The Federal Reserve Continues To Misinterpret The Economy: Part III

by: John M. Mason

I have recently been writing about the fact that the U.S. economy is in the process of restructuring. See my last two posts. Two articles in today's papers capture the essence of the structural problems I am talking about in the United States economy.

"Manufacturing's Mirage" appeared in the New York Times. The article quotes Joseph G. Carson, director of global economic research at Alliance Bernstein: "Even though the U.S. is more competitive globally, manufacturing doesn't give you the kind of direct job creation it did in years past. At the end of the day you still want a strong manufacturing base, but there aren't as many people on the factory floor."

The article goes on, "Indeed, while the sector has added 500,000 jobs since the recession ended and the value of what the nation's factories churn out is close to a high, there are nonetheless two million fewer manufacturing workers today than in 2007. Ever since the early 1960s, the share of jobs in manufacturing has been on a nearly uninterrupted downward slope, now accounting for less than 9 percent of all employment in the United States."

Furthermore, manufacturing output, in the United States is operating at less than 80 percent of capacity. And, capacity has been on a "nearly uninterrupted downward slope" since the early 1960s.

And, in the Financial Times: "Clerical Staff Bear Brunt of U.S. Jobs Crisis."

"The U.S. has gained 387,000 managers and lost almost two million clerical jobs since 2007, as new technologies replace office workers and plunge the American middle class deeper into crisis."

Susan Lund, co-author of a McKinsey Global Institute report on the future of the work is quoted as saying, "We see growth in jobs that require complex, personalized interactions and continued declines in routine transaction and production jobs that can be scripted and automated."

The article goes on to report that the salaries in many of the faster-growing jobs are lower than those they are replacing. This fact also contributes to the fact that "employers have the upper hand in every area of work." That is, the managers are in control of their hires and deployments. This was not necessarily the case in the 1980s and 1990s when there appeared to be labor shortages.

These articles report on some of the structural changes that have taken place in the United States and in the world. This is one of the reasons why under-employment is running so high. I estimate that one out of every five individuals that could participate in the work force is under-employed! This is one reason why labor force participation has returned to the levels it was at in the 1960s.

It is evidence like this that just re-enforces the argument that the Federal Reserve is very limited in what it can do to force economic growth to higher levels and to substantially reduce the unemployment rate. These reports point to MAJOR shifts that have to take place in the economy and the shifts are not about putting people back to work in the same jobs that they used to work in.

An extremely loose monetary policy is not going to re-capture the past … and Mr. Bernanke and the Federal Reserve seem to be fighting the last war.

And this opinion is starting to span the political spectrum.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.