The Liscio Line — Fear Factor by Danielle DiMartino Booth, The Liscio Report On The Economy Blog
I sure hoped that instruction manual was in the same Spanish I was trying to perfect. My life had already flashed before my eyes as the propeller plane was violently tossed to and fro in the furious thunderstorm on that thankfully fate-less flight to Isla Margarita from Caracas. It was 1995 and I was taking a weekend away from my summer internship with some Caraquenos, as I learned to call them. The teeny south Caribbean island, 25 miles from the Venezuelan mainland, was supposed to be a quick hop across the sky. Instead, the storm was so intense, it had knocked the pilot senseless. Back before cockpits were sealed tight, one could simply peer down the aisle straight into the cockpit. Doing just that for some reassurance, I was instead horrified to see our obviously less-than-capable captain reach under his seat for what appeared to be an instruction manual. Let’s just say there was no comfort knowing I was in the hands of someone who just happened to be reaching for Flying for Dummies. The moment rendered new meaning to the term, Fear Factor, or Factor Miedo for those of you Spanish speaking readers.
According to the jubilant stock market, the September jobs report packed just enough fear factor of its own to paralyze the Fed into further inaction. As Morgan Stanley’s Ted Wieseman sagely wrote, “The market more decisively priced out a December rate hike and started to ponder if asking when the Fed is going to raise rates is even the right question anymore.” I couldn’t have said it any better if I had tried. And that’s the problem.
My Caracan summer internship at Sivensa, a steel conglomerate, and the events unfolding in America’s labor force are actually linked at the hip. Back in 1995, the current commodities supercycle hadn’t even been born, at least according to the history books which peg the advent year at 2001. But Sivensa was already in the global hunt. In 1993, the pre-Chavez-era government privatized SIDOR, the then-state-controlled steel company. Sivensa was all too happy to play a leading role. Into this happy marriage, this summer intern stepped, tasked with comparing Sivensa’s business model, using my accounting skills (which were about to get severely stress tested) to that of a potential benchmarking partner in the U.S. steel industry. In three months.
It was clear overnight fluency was in the cards following a naïve attempt to get Microsoft Excel, the English version, that is. Instead I was forced to learn that “FILE” is “ARCHIVO” and got to work. The high point of my internship (in a good way, as opposed to that heart-stopping flight) was an excursion to Puerto Ordaz to see how the sausage was made, or in this case, how the hot steel was rolled. Sivensa was kind enough to put me up at the Hotel Intercontinental replete with air conditioning and cable TV. I spent the better part of that summer in a current affairs vacuum looking like I had smallpox as I was no match for the mosquitos that swarmed my Caracas boarding house room. Imagine my dismay at 24-hour OJ trial coverage the minute I found CNN.
Puerto Ordaz, founded in 1952 as an iron ore port and one of Venezuela’s fastest growing cities, is spectacularly situated at the intersection of the Caroni and Orinoco Rivers, the former the color of the darkest of night and the latter a light brown – who knew sediment could be so influential?
Though the hard-hatted plant tours were fascinating – Sivensa was on the cutting edge of producing hot briquetted steel, a premium form of direct reduced iron — the real marvel was the port itself, bustling with Asian tankers. That image, it turns out, is one for the ages. Back then, the developing world didn’t even contribute one-quarter of the world’s economic output; today it accounts for 40 percent of global gross domestic product. Narrow the focus to the now infamous BRICS – Brazil, Russia, India, China and South Africa; these resource-driven five countries at the forefront of the commodity supercycle accounted for 56 percent of developing countries’ GDP in 2014 and 22 percent of global GDP.
The recent reversal of fortunes for the BRICS was the main reason for trepidation on the Fed’s part when it last met. Now they have something much closer to home to ponder. As has been widely broadcast, September’s job creation was punk. But the real news was the downward revisions of the prior two months’ payrolls data. We still have another revision for August, and both revisions for September, so maybe the long-term trend of upward revisions to those two months will save the day.
A deeper delve into the recent trend in revisions proves more worrisome. Though it can’t be proved on a month by month basis, economists tend to associate a trend of upward revisions with an economy that’s gaining steam. As things currently stand on the payroll front, a string of positive revisions at the turn of the year has switched to a string of negatives. My Liscio partner, Philippa Dunne, long an expert in gleaning hidden nuances in labor market data, has never been one to be satisfied with superficial analysis. She notes that the final word on payrolls, the annual benchmark revision, although within the long-term average, took out jobs through March 2015, meaning the BLS’s models were too positive on the contribution of new business formation to the monthly job churn. And since young businesses are the engines of job growth, that’s not a good thing going forward.
To make matters worse are the less-than-lucrative types of jobs being churned out. The Liscio Report’s tallies find that the eat, drink and get sick sectors – health care, bars and restaurants – accounted for 47 percent of private job creation in September, two-and-a-half times their share of private employment. Mining and logging, which captures energy and the recent re-downdraft in oil prices, lost 12,000 positions (to think that last year at this time, the sector had been adding an average of 4,000 a month over the prior 12-month period). Meanwhile, manufacturing’s rolls fell by 9,000, the flipside of factory’s average gain of 9,000 over the last year.
Extrapolate this trend to encompass the rest of the world and you can imagine the bar at the Intercontinental in Puerto Ordaz just ain’t moving and shaking like it used to. For starters, the Chavez government did a number on the Puerto Ordaz private sector when he re-nationalized SIDOR, among others. (Actually, the hotel has been expropriated by the Venezuelan government as well. A recent visitor commented on Trip Advisor that though the food and beverages were reasonably priced, the waiters were much too serious.)
Perhaps the waiters used to be employed in a factory and have taken a seriously painful pay cut. The good but sad fact is they still have a job, albeit one increasingly at risk if jobs that rely on resource industries are being cut at a rate similar to that of the U.S. market At this time last year, jobs that support our own mining industry were seeing gains