Economic bad news is everywhere

Accolades over the last few years about a glowing economy and booming Wall Street always seemed off, and recent economic news is putting these claims under the knife.

Certainly, the crumbing stock indexes and continued poor showing of the bond markets indicate that stock buy-backs have created a bubble that is now popping.

For those outside Wall Street, the economy has been ho-hum at best and downright hostile to most. Initial jobs and income numbers are seemingly always being revised downward as new data emerges. Wisconsin farmers continue to take it on the chin. And, the accelerating trend of companies contracting out rather than hiring employees is leading more and more folks to become second-class residents of these companies.

The economy and job growth have not been good for a long time, especially here in mid-western states like Wisconsin. In other words, not only is the bucket empty, but it may have no bottom. As Jake explains:

More than 2 years later, we are back below 26,000. That’s despite all of the corporate tax cuts and stock buybacks that have inflated earnings per share. And now we have slower job growth and GDP growth than we were seeing before the Tax Scam became law.

I think that reality had a lot to do with the market falling apart with today’s rate cut. The Fed’s message wasn’t “We will be OK and get by.” It was “THINGS ARE REALLY MESSED UP AND WE FEEL WE HAVE TO DO SOMETHING BIG!” And now, there isn’t much left that the Fed CAN do.

Planet blows up

FoxConn: Less is less

As part of its deal with Wisconsin for state monies being handed over, FoxConn’s job numbers are put forward every December (but will not be publicly revealed until March or April of 2020).

Last year, FoxConn was short the 260 jobs it needed for 2018 when it only hired 156 employees. For 2019, FoxConn needs 520 jobs, and the company is claiming it has already met that goal.

Note: If FoxConn manages to have 520 employees in 2019, it also gets the 2018 funds it originally missed out on. Good deal for FoxConn, it seems.

But, media reports by Jake, Murphy’s Law, the verge in October, and the verge in December indicate that FoxConn is doing little more than moving shells on a table: there appears to be nothing actually going on other than some relatively small construction of warehouse-type buildings even while the company claims that everything is fine.

Indeed, the verge’s December review scuttles any possible thought that FoxConn is doing anything considered to be manufacturing at all. All the buildings FoxConn has bought are still empty, and plans that originally should be nearing completion are delayed again and again (the latest is that LCD manufacturing of any kind will not start until 2022).

As a neighbor of mine remarks, FoxConn is a complete mystery. Nothing the company is actually doing seems to make any sense whatsoever from the perspective of trying to be a viable project of some (or any) kind.

As Jake noted on January 1st of this year, even Mt. Pleasant, which still formally embraces FoxConn, is holding off on transferring to FoxConn more of the land that the village previously bought from homeowners for the project. Given FoxConn’s lack of activity, there are questions over whether FoxConn will ever use all of this land. As Jake observes, Mt. Pleasant is facing an additional $112 million of debt in 2020, and so it is facing some serious debt problems:

Take a look at that $86.2 million in debt principal and $9.0 million in interest. Basically Mount Pleasant has to pay off one debt payment by borrowing more money, and they also plan to keep adding $48 million in sewer and other water work, along with other expenses. So $8.4 million in taxes from Foxconn compared to $143 million in expenses that are earmarked to their specific TID district? And a lot more in new debt expenses for the future? Doesn’t seem like a good deal to me.

Even with the extra borrowing, they’re still bleeding the Foxconn district’s balance down from $103.3 million to less than $72 million, which means that if more money and tax base isn’t returning to the Foxconn district in the next few years (and that seems increasingly unlikely), there’s even more debt and more borrowing that’ll have to happen.

Or…the Village will go bankrupt because it can’t (or won’t) keep going further into debt to keep pumping false hope into this white elephant. At that point, state taxpayers would likely be asked to bail out Mount Pleasant, based on this provision that is part of the Fox-con package approved by the GOP Legislature in 2017 and signed by then-Governor Walker.

Given that FoxConn has quietly (see the verge’s December reporting) transferred control of its Wisconsin operations to a subsidiary called Foxconn Industrial Internet (Fii) that is NOT part of the original FoxConn deal, it seems that FoxConn is preparing to walk away and leave Wisconsin suing a shell company that has few to any assets in Wisconsin for all of the broken promises.

I have a bad feeling about this.

Update (10 Jan. 2020): Corrected some typos and re-wrote sections of the paragraph on Mr. Pleasant’s debt problems.

Economic indicators at the end of 2019

As usual, I am piggy-backing on the good work Jake is doing.

The economy of late

Over the past several weeks, Jake has been posting extensively about the economic reports being released.

Gold standard job numbers

Reports on these numbers are a daily occurrence of late. As of Friday, Dec. 6th, the Department is touting Wisconsin as a national leader in job growth.

Yes, Jake notes, wages are up, but there are some holes to this news that means no one should be popping champagne corks just yet. Jake observes that these job numbers actually under-report the growth that was being reported in the monthly jobs reports. The recent rise in unemployment during the latter half of 2019, in addition, could either indicate a hotter, more competitive job market or a job market that is beginning to cool down.

Jake also points out some of the key takeaways from the Wisconsin’s Shifting Job Market report from the Wisconsin Policy Forum. This report provides an examination of the job growth (or lack of growth) in Wisconsin over a ten-year period, from 2008 to 2018. As Jake explains:

The Policy Forum goes on to note that the Madison area has done exceptionally well in this 10-year time period for overall job growth, and in particular in these high-paying, educated/skilled positions.

For example, the Madison metro area has experienced strong job growth in general since 2008, with employment growing by over 54,000 overall (16%) and in 17 of the 22 occupational groups. Perhaps most strikingly, employment in highly coveted computer and mathematical occupations—which include software and web developers and computer programmers—has led the way, growing faster than in any other group.

* * *

[Manufacturing jobs, on the other hand, have been stagnant or in decline, particularly in the Milwaukee area.] And that trend has not gotten any better in 2019, as the Bureau of Labor Statistics says that manufacturing employment in the Milwaukee metro area is at its lowest level in more than 8 years, with a decline of 2,000 manufacturing jobs over the last 12 months.

That being said, the Milwaukee metro as a whole has rebounded some in 2019, with health care being a huge reasons for its job growth. As have the 2 next largest metropolitan areas in the state, for that matter. While these numbers aren’t adjusted for seasonality (and therefore require a year-over-year comparison), the Madison, Milwaukee and Green Bay areas have done better for adding jobs than the rest of the state.

[One year] Job growth Oct 2018-Oct 2019
Milwaukee metro +11,800 (+1.3%)
Madison metro +4,700 (+1.2%)
Green Bay metro +2,400 (+1.3%)

The down side is that while the remainder of the state outside of those 3 metro areas accounts for just over 1/2 of the state’s employees, it’s actually lost 5,100 jobs (-0.3%) while the Bigger 3 have grown. And many of those [remaining] areas have also been stagnating in population growth with lower educational levels.

The full jobs data for the year from June 2018 to June 2019 also has some revealing information. According to Jake:

Remarkably, [Wisconsin’s] 0.40% rate of [job] growth and 39th-place rankng in the US put Wisconsin 3rd out of 7 Midwest states for private sector job growth, with only Minnesota (+0.61%) and Indiana (+0.70%) doing better than us. So unlike much of the 2010s, we’re not trailing much of our region, but our region is badly below the US rate of growth of 1.25%. Which sounds a whole lot like the 2000s before the Great Recession, which wasn’t good for the Midwest even before the economy caved in.

If you go into Wisconsin’s figures by county, this stat jumps out at you.

Private sector job change, June 2018- June 2019
Dane County +5,033
Rest of State +4,987

Total job change, June 2018 – June 2019
Dane County +6,595
Rest of State +2,745

That’s right, Dane County added more than half the private sector jobs in Wisconsin over that 12-month period, and over 70% of [total] jobs. And literally 1/2 of the 72 counties in Wisconsin LOST jobs between June 2018 and June 2019. Oh, but we’re the crazy hippie moonbats in Madison while the outstate GOPs are the ones in touch with how to grow business in 2019. Riiiight.

FoxConn

Jake has the latest on a Libertarian-leaning think tank pointing out that FoxConn truly is turning into a shadow theater of the absurd:

  • The subsidies granted to FoxConn will depress economic activity in the state for a decade or more.
  • The state is saddled with economic waste because of Wisconsin’s commitments to FoxConn that cannot now go to actual businesses that could use that money productively.
  • A recent Fox-Conn announcement about developing its Green Bay facility contained just a fraction of what was originally announced for that facility (seems to be a pattern with FoxConn) and has been met with a ‘believe it when we see it response.’

Update (10 Jan. 2019): Changed spelling of Fox-Conn to FoxConn.

The Wisconsin October 2019 jobs report is not good

The October 2019 jobs report has almost no information about the monthly jobs picture and mostly discusses labor force participation rates:

The Department of Workforce Development (DWD) today released the U.S. Bureau of Labor Statistics (BLS) preliminary employment estimates for the month of October. The data shows that Wisconsin added 17,200 private-sector and 16,500 total non-farm jobs from October 2018 to October 2019. Wisconsin’s labor force participation rate in October was 67.1 percent, while the state’s unemployment rate in October was 3.3 percent. The national unemployment rate for October 2019 was 3.6 percent.

• Place of Residence Data: Wisconsin’s labor force participation rate in October was 67.1 percent in October, 3.8 percent higher than the national rate of 63.3 percent. Wisconsin’s unemployment rate in October was 3.3 percent, 0.3 percent lower than the national rate of 3.6 percent.

• Place of Work Data: Wisconsin added 17,200 private-sector and 16,500 total non-farm jobs from October 2018 to October 2019. From September 2019 to October 2019 Wisconsin’s private-sector and total non-farm jobs declined by 1,100 and 1,200 respectively.

Luckily, Jake looks at the actual data, and there are a lot of negative numbers:

Wisconsin jobs change
Oct 2019
-1,200 total jobs, -1,100 private sector, -1,300 manufacturing

Sept 2019 revision
-1,200 total jobs, -700 private sector
-700 manufacturing

Revised Sept totals
+600 all jobs, +100 private sector, -2,900 manufacturing

Oct 2018 — Oct 2019
+16,500 total jobs, +17,200 private sector
-7,700 manufacturing

Jake further observes that Wisconsin now has “only 100 more manufacturing jobs in Wisconsin than we had 2 years ago” and that “the number of ’employed’ Wisconsinites has declined by more than 30,000 since peaking in early 2018, and is now at its lowest level in since Trump took office in January 2017.”

Wisconsin has some serious jobs troubles and needs some advice from Yoda.

Yoda

Final job numbers for 2018 are in

Jake has the details, and they are not pretty.

Job growth Dec 2017 - Dec 2018, QCEW
U.S. +1.5%
Mich +1.04%
Minn +0.91%
Ind. +0.88%
Wis. +0.60% <--
Ohio +0.549%
Iowa +0.547%
Ill. +0.31%

For 2018, the mid-west was well behind the rest of the nation. Only Michigan, with the money for auto manufacturing being pumped into that state, broke 1% job growth.

National headlines about a strong economy simply do NOT apply to Wisconsin, Ohio, Iowa, and Illinois.

Finally, Jake has the final job numbers for Gov. Walker during his time in office

All job growth, Dec 2010 - Dec 2018
Minn +319,619
Wis. +222,260

In 2010, Minnesota had fewer people and fewer jobs than Wisconsin. By the end of 2018, Minnesota surpassed Wisconsin in both categories. Wisconsin’s austerity put a brake on growth while a focus on middle-class growth and investment paid dividends in Minnesota, allowing that state to take the lead over Wisconsin.

Jake also has some information about current trends in manufacturing growth, and the news is NOT good.

Manufacturing and GDP, 2007-2018

This information, when combined with information from UW economist Menzie Chinn, indicates that manufacturing in the mid-west is already in decline. As Jake sums up this bad news:

the 2016-type slowdowns in manufacturing and the Midwestern economy as a whole are starting all over again. Except now we have a higher US budget deficit, with less room for upside as unemployment is likely as low as it can get, and more trade restrictions and adjustments are coming in the near future. Ruh roh.

Strangely, now seven days later, there are still absolutely NO reports in mainstream media about these job numbers or economic trends.

Here is the news that I could find when searching for “qcew wisconsin job numbers” that have to do with jobs:

If anything, further job cuts will compound the decline in jobs that seems already underway.

What is happening with FoxConn?

With the end of 2018 approaching, the first measures for the FoxConn deal are coming into play.

Note: A tip of the hat to PixelEnvy for a post about the effect of FoxConn on Mount Pleasant and links to some of the examination discussed below.

Recall that, for $3 billion in direct transfers and around another $1.5 billion in infrastructure and other improvements, FoxConn promised to build a cutting edge LCD display manufacturing facility that could someday employ up to 13,000 people at an average (not a median wage) of $53,875.

Note: Here is the first flyer about FoxConn. The number and size of all the incentives makes it impossible to find a single document that describes them all. For starters, here is a rundown of the direct financing contained in the FoxConn legislation, and here is a description of the transportation funding for FoxConn. My thanks to the Wheeler Report for first posting these documents and others.

Note: The distinction between average and median is important. Of the following numbers — 10, 10, 100, 100, 100,000, 100,000, 100,000 — there is a median of 100 and an average of 42,888. That is quite the difference.

There is an amazing podcast from the folks at Reply All about Mount Pleasant and FoxConn. And, there is an article in the Verge with reporters from Reply All and others about how FoxConn came to be in Mount Pleasant.

What comes across over and over again in these reports is how negotiations behind closed-doors and astro-turfing served to push an agenda that very few seem to want. With all the lame duck shenanigans of late in Wisconsin and other states, it seems that this FoxConn deal was just more of the same: a lot of promise, few to no details, and the great likelihood that reality will not match up at all with what was promised.

As these reports indicate, much of what was going on with the FoxConn was hidden from the public. Eventually, the contract with FoxConn and WEDC (the state agency responsible for the FoxConn subsidies) was made public. Here are the job numbers that FoxConn actually has to meet:

FoxConn job creation numbers

Ex.A of FoxConn-WEDC contract. Notice that FoxConn qualifies for these credits if it has just 260 employees on payroll by the end of 2018. At the end of 2019, the minimum threshold doubles to 520 employees.

Note: these low numbers make sense in light of reports that the factory will not be operational until 2020 at the earliest.

Each December, the employees at FoxConn are counted for the purpose of determining how many “credits” will be returned to FoxConn for those employees. Here is how those credits are calculated:

As under the enterprise zone program, “full-time employee” would mean an individual who is employed in a regular, nonseasonal job and who, as a condition of employment, is required to work at least 2,080 hours per year, including paid leave and holidays. However, WEDC could grant exceptions to the requirement that a full-time employee means an individual who, as a condition of employment, is required to work at least 2,080 hours per year if: (a) the individual is employed in a job for which the annual pay is more than the amount determined by multiplying 2,080 by 150% of the federal minimum wage ($22,620); and (b) the individual is offered retirement, health, and other benefits that are equivalent to the retirement, health, and other benefits offered to an individual who is required to work at least 2,080 hours per year.

A claimant [i.e.. FoxConn] could claim as a refundable income or franchise tax credit an amount calculated as follows:

a. Determine the zone payroll for the taxable year for full-time employees whose annual wages are greater than the amount determined by multiplying 2,080 by 150% of the federal minimum wage ($22,620) in a tier I county or municipality or greater than $30,000 in a tier II county or municipality.
b. Multiply the amount determined under “a” by 17%.

WEDC could not issue certifications to claim payroll tax credits under these provisions that total more than $1.50 billion.

Bob Lang, “August 2017 Special Session Assembly Bill 1: Foxconn/Fiserv Legislation,” (8 August 2017) at 3.

Notice that these “credits” are NOT based on actual work and pay for the previous year. Rather, they are based on who is on payroll in December for those employees who have been hired on a full-time basis (i.e., they will work 2080 hours), have benefits, and earn at least $22,620 for those 2080 hours they will possibly work. The state then returns to FoxConn in April of the next year 17% of these wages as calculated (not as actually paid).

Note: So, there is NO accounting for employee turnover at FoxConn. Given the stories of worker suicides at FoxConn’s facilities in China, this loophole is staggering.

Some of you may be asking about where is that $53,875 figure that was and is touted so much. Here is what is going on with that number.

First, this number possibly includes the job benefits employees are receiving.

Second, this number is only an average. Another provision of this deal caps the wages at issue at $100,000. So, the execs like Chairman Gou (who is also an employee of FoxConn Wisconsin) only have the first $100,000 of their salaries counted for these job subsidies. But, as noted above, that $100,000 figure will go a long way to making the average salary seem much higher than what is actually being paid to the other 259 employees needed to qualify for the subsidies. If there are 50 employees at $100,000 each and another 50 at $1,000 each, the average is $50,500.

Moreover, understand that these job subsidies are only a small part of the package handed to FoxConn. For instance, Jake has some additional news about the land purchases and prep work going on right now on behalf of FoxConn ($60 million from FoxConn has been matched by $147 million from Wisconsin and Mount Pleasant).

Given this FoxConn “deal,” it is not surprising that other companies are pushing for similar handouts. Kimberly-Clark asked for comparable job subsidies to keep two factories open, and has settled for a pro-rated financial handout to keep one factory open.

And, that last part about “keeping” a factory open is the kicker. Wisconsin is essentially paying here to NOT lose jobs. As a result, manufacturing job growth in Wisconsin has been shoddy and continues to be so. DWD pushes gushing estimates about jobs in Wisconsin, but the actual numbers indicate Wisconsin is lagging behind all the mid-western states but Minnesota (a state with a growing economy, as Minnesota’s economy is not nearly as dependent on manufacturing as Wisconsin’s is).

So, Wisconsin is handing money out hand over fist to companies that don’t really need it and not seeing much of a result from all that effort. In the meantime:

Jud Lounsbury @JudLounsbury Dec 13

Instead of sabotaging the incoming gov, maybe @ScottWalker could finally address the dairy farm crises in Wisconsin. Nearly half of Wisconsin dairies have gone under during Walker’s two terms. #walkerlegacy

The problem now is that Wisconsin is committed to these corporate deals where the return is mostly to the benefit of the company. Profits may be soaring for these companies, but actual economic growth in the state and among the middle-class is flat-lining.

USA Today article about work search difficulties

Paul Davidson of USA Today has a feature story about how record low job numbers are due in part to the hurdles states have enacted to get unemployment benefits.

The article describes how only around 60% of those eligible for unemployment benefits are applying, down from the 75% portion “during the last two economic expansions in the late 1990s and mid-2000s.” Such obstacles are a main reason why low unemployment rates have not led to an increase in wages for working folk.

Besides folks not receiving the unemployment benefits due them, the article notes, the perception of the nation’s economic health is also being distorted.

The upshot: The economy is in good shape, but not that good. The low share of laid-off workers seeking jobless benefits also raises concerns about the social safety net in coming years as the economy shows early signs of wobbling. The stock market has retreated from its October peak, oil prices have tumbled and General Motors announced about 14,000 layoffs last week. Many economists predict a recession in 2020.

In other words, during this economic boon(?), there is actually more unemployment not showing up in the economic measurements. And so, this unmeasured unemployment is leading to less unemployment benefits being paid out to folks and to downward pressure on wages.