February 2020 Volume 2

ECONOMIC UPDATE

Weaker Employer Demand For the last six months employers have been reducing the number of jobs that have been on offer. The last month saw the steepest decline in a year. The employers have been consistently posting more jobs than there have been people available to fill them and that led to a situation where there were close to two million more jobs on offer than there were people conceivably available to fill them. That gap is now starting to close. Analysis: The reasons for the narrowing of job offers are varied. Some employers are slowing down and simply don’t need the people anymore. Some employers gave up looking for people altogether as they have been unable to find the skills they need. They are now investing more in machinery and robotics. Some are choosing to outsource and some are actually moving to other nations. Some are asking their existing staffs to do more rather than to try to find reliable new employees. Whatever the reason this will likely affect the job growth numbers in the coming year. There will be lower monthly totals of new jobs and there is a higher likelihood of layoffs. Another reading to pay attention to will be the quit rate as delineated by the JOLTS report. If that starts to weaken it will suggest that people are not seeing as many jobs out there as they once did. Is "Capitalism" Really Under Fire It has become part of the political war being fought in the US and many other nations. Terms like “capitalism” and “socialism” are tossed around as if people had a clue what they really mean. The arguments over the future of the economy fuel vicious wars and both sides do their very best to demonize the other without understanding the terms and concepts they argue over. In simplest terms capitalism is defined this way – “an economic and political system in which a country's trade and industry are controlled by private owners for profit, rather than by the state.” Socialism is defined as “a political and economic theory of social organization which advocates that the means of production, distribution, and exchange should be owned or regulated by the state.” In truth there are no “pure” systems. The US has a fundamentally capitalistic system but there are plenty of state mandated rules and regulations that control how business is conducted. China has a fundamentally socialistic system with millions of businesses devoted to making a profit and only barely controlled by the state. Analysis: When one breaks down the criticism that has been leveled at the current US system it is evident that capitalism is not the target per se. Even the most ardent of the critics are not suggesting some kind of Soviet-style state economy. The vast majority of the complaints center on three major issues. These include the growing level of income inequality, concerns over the loss of jobs to robotics and outsourcing and finally worry over issues of climate change and environmental destruction.The reality is that all three of these issues are of concern in states that call themselves capitalist and socialist and everything in between.

Addressing these three issues will never be simple and all three will require multiple approaches and even with all that attention they will not go away. Income inequality requires attention be paid to education, taxation, family organization, compensation structure, motivation and a host of other issues.Themarch towards automation and robotics is inevitable and there is no question of stopping it. It is matter of how to react as a society. That means attention paid to social norms, education, mental health and so on. Climate change and the impact on the environment may be the most complex of all as there needs to be attention paid to reducing the impact of human activity on the environment at the same time that means are found to cope with the changes that have already taken place. What is not helpful is to play a useless game of labeling. Capitalism harnesses the desires we all have to improve our own lives through our own efforts. It is the freedom to follow our own path to the “pursuit of happiness.” Socialism is recognizing that we have to share and be aware of one another. It is setting boundaries and rules to prevent exploitation. These two tests each other’s limits every day and there will inevitably be periods when one approach or the other gets carried away and will need to be adjusted. It is never going to be an “either/or” proposition. Report from the Front – a Collection of Indices Every month Armada prepares an analysis of several indices that collectively describe the state of the economy for two manufacturing organizations – the Chemical Coaters Association International and the Industrial Heating Equipment Association. Both of these groups are oriented towards the metal industry – either chemically treating or heat treating. They are especially interested in sectors such as automotive, aerospace, appliance manufacturing and pretty much any other industry sector that deals with metal. That is a very useful cross section of the overall economy. What follows is the executive summary and select breakouts of the index analysis. There is a good bit of optimism regarding the 2020 economy – at least at first blush. As a “dismal scientist” I can’t leave well enough alone and have to mention that with the good news comes some worries about what to expect later in the year. We can start with the good news though. The unemployment rate is still very low and there have been several months of solid job growth. The expected growth rate for the year remains close to 2.0% and that is certainly respectable. It is not the 2.5% to 3.0% that was experienced most of the last couple of years and it is a far cry from the 4.0% to 5.0% that was thrown around at the start of the Trump years but compared to the anemic rates in Europe and developed Japan the numbers are solid. The concerns revolve around several familiar themes – a chronic labor shortage inmanufacturing, transportation, construction and even health care, worries about a return of recession in the US if the global slowdown manages to infect the US and the potential for an inflationary spike due to the reduction in output of key commodities. Then there is the chronic issue of debt and deficit. If one looks at the index readings collected this month it is a toss-up with six trending in a positive direction and six trending in a negative direction.

FIA MAGAZINE | FEBRUARY 2020 37