SOLAR INDUSTRY EMPLOYS MORE THAN COAL, OIL, AND GAS COMBINED

Although the potential workforce is declining, automation of various kinds is increasing so the forecast of productivity will increase.(see figure)  (but mysteriously decline a bit far into the future).*  I can't quite get my mind around this, but increasing productivity with a declining workforce is what we want, isn't it?  I mean thousands of jobs are just going to continue to disappear as various kinds of automation take over.

So far,consumption is very healthy, but what is going to happen as the increase of unpaid people rises dramatically?  What we are seeing is that the figure called GDP is growing obsolete.  Companies are not building new factories because relatively low-cost automation of existing factories results in great increases in productivity so the new factories are not needed.

(click on figure to enlarge)

How will people survive as jobs continue to disappear?  One proposal that is gaining strength is the guaranteed minimum income that will allow people to live a modest life.  Perhaps volunteerism will replace paid work?  But how to finance this.  Perhaps automation equipment  can be taxed as if they are people.  But this will be difficult to establish.  Will dishwashers and washing machines be taxed?  How about refrigerators and microwaves?

Assuming the above can be worked out, how high should the taxes be?  You don't want them to be so high that they discourage productivity increases.

Right now, the approach the current administration is pursuing is a modern day Luddism, i.e. keeping jobs around that aren't needed anymore.**  This sort of thing was done for many years by unions, e.g. requiring more employees on trains than were needed (maybe as many as 10).  Today many trains are operated by two people.  The first step by the present administration is to restore coal mining.  This is going out of our way to pollute the atmosphere.

But the solar industry today employees more than the coal, oil, and gas industries combined.***

Solar energy employed 374,000 people over the year 2015-2016, making up 43 per cent of the sector’s workforce, while the traditional fossil fuels combined employed 187,117, making up just 22 per cent of the workforce, according to the report.***

The rapid growth is mainly  in installers of solar equipment, a job that unemployed coal miners could probably learn plus some increases in jobs for project development.***

(click on figure to enlarge)

  I foresee a day when solar panels become common roofing materials.****
I hope as a country that we don't become modern day Luddites.

* http://www.cnbc.com/2017/03/31/cboinfourcharts-fahey-170330-dc-.html
** http://stopcontinentaldrift.blogspot.com/2016/12/modern-day-luddites.html
*** http://www.independent.co.uk/news/world/americas/us-solar-power-employs-more-people-more-oil-coal-gas-combined-donald-trump-green-energy-fossil-fuels-a7541971.html
https://www.theguardian.com/business/2016/jan/12/us-solar-industry-employees-grows-oil-gas
**** http://stopcontinentaldrift.blogspot.com/search?q=common+roofing+materials

WAGE GROWTH BEST IN 7 YRS (OCTOBER)

In spite of all the dismal talk about the economy and the anger among many voters, everything I can find is that things are looking up:

Wages rose more in October  [2.8%] than any time since the economic recovery began, a sign that the labor market is tightening and the Fed should be on course to raise interest rates in December.*

GDP. Inventories, Housing, and Unemployment also looking good.**

As I have written elsewhere, How Good Do Things Have To Get Before People Realize It.***

* http://www.cnbc.com/2016/11/04/best-wage-growth-in-7-years-pushes-the-fed-toward-a-december-rate-hike.html
** http://stopcontinentaldrift.blogspot.com/2016/10/gdp-inventories-housing-unemployment.html
*** http://stopcontinentaldrift.blogspot.com/2016/09/how-good-do-things-have-to-get-before.html

GDP, INVENTORIES, HOUSING, UNEMPLOYMENT ALL LOOKING GOOD

Everything seems to be go on the economy.  The GDP is up.*  For some time inventories have been the biggest drag on the economy (see figure in New Analysis of GDP),** but even inventories finally seem to be working off.*

GDP: “The bigger-than-expected 2.9% annualized gain in third-quarter GDP growth confirms that the economic recovery has regained some of the momentum lost within the last year. As such, this leaves the Fed firmly on track to raise interest rates in December and a hike at next week’s FOMC meeting isn’t entirely out of the question.” —Paul Ashworth, Capital Economics*

(Click on figure to enlarge)**

INVENTORIES: Inventories offered a tailwind for third-quarter growth, with change in private stockpiles contributing 0.61 percentage point to the quarter’s 2.9% growth rate. Inventories had been a drag on overall growth for the prior five quarters. An expected turnaround in inventories was one reason many economists have predicted stronger economic growth in the second half of the year.**


HOMEOWNERSHIP: The nation’s homeownership rate, which has dropped sharply for years, could be at a turning point. It hit 63.5% in the third quarter, the Census Bureau said Thursday. That is a significant jump from the prior quarter, when it hit 62.9%, the lowest point in 51 years.***

UNEMPLOYMENT CLAIMS: Initial claims for state unemployment benefits decreased 3,000 to a seasonally adjusted 258,000 for the week ended Oct. 22, the Labor Department said on Thursday.

That marked 86 straight weeks that claims have been below the 300,000 threshold, which is normally associated with a strong job market. That is the longest stretch since 1970, when the labor market was much smaller. This means that the number of claims per 100,000 people is the lowest ever.****
...............................................................
The claims report also showed the number of people still receiving benefits after an initial week of aid fell 15,000 to 2.04 million in the week ended Oct. 15, the lowest reading since June 2000.

The four-week average of the so-called continuing claims declined 6,250 to 2.05 million. That was the lowest level since July 2000. The continuing claims data covered the period of the household survey from which the unemployment rate is calculated.****

* http://stopcontinentaldrift.blogspot.com/2016/08/new-analysis-of-gdp.html
 http://blogs.wsj.com/economics/2016/10/28/economists-react-to-third-quarter-gdp-the-u-s-is-roughly-on-track/?mod=djemRTE_h
 http://www.cnbc.com/2016/10/28/us-advance-q3-gdp.html
** http://stopcontinentaldrift.blogspot.com/2016/08/new-analysis-of-gdp.html
 http://blogs.wsj.com/briefly/2016/10/28/third-quarter-u-s-gdp-at-a-glance/
*** http://blogs.wsj.com/economics/2016/10/27/after-hitting-a-51-year-low-the-homeownership-rates-on-the-rise/?mod=djemRTE_h
http://www.cnbc.com/2016/10/27/homeownership-crawls-back-up-from-50-year-low.html
**** http://www.cnbc.com/2016/10/27/us-weekly-jobless-claims-oct-22-2016.html

ECONOMY BETTER THAN GDP SUGGESTS.

When one hears about the GDP, the country seems to be barely limping along.  But all or nearly all other news seems to be optimistic.  Earlier this month, for example, I posted a piece on how a large number of CEO's are optimistic about the next year and another large group say they think it will be about the same.*  More recently I have seen another optimistic statement.**

U.S. consumers are also the healthiest they've been in 10 years, he noted, with rising wages, a declining unemployment rate and bank loans growing. *.
..............................................................
Meanwhile, JPMorgan Funds chief global strategist David Kelly thinks the U.S. stock market can still go up in the short run.  ......
 I think the U.S. economy is going to gradually overheat here."

What's this, rising wages, decreasing unemployment, bank loans going up?  Also the stock market is still going up?  Sounds optimistic to me.  Some even say we are entering an economic bubble.  There may be two problems however.  One is the large amount of inventories on hand, especially in the petroleum industry, and the other is a lack of fixed investment in the U.S.***  In spite of all the optimistic news, it seems like CEO's and their Boards are hesitant to invest in fixed investments (new plant and equipment).  I guess industry is able to feed the voracious consumers with existing fixed investments what with cheap labor overseas and automation at home.  If this remarkable economic recovery from a near-death economic recession isn't able to get industry to expand in the U.S., what will?  It is as if industry is on strike for lowering the corporate tax rate, even though few corporations pay the full rate.  Not very patriotic.

* http://stopcontinentaldrift.blogspot.com/2016/08/ceos-optimistic-about-next-year.html
** http://www.cnbc.com/2016/08/15/with-market-highs-heres-where-experts-are-putting-their-money.html
*** http://stopcontinentaldrift.blogspot.com/2016/08/new-analysis-of-gdp.html

NEW ANALYSIS OF GDP

The big drag on the GDP is companies working off inventory.  Most recessions are inventory recessions so we are lucky that consumers are making the GDP slightly positive,  Once inventories are worked off, GDP should improve?

(Click figure to enlarge)

http://www.cnbc.com/2016/07/29/us-gdp-numbers-first-quarter-growth-is-routinely-understated.html

GDP 2010-2015

I don't know about you, but I don't recall such good GDP numbers as shown in the GDP figures below; yet the Dept. Commerce has been pretty consistently saying so (see second figure below):

There were minor downward revisions to consumer spending, which accounts for more than two thirds of U.S. economic activity. Consumer spending rose at a 2.0 percent pace rather than the 2.2 percent rate reported last month.
Unusually mild weather hurt sales of winter apparel in December and undermined demand for heating through the quarter. But there are signs consumption picked up in January with the return to more normal winter temperatures.
With gasoline prices around $2 per gallon, a tightening labor market gradually lifting wages and house prices boosting household wealth, the fundamentals for consumer spending remain very strong.
Business spending on nonresidential structures contracted at a 6.6 percent rate rather than the 5.3 percent pace the government reported last month. Government spending contracted at a 0.1 percent rate instead of rising at a 0.7 percent rate.*

 (
 (Click on figures to enlarge))

* http://www.cnbc.com/2016/02/26/us-q4-2015-revised-gdp.html  (includes first figure)
Second figure reference:
 (http://blogs.wsj.com/economics/2015/04/29/another-year-another-weak-first-quarter-for-gdp-what-gives/?mod=djemRTE_h)

WHO WORKS THE MOST AND LEAST?

If you work 40hrs/wk for 52 weeks, you will have worked 2080 hrs for the year.  So who works the longest and who works the least in 38 major countries (China not included)?*

Who works the longest? Turns out it is Mexico (2,237 hrs/yr), South Korea (2,i63 hrs/yr), and, surprise, Greece (2.060hrs/yr).  A problem with Greece is that only about 52% of the labor force works.  In contrast 60.5% of the Mexican labor force works and 61.5% (rank 21 out of 38 major countries) of the South Koreans (rank 7).

Then who works the least?  Surprise.  In 38th and last place is Germany at 1,362 hrs/yr, followed by Norway at 1,408 hrs/yr and Netherlands at 1,421 hrs/yr. Germany has about 60.3% of the work force occupied (20th place), Norway at 71.2%(!) (3rd place), and Netherlands at 65.2%  (10th place).  Who beats Norway for work force participation - Sweden at 71.5% (1,607 hrs/yr), and at Number 1 Iceland at 81.4% (1,846 hrs/yr).

The hottest economies were Latvia, Chile and Turkey, all at 4.2% increase in GDP during 2013.  Not surprisingly, Greece had the worst economic performance with a 3.9% decline in GDP, followed by Italy at -1.7% and Portugal at -1.6% (because it is mentioned so much,Spain declined by 1.2%).

Well, where was the U.S. in this?  We ranked 16th in hours-worked/year (1,788 hrs/yr), 9th in GDP gain at 2.2%, and 13th in work force participation (63.2%).

* http://blogs.wsj.com/economics/2015/07/10/are-americans-working-less-than-the-rest-of-the-world/?mod=djemRTE_h

DEBT CEILING COMPROMISE: EFFECTS

There are two parts to the debt ceiling compromise: (1) is a decrease of about $900 billion in the Federal budget over the next 10 yrs.; (2) is an additional cut in the Federal Budget of $1.1 trillion over the next 10 yrs (I have seen the figure quoted as high a $1.5 trillion) to be decided upon by 12 congressmen over the next six months. In addition, Part 2 has a "poison pill" proviso in it that, if a Super Committee of 12 congress people cannot come to a recommendation of how the $1.1 trillion of cuts can be made, then there is an automatic decrease in the budget of $1.1 trillion with half coming from defense and half from discretionary spending. If the Super Committee can come up with a compromise, then it will be immediately voted on, without amendments, by congress. I can't see these 6 Republicans and 6 Democrats coming to a compromise so I presume that the "poison pill" proviso will occur.

Steven Rattner made an interesting discussion of this on Morning Joe on August 3rd (http://www.msnbc.msn.com/id/3036789//vp/44000516#44000516). Rattner shows a graph in which are shown the increase in the Federal budget before and after the Part 1 of the debt limit compromise. In 2020 he estimates that the Federal Budget would be 25.9% of GDP, whereas the increase in Federal revenues will be only 18.4% of the GDP. Part 1 of the debt limit compromise, however, will reduce the increase of the Federal budget to 24.4% of GDP, lowering the rate of increase in the Federal Budget so it is approximately parallel to the rate of increase of revenues, and thus shows an annual Federal Deficit to $1.5 trillion, presumably in perpetuity.

Rattner did not consider Part 2 of the debt limit compromise because it hasn't been enacted yet, but, if the poison pill is enacted, the projected deficit in the Federal deficit should be in a gradual decline as percent of GDP with a slow convergence to the Federal revenues.

As might be expected, "defense" hawks in congress object to the provision in the "poison pill" that 50% of the cuts come from the DoD and claim it will ruin our security. No doubt this is overstated as they only need to cut $55 billion from a continuous program from a budget in excess of $671 billion for 2012 to come to $550 billion over 10 yrs. The cuts from discretionary spending are a little more severe in a discretionary budget of about $500 billion in that they would have to cut $55 billion from continuous programs to arrive at the $550 billion, their contribution. There are Departments and Administrations with much larger budgets than this. For example the the Presidents proposed discretionary budget for the Department of Education Budget for 2012 is $77,400,391,000 which is reduced to $66,023,391,000 by a decrease in mandatory funding. Though there are those that propose shutting down the Department of Education, it is unlikely to occur. Some other departments with budgets above $55 billion/year are: Agriculture, Health & Human Services, Treasury, Office of Personal Management, and Social Security Administration. I don't suppose that any of these budgets would be totally or significantly reduced. For example in Agriculture, congress hasn't even been able to get themselves to eliminate the corn-based ethanol subsidy, even though the savings in carbon dioxide emission are marginal, and, if you cut down a forest to grow corn, you come out behind.* Not only is the corn based ethanol subsidy marginal in reducing carbon dioxide, but fields converted to corn from other crops help make these other crops more expensive.

Because Step 1 of the Debt Ceiling Compromise only slows the growth of the Federal Budget, I assume it will not push us into a recession,** but , if Step 2 is invoked, the Federal budget will begin to go negative and detract from our GDP (Gross Domestic Product) along with our negative Net Trade Balance. Both Government spending and the Net Trade Balance are in the equation to calculate the GDP. The net Trade Balance deficit right now is around $500 billion a year so would be $5 trillion dollars over 10 years (If the economy improves, it will be greater, and, if we go into a recession, it could be less.). Though it is only a guess, Step 2 might subtract an additional $2 trillion from the GDP over the 10 years. My reasoning is that if $900 billion decreases the rate of increase about in half, another $900 billion should flatten the rate of increase and allow another $200 billion (to make a total of 1.1 trillion) to start decreasing the Federal budget. As the consumer is pretty well tapped out, it will be left to industry to make up for the estimated $7 trillion from the negative Net Trade Balance plus the decrease in the Federal Budget and to push us into a positive GDP. There is no way we can have a positive Net Trade Balance because we refuse to face up to our addiction to foreign oil. Unfortunately, this addiction also leads us to fund our enemies to fight us. I have no idea if companies can more than make up for the negative estimated $7 trillion contribution to GDP from the Net Trade Balance plus the decrease in the Federal spending.

* Note added January 5, 2012. Toward the end of December of 2011, the subsidy was in fact repealed; however, the tariff and percent of gasoline that must be ethanol has not changed and in fact was increased from 10% to 15% by Obama (http://247wallst.com/2011/12/30/us-ethanol-subsidy-is-history-adm-vlo-peix-gpre-czz-rds-a/ & http://www.nytimes.com/2010/10/14/business/energy-environment/14ethanol.html).

**Actually, whether the $900 billion of Part 1 can put us into a recession is complex because the deductions are back loaded, i.e. they will be more in the out years than the near years over the 10 years. I don't know by how much the back loading is. If, say, $500 billion were to be taken out in any one year, it could push us into a recession, but the back loading is probably not that severe. The same applies to Part 2, but is more serious as the Federal budget actually is reduced.

WHAT ARE THE CONSEQUENCES OF FEDERAL BUDGET DECREASES

A key metric in how well our (U.S.) economy is doing is GDP (Gross Domestic Product). The formula for GDP is:

GDP = C + I + G + Net Exports , where C is consumption, I is investment, G is government spending, and Net Exports is total exports - total imports.

To get a positive GDP, Net Exports has always been negative since 1977 because of our insistence on importing so much oil so C+I+G must increase to make up for the Net Exports. The sum of these three almost always will more than make up for the negative Net Exports although the trade deficit can be significant ($695.9 billion in 2007*). Now there is a move to try to eliminate or at least reduce Government deficits or reduce G (i.e. government spending in the formula). Therefore, C+I must increase more than the reduction in G plus a negative Net Exports in order to achieve a positive GDP. The bigger the reduction in G, the more difficult it will be for C+I to turn GDP positive.

Recently congress passed and the president signed a bill to cut the 2011 Federal budget by $38.5 billion in the last five months of the fiscal year.** If all these budget cuts were to occur this fiscal year as many wanted, to have a positive GDP over this period means that C and I must increase by more than $38.5 billion during these five months. I confess I have no idea how easy it would be for C+I to do this; however, consumption under the present depressed economic environment, where median household income is declining, is unlikely to increase much. So it falls mainly on investment to increase by most of the $38.5 billion.

It turns out, however, that only about $385 million of the $38.5 billion will occur in Fiscal Year 2011, and I would expect the economy to easily handle that. But the rest of the cuts are real though they will occur in future years and spreading them out like that should make them easier to handle especially if the economy continues to recover from the Great Recession.

There will be attempts to make even larger cuts in the Federal budget in future years so the impacts on GDP will be larger if they are instituted. Actually, the best time to cut the Federal budget significantly is during a rapidly rising economy when both C and I are rapidly increasing and not, as now, during a slow recovery from a Great Recession. Yes, declining G will lower the GDP by some amount during a rapidly expanding economy depending on the size of the Federal budget reduction and on how fast C+I are increasing.

I suspect that most people who want large budget cuts NOW (including nearly all "tea partiers" it would seem), do not understand the equation for GDP. There are those, however, that do (e.g. John Mauldin). With them, they feel that cutting the Federal budget will give a morale boost and help the economy. More specifically the expectation is that Federal borrowing drives out private sector borrowing because there is only so much money. This claim is faulty, however, in that no one forces industry to buy Treasury bonds, notes or bills. If they are doing it, it is because the don't know of anything better to do with the money and want to park it somewhere safe. In addition, the wealthy do not invest much of their money on productive things in America but put a lot of it voluntarily into government bonds (not all American Treasuries) and "... goes to things that may benefit the global economy but have no or little benefit to the U.S. - such as purchasing chalets in Switzerland, Canadian bombardier personal jets, islands in the Bahamas, and the like.*** As the amount of Treasuries are reduced, the wealthy will probably still buy them in their usual amounts because they want to put most of their money into safe securities rather than taking on more risk, though this may drive up the price of the bonds.

The point is that if reductions in the Federal budget are instituted too rapidly, investment and consumption may not be able to keep up and therefore plunge our GDP into negative numbers, thus creating a recession or worse. Our best hope is that the current economic recovery continues and even accelerates which would even make the size of the Federal budget reductions more manageable. After all, Federal revenues are the lowest they have been in 60 years.

* http://en.wikipedia.org/wiki/Economy_of_the_United_States

** http://stopcontinentaldrift.blogspot.com/2011/04/385-billion-is-lot-of-money.html

*** http://stopcontinentaldrift.blogspot.com/2010/05/effectiveness-of-taxes.html