Tuesday, February 22, 2011

The Big Picture: ...and the hits just keep on comin'

Over at Chemicals and the Economy, Paul Hodges lays it down not-so-gently, suggesting that high oil prices ($3.15 for gasoline where I am) are affecting Americans right in the pocketbook (and chemists in the chemical industry):
Graph credit: Paul Hodges, Chemicals and the Economy

"Consumers have no real choice about their spend on gasoline and energy bills. And its only after these have been paid, that they decide whether they can afford the discretionary spending that drives chemical and polymer sales.

Of course, sentiment indicators, even well-established ones like this from the University of Michigan can be wrong. But it just adds to the blog's sense of uncertainty about what is really happening to end-user demand, and to inventories down the value chain."
And at Calculated Risk, some economists (Justin Weidner and John Williams) from the San Francisco Federal Reserve talk about the "new normal" in unemployment rates:
A second explanation is that the degree of mismatch between job seekers and potential employers has increased. The construction, finance, and real estate sectors have shrunk after the bursting of the housing bubble and the subsequent financial crisis. The skills of workers who used to be employed in those sectors may not be easily transferable to growing sectors such as education and health care (see Rissman 2009 and Barnichon et al. 2010). Similarly, the housing bust has left millions of homeowners underwater on their mortgages, which locks them into their homes and may make it more difficult for them to move to higher growth areas. These sectoral and geographic mismatches between workers and job openings may be making it harder for employers to fill vacancies. [snip]

Mounting evidence suggests that structural factors may have increased the “normal” rate of unemployment to about 6.7%. Much of this increase is likely to be temporary. In particular, the extension of unemployment benefits probably accounts for about half of the increase. But, even with a 6.7% natural rate, current and forecasted levels of unemployment imply that significant labor market slack will persist for several years. It is important to stress that each of the methods used to estimate the natural rate is subject to considerable error, especially given the limited experience of very high unemployment in the post-World War II U.S. economy.
[CJ here again.] It's a weird couple of things to link together, but here goes my thoughts:
  • Hodges' notes on the high price of oil and gasoline do not bode well for chemists in the consumer products world. If consumers are spending on heat and gas, they're not buying as much toothpaste and shampoo. For that matter, high oil and gas prices do not bode well for the health care dollar, either.
  • At the same time, I am curious about the employment prospects for oil and gas chemists; I suspect that they are close to a local maxima.
  • Weidner and Williams suggest a few sectors that are doing poorly, employment-wise: construction, finance and real estate. No surprise there. They suggest 2 sectors doing well: education and health care. In my opinion, both of these 2 sectors are primed for a bubble.
  • That said, I suspect that chemists looking to move are better positioned (re: skill set) than folks in those 3 hurting sectors.
  • It will still be a few years until the "new normal" arrives. And when it does, it is unclear what it will look like.

6 comments:

  1. Which "skills" from the financial sector don't transfer over? Being a scumbag POS with no ethics or morals? Gosh, how terrible that people who are trained to only view everything in terms of dollars and cents can't find work. Good thing they haven't infiltrated the pharma sector yet. Oh wait.....

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  2. @CJ - OK, crystal ball, tell us what the next growth sectors WILL be. Let me see if I can add to your list of "local maxima" or declining chemist positions: oil / gas, dyes, mid-level synthetic organic / pharma / biotech, coal, steel, paints, other consumer commodity chemicals.

    So, are we putting all our eggs in the "solar materials" basket? E-ink? Nano?

    As America moves towards more service and less industry, what do us "physical scientists" do? What's left to make?

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  3. A5:46: I guess I'm suggesting that oil/gas employment prospects might be trending up, as opposed to consumer products/health care. I hope that's clearer than my post.

    But yes, we (the American innovation sector) have to be attempting to create new value. Dunno where -- if I did, I wouldn't be a bench chemist.

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  4. Andy Grove was right. New ideas don't create domestic jobs anymore. China owns the solar and LED markets, and they control the rare earth elements needed for hybrid motors. Any innovations here will only end up over there.

    This "innovate to win the future" stuff is like gunning the engine to get out of the mud. We need some sort of traction before R&D does anything more than create more jobs overseas.

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  5. I'm skeptical of the household income as a measure of increase/decrease in wealth. What if (even in these bad times) less people are living together? Wouldn't that drive the household income number down, even though individual income may have risen? If you are wealthier overall, you may have more incentive to live on your own.

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  6. http://online.wsj.com/article/SB10001424052748703803904576152543358840066.html

    yep, it's gonna keep on coming for us. >1,000 companies survey.

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