Those unemployment numbers

It seems that everyone has focused on the low job creation part of the March employment numbers with a couple of nods to the fact that the labor force actually shrunk. To me, that is the bigger new — and the more interesting (worrisome?) trend. The actual size of the labor force continued to grow until the Great Recession and then flatten out.
Labor force - through 3-2013.png
But the labor force participation rate has not flatten but dropped down to 63.3%. It peaked in the boom years around the turn of the millennium at over 67%. But the decline in the labor force is not just a function of the Great Recession, but began around 2002 — admittedly accelerated by the downturn.
Labor force participation rate - through 3-2013.png
So, here is the question: are we seeing a reversal of the historic trend of a growing labor force due to greater participation?
Is a lower labor force participation rate the new normal? And what does that mean for economic growth?
And for our immigration policy?

February trade in intangibles

Partial offsetting this morning news on employment, there is an interesting story hidden in this morning’s release by BEA of the trade data for February. The headline story is the decline of the deficit to $42.96 billion — a $1.5 billion drop in the deficit over January (when the deficit rose) with exports growing by $1.6 billion and imports only up $0.1 billion. Economist surveyed by the Wall Street Journal expected an increase in the deficit to $45 billion). However there are three subtexts: oil, high tech and intangibles. The improvement in the overall deficit was due lower imports of petroleum products whereas imports of non-petroleum products and the trade deficit in non-petroleum products both increased. Counter to that narrative (“it’s all oil”) was the fact that the deficit in advanced technology products dropped dramatically due to a drop in imports. Our intangible surplus continued to increase ever so slightly by $77 million to $14.74 billion. Exports of business services rose while imports dropped and royalty receipts (exports) rose more than royalty payments (imports).
The dramatic story is the huge decline in our advanced technology deficit — dropping by over $2.1 billion. The decline was entirely due to a sharp decline in imports (as exports also fell). That drop was led by a $1.6 billion decline in information and communications technology (ICT) imports. But most other sectors also saw a decline in imports. This is the second month in a row where ICT imports have declined. The last monthly surplus in Advanced Technology Products was in June 2002 and the last sustained series of monthly surpluses were in the first half of 2001.
Intangibles trade-Feb13.png
Intangibles and goods-Feb13.png
Oil good intangibles-Feb13.png

Note: we define trade in intangibles as the sum of “royalties and license fees” and “other private services”. The BEA/Census Bureau definitions of those categories are as follows:


Royalties and License Fees – Transactions with foreign residents involving intangible assets and proprietary rights, such as the use of patents, techniques, processes, formulas, designs, know-how, trademarks, copyrights, franchises, and manufacturing rights. The term “royalties” generally refers to payments for the utilization of copyrights or trademarks, and the term “license fees” generally refers to payments for the use of patents or industrial processes.


Other Private Services – Transactions with affiliated foreigners, for which no identification by type is available, and of transactions with unaffiliated foreigners. (The term “affiliated” refers to a direct investment relationship, which exists when a U.S. person has ownership or control, directly or indirectly, of 10 percent or more of a foreign business enterprise’s voting securities or the equivalent, or when a foreign person has a similar interest in a U.S. enterprise.) Transactions with unaffiliated foreigners consist of education services; financial services (includes commissions and other transactions fees associated with the purchase and sale of securities and noninterest income of banks, and excludes investment income); insurance services; telecommunications services (includes transmission services and value-added services); and business, professional, and technical services. Included in the last group are advertising services; computer and data processing services; database and other information services; research, development, and testing services; management, consulting, and public relations services; legal services; construction, engineering, architectural, and mining services; industrial engineering services; installation, maintenance, and repair of equipment; and other services, including medical services and film and tape rentals.

Getting the headlines right on "services" index.

Kudos to the Wall Street Journal for getting the headlines right! Their Real Time Economics blog (“Vital Signs Chart: Slowing Nonmanufacturing Growth“) correctly states that the ISM Index is of non-manufacturing companies — not “services”. As I’ve noted before, the Index includes mining, agriculture, construction as well as services. ISM does not publish the breakdown by industry in their press release. But it could be that the slowdown is due in part to contractions in three industries: Mining; Health Care & Social Assistance; and Agriculture, Forestry, Fishing & Hunting. Slower growth in construction would also affect wholesale and retail trade. It would be interesting to be able to parse the data to see what is really happening in the “service” and “intangibles” sectors – as well as construction, mining and agriculture.
Too bad that TIME keeps getting it wrong (“U.S. Service Firms Grow More Slowly, Hiring Weakens”).

Small Business Friendliness Survey

Thumbtack.com and the Kauffman Foundation have released their 2013 survey of small business attitudes toward state and local government. While I am always a little skeptical of these types of surveys (for example, there is the curious and generally unexplainable finding that Washington DC jumped from a D+ in 2012 to a B in 2013), the overall finding is of interest:

“Small businesses are top-of-mind for lawmakers nationwide, but too often their needs are more a matter of conjecture rather than actual evidence,” says Sander Daniels, co-founder of Thumbtack.com. “Some 7,000 businesses owners across the country have told us that they care about a lot more than just taxes – for most businesses, simple licensing regulations and helpful training programs are even more important to their success.”
Some of the key findings include:
   Professional licensing requirements were 30 percent more important than taxes in determining a state’s overall business-friendliness, confirming the findings from last year’s study. Furthermore, this year’s research revealed that 40 percent of U.S. small businesses are subject to licensing regulations by multiple jurisdictions or levels of government.
   Utah was the top rated state, and Austin, TX was the top rated city. At the other end of the spectrum, Rhode Island and Newark, NJ were the lowest rated state and city.
   The ease of obtaining health insurance was an important factor for many businesses. One-third of small business owners rated obtaining and keeping health insurance as “Very Difficult,” versus only 6 percent who rated it “Very Easy.”
   Small businesses were relatively unconcerned with tax rates – more than half of small business owners felt they pay about the right share of taxes.

In other words, intangibles — positive relationship with local government, worker skills — were more important than taxes to small business success.
The part about training is of special interest. According to the survey, “Business owners’ awareness of relevant training and networking programs was a significant factor in determining how they rated a state’s friendliness, more important than whether they felt their share of taxes was fair.” What would be useful now is a follow up on the state and local government training and networking programs that the respondents found helpful.