Friday, May 6, 2011

Obama's Jimmy Carter Moment? UPDATE

I was at Vons today, filling the cart for a BBQ tomorrow. I was strike by rising prices and especially the lack of specials on bread products and chips. I have already been annoyed by the rising price of beer over the last two years, so further financial pain over having some burgers and chips seemed just too much. Turns out I'm not the only one. The mother of C. Larry Pope, CEO of pork processor Smithfield, can't afford her bacon, according to the WSJ. Mr. Pope's expert view?
. . .politics indeed plays a large role, as Congress subsidizes favorite industries and the Federal Reserve pursues an expansive monetary policy.

Ours is a timely chat, given the burst of food inflation the world is living through. Mr. Pope is running a multibillion-dollar business in the midst of economic turmoil, and he has strong views about why prices are rising and what can be done about it.

Meanwhile the unemployment rate grew and more importantly, initial jobless claims jumped to 474,000 for last week. Now, I put little stock in the unemployment rate as an absolute number, because it excludes those who are not seeking work, because they gave up. However, an uptick in the number, plus more unemployment claims is not good news. Interestingly, nonfarm payrolls grew by 244,000, ahead of expectations. My theory is that people are re-entering the work force on the "news" about the recovery, and indeed a bit of a recovery is in progress. Unfortunately, it is being killed even as it gets underway by the pernicious evil of inflation. Previously long-term unemployed who start to look for work, because they are optimistic of finding it have the perverse effect of increasing the unemployment percentage until such time as they find work.

As for my trip to the store, this U.S. News story confirms that gasoline and food prices are both contributing to inflation, so its not my imagination. In fact, the headline refers to "stagflation," a 1970s term for those of us old enough to remember wherein unyieldingly high unemployment was combined with high inflation to produce ever higher scores on the so-called misery index. Which brings us to the current President's predicament. Jimmy Carter wasn't primarily defeated for re-election in 1980 because of the Iranian hostage crisis, although it surely didn't help. It became apparent that he had no good ideas for dealing with the twin crises of high unemployment and inflation. As a result, the American people were ready to turn to a man that the main stream media of the day had painted as an amicably dangerous right wing extremist, Ronald Reagan.

Who will fill Reagan's shoes in 2012, and tell the American people the hard truths they need to hear while still inspiring and believing in the great things of which we are capable? I believe the Fed has unleashed another round of inflation that will not cool by 2012. Further, unemployment is far worse than the official statistics concede. Labor force participation rates remained flat for the fourth straight month, that is not a sign of recovery. By all rights Obama will not be re-elected, unless the Republicans fail to find an inspiring candidate.

Hat tip to Sarah Bond who got me researching this topic by passing some of the relevant links.


Jennifer Rubin's take on why the divergence between unemployment and jobs created (H/T Hotair):

The economy added 244,000 jobs but the unemployment rate went up to 9 percent. Is this a political problem for President Obama — as the economy improves, more enter the workforce and the unemployment rate looks horrible?

It’s actually even worse than it looks. The unemployment rate went up because of a divergence of the surveys, not an increase in the number of people looking for jobs. In the household survey, which determines the unemployment rate, we lost 190,000 jobs in April, and only 15,000 new people entered the workforce. Hopefully, the two?????? surveys will both indicate robust job growth soon, but not this month.

There is certainly danger for the president in the number of discouraged workers who are not in the labor market. As they reenter, a rising unemployment rate will be a headline risk for the White House. But we have to start creating jobs on a robust consistent basis before that happens, and despite a good headline number today, we are still looking at a very mixed job market.

Not sure I fully understand her logic, but it is good to remember that both the unemployment numbers and the new jobs numbers are due to surveys, neither are "hard facts." My personal take is that businesses are growing and hiring is increasing, but that the economy is running into headwinds due to inflation. Stay tuned.

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