How to thrive in an ever changing, increasingly complex economy.
In this episode you’ll learn:
- Why are Americans so pessimistic about the economy.
- What do the statistics say about the economic recovery and job growth.
- How the changing U.S. energy production mix is impacting employment.
- What are the trends in household income and wages.
- How a personal margin of safety can help us take control of our lives.
Is The Economy Doing That Poorly?
The polling organization Gallup in their most recent weekly poll on how Americans feel about the economy indicated 26% of Americans say current economic conditions are “excellent” or “good” and 30% say they are “poor.”
In addition, 37% of Americans say the economy is “getting better” and 57% say it is “getting worse.”
A Pessimistic Outlook
Americans have been pessimistic about the economy for most of the recovery. From 2008 through today, more Americans questioned in the poll considered current economic conditions poor and getting worse than those that considered it excellent / good and getting better.
The only period in which more Americans were positive than negative on the economy since the end of the Great Recession was for a few weeks in early 2015.
How do Americans determine the status of the economy? Most I suspect don’t look at statistics. Their frame of reference is their day-to-day experiences and what they see friends and family going through. Maybe they base it on what they hear a presidential candidate say or a report by the media. Or maybe it is just a feeling.
In a recent New York Times article, Sheryl Feltzer, who lives in suburban Columbus, Ohio, when asked about the economy said, “Everybody was fat in the ‘90s. Everyone had money. It’s not like that today. The grocery stores are full. The mall is full. You can say things look good. But I think we’re about to have a big crash.”
The Jobs Situation
What do the statistics say? Is the economy really doing that poorly?
The most recent U.S. employment report released by the Bureau of Labor Statistics listed the official unemployment rate at 4.9%, about where it was at the start of the recession in early 2008. It is down from its high of 10.0% in October 2009. The U.S. Census Bureau reports that full time, year-round workers increased by 2.4 million in 2015.
The lowest unemployment rate in recent decades was 4.4% in May 2007 and 3.8% in April 2000.
The unemployment rate measures the percent of the labor force who are actively looking for jobs. Citizens who are retired, in school, disabled, discouraged or not wanting to work for lifestyle reasons are not part of the labor force.
Unemployment rates are difficult to pin down given the many circumstances individuals are in and due to ongoing job turnover. The BLS recently reported that in July 2016 4.9 million Americans left their jobs (either voluntarily or involuntarily) while 5.2 million people started new jobs. That same month the BLS estimated 275,000 new jobs were created.
The employment separation rate as a percent of total employment was 3.4% in July. That means over the course of a year over a third of American leave their jobs.
Despite the challenges of compiling employment statistics, it is probably safe to surmise the national employment situation continues to slowly improve but it is not as good as it was at the economic peak in 2007.
The Plight of Coal Miners
In some areas of the economy the employment situation is worse. Take coal mining for example. In Kentucky the unemployment rate is 4.9%, similar to the national average, but the number of coal mining jobs has fallen to 6,500 from 18,000 in 2008.
In Wyoming, the biggest coal producing state in the U.S., accounting for 40% of production, the unemployment rate climbed from 3.8% in March 2015 to 5.7% as of July 2016. In the coal mining county of Campbell, Wyoming the unemployment rate was 7.5% in July, up from 3.8% a year earlier.
Ralph Kingan, mayor of Wright, Wyoming, recently said in the New York Times, “We ain’t feeling too much of all that economic growth that I heard was going on..It ain’t out in the West.”
In 2014, there were 75,000 coal mine workers down 18% from 92,000 workers in 2011 according to the Energy Information Agency (“EIA”). Coal mining jobs have been declining for decades from a high of 705,000 in 1923 to 178,000 in 1984 to a low of 71,000 in 2003 before China driven demand for coal boosted prices and led to a temporary hiring recovery.
Coal miners are upset about the job losses. Jenny Williams a community college teacher in Hazard, Kentucky, said in the New York Times, “When you’ve been on $70,000 a year in coal mines, and your life’s pulled out from under you, who else can you be mad at but the government?”
In that same article, the author Roger Cohen writes, “Kentuckians are clambering aboard the Trump train — and to heck with its destination. Obama is blamed for the collapse of coal, particularly in eastern Kentucky, and the ever more stringent standards of the Environmental Protection Agency. Beyond that, the blame is aimed at airy-fairy liberals more concerned about climate change — often contested or derided — than about Americans trying to make their house payments.”
The Changing Energy Mix
Ten years ago half of the U.S. energy production was from coal. In 2015 it was a third.
Environmental regulations had an impact, particularly in encouraging the development of solar and wind energy, but the biggest driver in reducing the reliance on coal is the abundance of natural gas and its plummeting prices as a result of the domestic oil and gas boom which is made possible by horizontal drilling technology and fracking.
Natural gas accounts for 33% of energy production up from 20% in 2006. Renewable energy production, which includes hydroelectric, wind and solar has grown from 9.5% of energy production to 13.5% today.
The shift to natural gas was market driven. Natural gas energy production became significantly more competitive relative to coal.
In 2008, the EIA estimated the cost of natural gas was $8 per million Btu of energy production versus $2 per million Btu for coal. In 2015, natural gas production costs fell to approximately $3 per million Btu while coal remained a little over $2 per million Btu.
Where The Jobs Are
The rising competitiveness of natural gas results in more demand for jobs in oil and gas extraction and less demand for coal miners.
In the year 2000,` there were 123,000 workers in the U.S. employed in oil and natural gas extraction. At the end of 2014, oil and natural gas workers peaked at 200,000. Today, there are 173,000 workers.
In other words, the number of coal mining jobs today are about the same as they were in 2000 but oil and natural gas jobs have increased 41%.
The bottom line is the U.S. economy continues to gradually improve, adding more jobs, but those jobs shift from one sector to the next. Employees need to be flexible and build their skills so they can get the newly created jobs.