Newsletter: The U.S. Is Producing Lots of Jobs. Are They Good Jobs?

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Good morning. Jeff Sparshott here to take you through the latest on manufacturing, the Fed, taxes, trade and the rise of low-quality jobs. Please send us any questions or comments by responding to this email.

Drilling Down

Slowing shale-drilling activity is the latest damper on U.S. manufacturers, Austen Hufford and Bob Tita report.

• Advances in fracking and drilling transformed global energy markets over the past decade, raising U.S. oil-and-gas production to record levels. That has created big business for American factories. The oil-and-gas industry bought $48 billion worth of manufactured products in 2018, four times as much as was purchased in 2009.
• But the boon has left manufacturers more vulnerable to the energy industry’s next slump. Manufacturers have reported sales declines in recent weeks as lower energy prices prompted a slowdown in domestic production growth.
• The number of new wells in the U.S. hit a two-year low in October. The energy slowdown is adding strain on a manufacturing sector that is also contending with lower global trade and new tariff costs. Factory output is down 2.2% this year through October from a recent peak at the end of last year.

WHAT TO WATCH TODAY

U.S. housing starts for October are expected to rise to an annual rate of 1.30 million from 1.256 million a month earlier. (8:30 a.m. ET)

The New York Fed’s John Williams speaks at a Securities Industry and Financial Markets Association meeting at 9 a.m. ET.

The U.S. quarterly services survey for the third quarter is out at 10 a.m. ET. This report usually flies under the radar but it can affect GDP estimates.

Japan’s trade balance for October is out at 6:50 p.m. ET.

TOP STORIES

Oh to Be a Fly on the Wall

Federal Reserve Chairman Jerome Powell met with President Trump at the White House on Monday to discuss an economy hindered by faltering global growth prospects, Nick Timiraos reports.

• Mr. Trump has repeatedly offered a low opinion of the job Mr. Powell is doing, calling him a “terrible communicator” and an enemy of the state. The president on Monday initially tweeted the meeting was “very good and cordial.”
• The central bank said Mr. Powell “didn’t discuss his expectations for monetary policy, except to stress that the path of policy will depend entirely on incoming information that bears on the outlook for the economy.”

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Money for Nothing

There’s about $1.1 trillion in revenue on the table, ripe for collection over a decade—if the U.S. commits to tougher enforcement of tax laws, according to a new estimate from University of Pennsylvania law professor Natasha Sarin and former Treasury Secretary Lawrence Summers.

• Reversing declines in staffing and audits at the Internal Revenue Service and adding better technology could help shrink the tax gap. That’s the difference between taxes owed and taxes paid, which the government recently estimated at $381 billion annually for 2011 through 2013.
• Ms. Sarin and Mr. Summers offer an estimate that’s about half of the $2.3 trillion that Sen. Elizabeth Warren, a Democratic presidential candidate, suggests is possible. But their $1.1 trillion is also far beyond official estimates, partly because it considers the potential deterrent effects of tax enforcement and relies on focusing resources on high-income individuals.
• “Restoring the IRS’ budget to previous levels is likely to pay for itself many times over,” they write.

—Richard Rubin

W.T.Oh.

Global flows of goods across borders are on course to grow at the weakest pace since the financial crisis. The World Trade Organization’s Goods Trade Barometer recorded signs of a pickup in export orders, container shipping and automobile shipments, offset by weakness in airfreight, and shipments of raw materials and electronic components. The end result: International trade is likely to end the year having risen at the slowest pace since 2009. Trade flows have been weakened by a number of developments, including the U.S.-China trade war and a slowdown in the global automobile industry, Paul Hannon reports.

I Thought We Had a Truce

Federal agencies have failed to adequately respond to the threat of Chinese government-funded programs that systematically exploit U.S. research to strengthen China’s own economy and military, a new Senate report concludes. With what are known as “talent programs,” the Chinese government provides compensation and resources to researchers who at times illicitly transfer intellectual property to China, in some cases setting up shadow labs overseas mirroring their U.S. research, Kate O’Keeffe and Aruna Viswanatha report.

Where Have All the Good Jobs Gone?

U.S. manufacturing employment for rank-and-file workers is down about 30% since 1990. That’s not a big deal if workers can transition to jobs with similar—or even better—pay and benefits. Has that happened? “The answer is that lost manufacturing jobs were chiefly replaced by lower-wage/lower hours service jobs,” Cornell University’s Daniel Alpert and co-authors write in a new study.

What happened? Foreign competition. “What made manufacturing unique was not technological job loss, but the massive loss of market share, revenue, and jobs to foreign manufacturers.”

The result: The economy is creating lots of jobs, but they aren’t all great. Mr. Alpert and his colleagues created a job-quality index to track the decline of higher-wage and higher-hour jobs and their replacement with lower-wage and lower-hour work. Production and nonsupervisory jobs are classified as low quality if their weekly income falls below the mean for all such jobs. The index shows that just over half of new jobs were low quality in 1990. Now more than 60% are. The measure suggests there is significant untapped potential in the labor force.

WHAT ELSE WE’RE READING

If the U.S. and China maintain their truce, the trade war’s drag on economic growth should abate by the end of next year. “First, the total cumulative hit to the level of GDP is moderately larger for China (0.7-0.8%) than for the U.S. (0.5-0.6%), consistent with our previous findings using our global macro model and our country-specific estimates. Second, the composition of this drag differs, with the [financial conditions index] tightening effect standing out in the U.S. while the net trade effect is negative and significant for China. Third, barring another round of major escalation, we expect the negative effect of the trade war on both U.S. and China real GDP growth to gradually fade in 2020,” Goldman Sachs economists write in a research note.

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