GDP and News on the Job Front (November 2009)

Economic Revival Shown Less Robust
http://online.wsj.com/article/SB125906901646162279.html?mod=djemITP#articleTabs%3Darticle


A puzzle is how tax receipts can decline at such a greater rate than GDP? Some variance might make sense - some earned income is being replaced with unemployment benefits; yet, it appears profits are more robust than revenues (which would seem to suggest a lower GDP figure).

Another aspect of the article that was missing was an examination and consideration of the basic production equation (production = (cost of) labor + capital + raw materials).

Obviously, we know the cost of labor in the US is going up (with a direct cost and union risk factor that probably doubles it from what it is on average today). This is clearly anti-job-creation. (The estimated total cost of labor is probably running today at a factor of 3-4 times the gross pay of the worker.

As such the above production equation would suggest that the other inputs have to be adjusted - since the end product cost can't vary (much to the chagrin of the UAW and the other unions).

Also, since capital isn't captive to America, it is going to seek its highest return (beta and alpha/risk adjusted, etc.). In such a situation, we see that capital is either seeking a return commensurate with corporate profits or a risk-free return from government securities. (Government securities of course ignoring or questionably pricing in the inflation risk - except that people are apparently seeking shorter maturities and buying gold).

Based on the above and the policies of the government, the picture on the job front wouldn't appear to be particularly good for Americans looking for jobs.