybe more, people have come around to, what I would suggest, as your way of thinking. Would you say that is fair?
Scott Anderson: Yeah I think so. Since January we've been expecting a very slow start to the year and that seems to have come to pass. In fact, second-quarter GDP looks like it is going to be below 1 percent. My current estimate is 0.9 percent. So first-half growth is about 1.4 percent on GDP. That is certainly a slow figure. The bright side here is that employment growth has held up fairly well. So even though the GDP members do not look all that hot, job growth has been trending at over 200,000 jobs a month and that suggests if the economy and GDP growth does accelerate as we suspect it will in the second half, year job growth could pick up as well.
Mark Hamrick: So, we like to try to give people some, let us say, actionable information about what is happening in the economy, whether that is as a would-be job-seeker, investors, savers, consumers. Let us talk about that job market a little bit. If indeed you see, if only perhaps moderate job growth or perhaps even an acceleration in the months ahead, where are the sectors where people may be benefiting there?
Scott Anderson: Well, one of the areas where we have seen a lot of weakness recently is in goods producing industries. So manufacturing has slowed down since last year's pace. But that is starting to reaccelerate, so we think we will see some better manufacturing numbers going forward. But the majority of the jobs being created today are still in the service sectors. Education and health care, leisure and hospitality, have been big drivers. These are not glamorous jobs, they tend not to be higher-paying jobs. We are seeing a lot of jobs being created in food service, in eating establishments, for example. But that's where the job growth is coming from is when you remain a very service-oriented labor market.
Mark Hamrick: Now as we speak, the stock market's major averages are at record highs. We have seen interest rates bouncing around quite a bit, up off the lows and back down a little bit again. What is your outlook, first of all, for, let's say the equities market, is it time for a pullback? And secondly, do you think interest rates are headed much higher from here in the market place?
Scott Anderson: Well, I think stocks are fairly valued at these levels. If your P ratios are not all aligned with the historical average that does not mean you cannot get a 5 (percent) or 10 percent pullback in the stock market. I do think interest rates are moving higher. Bond yields are already up about a 100 basis points from where they were a year ago and just a few months ago. So we have already seen some movement in the higher rates.
A lot of that is due to the Fed's announcement that they are going to start tapering, perhaps in September. But beyond that, I think we are seeing rising rates because of a stronger economic outlook. And perhaps even a stabilizing inflation environment. One thing I am keeping an eye on is oil prices and gasoline prices. They have not moved up over … gasoline prices futures are up over 11 percent over the past month, so that could lead to somewhat higher inflation. But that is another reason for the Fed to start tapering their asset purchases.
Mark Hamrick: And that gets a little complicated because obviously as consumers or drivers, that we are not necessarily happy to see gasoline prices moving up. But the Federal Reserve has been concerned that the level of price increases or inflation in the economy has actually been under its target, thinking perhaps that underscores weaker growth. Correct?
Scott Anderson: That's right. Yeah the inflation level has been uncomfortably low, close to 1 percent, the lower end of the Fed's target zone. So they really want to get it closer to that 2 percent target, or threshold. And it seems like we are going to move in that direction over the next few months.
Mark Hamrick: So Scott, you know, it's one thing for people like the two of us, journalists and economists, who converse like this. It is another, let us say if you go to a cocktail party and people are asking you, "What am I missing?" If you are in the situation about, "What am I missing about the economy; what am I missing about the markets?" What would you tell them?
Scott Anderson: Well, we are making progress under the surface. A lot of people see that high unemployment level and say that we are not getting anywhere in this economic recovery. But when I look at the household and average consumer, we are making progress. Rising stock and home prices certainly has helped tremendously. But we are also seeing lower debt service burdens. So there are more households out there that are able to borrow and spend more. And we are seeing that in car sales and even in home sales. So we're getting further away from the financial shock of the Great Recession. We are getting closer to a self-sustaining economic expansion.
Mark Hamrick: So is that another way of saying that perhaps people need to get out of their crisis mentality a little bit and try to adapt to a normal economic environment in the future?
Scott Anderson: Yeah, I think that is starting to happen. When I talk to CEOs and CFOs and other business owners, they are really looking past this quarter of slow GDP growth and they are looking at the future, and they like what they see. So a lot of them have continued to hire throughout this temporary slowdown here. And that is a good sign for the economy longer term.
Mark Hamrick: Well that is a positive point to end up on. Scott, thanks so much. It's great to speak with you.
Scott Anderson: Thanks, Mark.
Mark Hamrick: Scott Anderson, chief economist for Bank of the West. He spoke with us from his office in San Francisco. High drama for Hollywood, only this is a real-life plot twist. Tied to the boom or bust business cycle of the motion picture industry. The dog days of summer describes the fallen hopes of Hollywood's would-be blockbusters. Next up, we hear from Bankrate's own Doug Whiteman.
Doug Whiteman: This summer at the movies has been marked by lots of explosions on the screen and implosions at the box office. Megabudget action movies, which tend to star things blowing up more than actors, have not gotten much buck for their bang. "R.I.P.D." got r-i-p-p-e-d apart by critics and was shunned by audiences in its opening weekend. "White House Down" flopped and so did "Pacific Rim" and "After Earth." "The Lone Ranger" did not have much hi-oh. The numbers might not seem as awful as they really are. For example, "White House Down" earned an estimated $24.8 million domestically during its opening weekend in late June, more than the $19.5 million that last year's Best Picture Oscar-winner "Argo" made during its debut weekend. But according to the website Box Office Mojo, Argo had a production budget of $44.5 million, versus the estimated $150 million that it took to make "White House Down." After four weeks, the executive mansion-invasion flick starring Channing Tatum and Jamie Foxx, has made just $68.5 million. Not even half its cost. And these days movies have a short shelf life in theaters, because there are always more on the way. "R.I.P.D.," "The Lone Ranger," and other big movies in this summer's parade of duds, all had nine-figure budgets. So movie makers are gambling big and as they lose, we all could. Hollywood senior statesman Steven Spielberg and George Lucas warned earlier this summer that bombing blockbusters could bring a movie business meltdown that would result in fewer releases and higher ticket prices. For Your Money This Week, I'm Doug Whiteman.
Mark Hamrick: Finally, a look back at a moment in business history. It was on Aug. 2, 1922, that Alexander Graham Bell died. Who could have imagined that from his invention of the traditional landline telephone, that today's smartphone would have evolved? The Scottish-born inventor would be involved with the Bell Telephone Company, based in Boston, beginning in 1877. From it would spring, the American Telephone and Telegraph Co., better known as AT&T.
You've been listening to Your Money This Week. Our thanks to economists Nayantara Hensel and Scott Anderson. ITunes listeners, if you enjoyed this podcast, please rate and subscribe to our program. We are hoping you could help us to get the word out. For more on this and other personal finance issues, visit Bankrate.com. And you can follow us on Twitter @Bankrate. Our editor-in-chief is Julie Bandy, managing editor Katie Doyle, and thanks to producer Lucas Wysocki for his work in the studio. I'm Mark Hamrick. From all us here at Bankrate, here is hoping you have a great week.