Oil Speculation Undercuts March Job Creation

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The pace of job creation in the United States cooled in March, yielding a net gain of about 20,000 jobs as the fragile economic recovery was headed by surging oil and gasoline prices.
 
Overall job creation was officially reported at 120,000, but the U.S. economy must create a minimum of 100,000 new jobs each month just to keep pace with population growth. Hence, the net gain of 20,000.
 
Economists had expected an overall gain of 205,000 jobs in March, according to a Bloomberg News survey, which would have translated into a net gain of about 105,000 for the non-farm payrolls report released April 6.

“Today’s jobs report disappointed expectations,” said Chad Stone, chief economist of the Center on Budget and Policiy Priorities. “The unemployment rate dipped to 8.2%, but that decline reflected people leaving the labor force, not finding jobs. The combination of high unemployment and depressed labor force participation leaves the share of Americans with a job at levels last seen in the mid-1980s.”

Non-farm payrolls, which serve as the benchmark for job creation, added 240,000 jobs in February and 275,000 in January, giving the country a net gain of 335,000 jobs during the first quarter. At that rate, it will take the U.S. labor market about 72 months to recover from the 8 million jobs that were destroyed during the failed presidency of George W. Bush and the 18-month recession it spawned, which ended in June 2009.

The employment-to-population ratio – the measure of job creation least susceptible to political manipulation – ticked down to 58.5% in March from 58.6% in February. That compares with a rate of 62.5% posted in March 2002.

“It is obviously disappointing,” Cliff Waldman, a senior economist at the Manufacturers Alliance for Productivity and Innovation, told The New York Times. “This provides some pretty good evidence that part of the strength of the prior two months was probably seasonal.”

The official unemployment rate, a measure of short-term job churn, appeared to improve as it dipped to 8.2% in March from 8.3% the prior month. However, the false gain actually reflects a drop in the number of people in the U.S. labor force as discouraged workers exhausted their benefits and abandoned their job searches.

The civilian labor force posted a one-month decline of 164,000 in March as it fell to 154.7 million, according to the U.S. Bureau of Labor Statistics.

“The unemployment rate looked better on the surface (but) the dirt is always in the details,” said Diane Swonk, chief economist at Mesirow Financial. “The labor force actually contracted, which suggests that the number of retirees and those afraid they can’t get jobs both increased. About half of the reduction in the labor force participation rate appears to be due to demographics and the aging of baby boomers; the rest is cyclical and much more disturbing in nature.

“Moreover, the number of those who were unemployed more than six months remained stubbornly high at 5.3 million, which is putting additional strains on families that are now being forced to support them,” said Swonk, whose father was an autoworker. “Worse yet, those effects are beginning to accumulate; workers who suffer mass layoffs tend to accept new jobs at lower pay with less job security; their children typically attain a lower level of education, and the stress associated with job loss manifests itself in a higher incidence of stress-related illnesses (heart attacks and strokes). Even college graduates pay a price when labor markets take so long to heal, often accepting jobs outside their fields of expertise, which then compromises earning potential.”

The high level of unemployment, with more than 12 million Americans officially listed as unemployed, is a political issue in this election year. However, hiring is routinely damped by high energy prices, which prompt companies to trim labor costs to offset them.

Oil and gasoline prices have surged this year as energy speculators have upended the normal balance between supply and demand by stockpiling crude in storage facilities like the oil hub in Cushing, Okla. U.S. gasoline prices rose by 66 cents from Jan. 1 to April 4, despite tepid consumption, according to the AAA motor club. U.S. oil stockpiles rose by 9 million barrels last week to a nine-month high of 362 million, according to Bloomberg.

The U.S. is currently consuming about the same amount of oil daily as it did in 1997, even though our population has grown by 41 people million to its present 314 million in that time span, according to Tom Kloza of the Oil Price Information Service. He attributes the run-up to speculation in futures contracts by hedge funds and money managers.

“People are properly puzzled by the fact that we’re using less gas than we have in years, yet we’re paying more,” Kloza told Bloomberg. “We’ve seen about $11 billion of speculative money come in on the long side of gas futures… Each of the last three weeks we’ve seen a record net long position being taken.”

Michael Greenberger, a former regulator at the Commodity and Futures Trading Commission, told McClatchy the increase is due to “excessive speculation” on Wall Street.

“It is excessive speculation, which is a fancy word for saying that gamblers wearing Wall Street suits have taken these markets over,” he said. “It is similar to the gambling Wall Street did on whether or not people would pay their subprime (below-market rate) mortgages in the mortgage meltdown… Now they are betting on the upward direction of the price of oil.

U.S. energy companies typically support Republican candidates and policies, and they have a history of creating false scarcities to advance their political agenda and support profit growth. The energy and natural resources industry has donated $606 million in legalized bribes to elected officials since 1990, with 70% going to Republicans, according to the opensecrets.org website.

In one of the most recent examples of proven energy market manipulation, Houston-based Enron Corp. and other energy companies enriched themselves by creating a fake energy crisis in California in 2000 and 2001. The faux crisis destroyed thousands of jobs and prompted an exodus of business facilities to locations with stable energy prices and power grids.

The Commodities and Futures Trading Commission, the largely impotent regulator of U.S. commodities trading, also fined a former division of ConAgra Foods $12 million for its role in pushing prices past the $100 a barrel mark in January of 2008.  Prices continued to rise, reaching $147 a barrel in July 2008, even as millions of Americans were being cut loose by companies seeking to offset higher energy costs.

Energy prices are still subject to manipulation by powerful investors like the infamous Koch Brothers, who have a reputation for parking oil in offshore tankers when storage space becomes scarce on land. It’s difficult for industry observers to determine how much of the recent rise in prices is due to legitimate demand for consumption and how much is due to speculation by investors hording oil and gasoline in storage areas.

The Cushing hub provides some insight as the world’s largest oil storage facility. Prices there are used for futures trading on the New York Mercantile Exchange. The town bills itself as the “Pipeline Crossroads of the World.”

Crude oil inventories in Cushing rose 35% between January 13, 2012 and March 30, 2012 as they expanded by 12 million barrels of oil. The gain represents the largest increase during an 11-week period since 2009 and pushed stockpiles 11 million barrels above average, according to the U.S. Energy Information Administration.

Cushing holds 5% to 10% of U.S. crude inventory and demand by speculators for additional storage is spurring its rapid expansion. Reuters estimates that Cushing had storage capacity for 58.6 million barrels in mid-2011 and will reach 76.7 million barrels by the end of this year. About 42.3 million barrels of oil was being stored there at the end of March, according to the Energy Information Administration.

High oil prices helped tip the U.S. economy into recession in the final two years of the Bush presidency, when they topped $140 a barrel and pushed gasoline past $4 a gallon.

Fed Reserve Chairman Ben Bernanke warned economists that this year’s early job gains might be transitory, as evidenced by the high level of long-term unemployment and low-level of hours worked, both of which remain well below pre-crisis peaks.

Average weekly earnings fell 60 cents to $806.96 in March and the average work week tightened to 34.5 hours from 34.6.

“We cannot yet be sure that the recent pace of improvement in the labor market will be sustained,” Bernanke said in the prescient March 26 speech.

The slowdown in job creation also illustrates the double-edged sword represented by the recent decline in initial jobless claims. Some economists cite this decline in new applications for unemployment benefits as evidence of labor market improvement, assuming that when companies fire less they hire more.

However, it can also mean that companies have exhausted the short-term financial benefits to be gleaned from thinning their headcounts and forcing workers to shoulder duties formerly performed by two and even three colleagues. In sum, it may simply signal that U.S. employers don’t have any fat left to trim, rather than signal accelerated hiring.

There were 357,000 first-time applications for new unemployment benefits the week ended March 31. By contrast, initial jobless claims routinely surpassed the 400,000 mark in 2011.

“This morning’s release of the Bureau of Labor Statistics’ Employment Situation Summary in March was an unpleasant surprise and underscores the fact that a robust jobs recovery has not yet solidified,” the Economic Policy Institute said in a statement.