Last week, I wrote that the data overwhelmingly shows the reason our economy is slow is that consumers are deleveraging. It's a demand problem.
"The recovery isn't slow because of regulation, taxes, health-care reform, or some vague 'uncertainty' bogeyman," I wrote. "It's slow because consumers are still deleveraging. And it's not going to get any better until they're done."
Some took issue with this. Of course regulations are to blame for the decision by businesses to slash payrolls and sit on their hands, they argued.
I still don't buy it, and there's another way to back my point up.
The Bureau of Labor Statistics tracks not only how many workers companies are laying off, but why those layoffs occur. It does this the old-fashioned way: It asks them. There are dozens of options companies can choose from -- everything from seasonal factors to bankruptcy to foreign competition to weather events.
Looking at a few of the biggest reasons businesses blame for layoffs, here's how things fared over the past four years:
Number of job losses from mass layoffs
|Lack of demand||248,056||516,919||824,834||384,565||144,746|
|Financial (bankruptcy, lack of credit)||101,556||165,426||228,499||86,637||42,266|
Source: BLS. *Year to date. NA: no information available.
By a factor of as much as 200-to-1, it's lack of demand, not regulation, that's causing jobs to disappear. Supply issues have actually caused more layoffs this year than government regulations.
Are regulations and red tape responsible for any job losses? Sure. But that's always been the case, and it's overwhelmed by the elephant of low demand. Regulatory-inspired layoffs have actually plunged since 2008.
As I've written before, other data backs this up. The National Federation of Independent Businesses takes a survey of small businesses across the country, asking what their biggest problems are. Recently, 33% said poor sales were the biggest obstacle holding them back; 13% said regulation -- the latter being exactly average over the past 15 years. The 33% claiming poor sales are the biggest problem is nearly three times the average.
"If you don't have the demand, you don't hire the people," small-business owner Ross Riddle recently told the Los Angeles Times. That's what it's all about.
Consider another statistic: Private-sector jobs growth has been substantially better over the past two years than it was after the 2001 recession. What's different today is that the government sector is shrinking. Since January 2010, private employers have added 2 million jobs, while government employment has shrunk by nearly half a million jobs. Two years after the 2001 recession, private employers shed 884,000 jobs, while governments added 174,000.
The vast majority of the recent government job losses have been at the state and local level (although federal employment levels have been flat for a decade and are down sharply since the 1980s). This isn't surprising, since state and local tax revenue hasn't come close to recovering since the recession. According to the Rockefeller Institute of Government, state tax revenue is still about 8% below 2008 levels -- more like 15% below when adjusted for inflation. Sales-tax revenue is down about 6% in real terms over the past two years. Why? Because demand is down. That's bringing jobs down with it.
It's slow, and the prime culprit is demand. In that kind of environment, high-quality stocks with consistent dividends and geographic diversity such as Johnson & Johnson