America & China: Flipsides of Economic Desperation

America: Where Nobody Wants to Work (What, Me Get a Job?)

If there is an even better metaphor for subprime globalization's follies, I have yet to find them. So we are led to believe that the US and China are the world's largest economies. However, recent news paints both in a negative light in terms of being able to do something about their desperate situations.

Let us start with the US. Because of the Fourth of July holiday weekend, the jobs report which usually comes out on the first Friday of the month containing data on the prior month was released today. Lo and behold, the glorious Bushbama years have bombed America's labor situation back to 1977, with MarketWatch featuring Star Wars to reinforce this point as a 62.6% labor force participation rate has not been seen since October 1977. Such progress America has made ever since:

The last time there was such a small percentage of Americans in the work force, “Star Wars” was in the theaters and Reggie Jackson was breaking home-run records in the World Series. The labor force participation rate declined by 0.3 percentage point in June to 62.6%, the lowest rate since October 1977...

But the bigger story in participation, the drop from Clinton-era participation in the 67% range, is a combination of baby boomers hitting retirement (the bigger factor) and other people who have given up trying to get a job.

The resident working-age population, those between 18 and 64, is growing at a rate of about 0.5% per year, according to Census data. That’s down from 1% in 2007, and 1.5% in 1999. So even though today’s 65-plus segment is more likely to have a job than previously, the sheer numbers of those who are choosing to retire offset that impact.  

And, mind you, this happened during a month when there are typically several more labor force entrants:

The decline was made all the more surprising by the fact that June tends to be a month where the U.S. sees loads of people moving into the labor force — think teenagers snagging lifeguard gigs, recent college graduates scouring the internet for job postings and teachers taking up summer work.  That "just did not happen," said Karen Kosanovich, an economist at the Bureau of Labor Statistics in Washington.

In the last decade, an average 1.35 million workers have entered the labor force every June on a not seasonally adjusted basis. This year, the gain was 564,000. That translates into a decline for the seasonally adjusted data, since the monthly increase was much less than it usually is.

America, Where a Life of Leisure Awaits 62.6%. Betting that worse is yet to come is a no-brainer.

OTOH, things are no better in China. A few days back I featured a story on the Communist Party throwing the kitchen sink at the PRC's cratering stock markets to little positive effect. Using every monetary intervention on top of moral suasion and state media cheerleading has not had the desired effect of extending a state-engineered bull run. Having run it up against an endless stream of negative economic data, the Communists are unable to arrest its stunning fall as reality set in:

The benchmark stock index slumped 3.5 percent to 3,912.77 at the close. The gauge has tumbled 24 percent from its June 12 peak, helping wipe out at least $2.4 trillion of value. Fifteen stocks dropped for each one that rose Thursday, with industrial, power and commodity shares leading losses.

The drop below 4,000 is a blow to investors who had speculated authorities would intervene to support shares, a strategy employed near closely watched levels in the past. While China’s securities regulator eased margin-trading rules and the nation’s exchanges announced fee cuts overnight, the moves failed to revive confidence in a market that has wiped out the equivalent of France’s entire equity capitalization in three weeks.

“Four thousand is the psychologically critical level that should not have been broken,” said Castor Pang, head of research at Core Pacific Yamaichi in Hong Kong. “The government will have to and need to come up with more measures otherwise the market is poised to drop further.”

Let's be honest: Both economies are rather crap. One has a steadily "improving" unemployment rate because, well, so few people bother to actively seek work, reducing the labor pool significantly. With the Fed practically giving money away, the US has run out of monetary policy tools. Leisure time is all the time for an ever-growing number of Americans. Meanwhile, the Chinese rely on a state-engineered stock market frenzy to show the world all is well in China when things are quite awful.

Neither is fit to be emulated by developed or developing economies, IMHO. They are big, yes, but you know what they say about how big they are priming them for a harder fall. They are mirror images of imbalances that exemplify subprime globalization.