Severe Weather, Strikes Impacted Last Month’s Jobs Report: Economist

The latest February jobs report showing losses in the economy in the U.S. Joining us now to give us his insights on this is Michael Bustler, economist, public policy analyst, and professor of finance at Stockton University. Michael, really great to talk to you this Friday afternoon. So as you heard, 92,000 job losses in the month of February, or yeah, the month of February. So I mean, do you think the labor market is softening right now? So in economics, we always say one month does not make a trend. So we saw very strong job numbers in January, over 120,000. And in February, we now had a net loss of jobs for 90,000. That could be due to a number of factors. We had very severe weather in February. And sometimes companies lose business and have to lay people off. So I wouldn't get too concerned about it for one month. If it occurs for another month or so, then we say we have a problem. I still believe the economy will grow at about a 4% rate this year. It grew at a 4% rate in the second and third quarter, slowed down in the fourth quarter of last year, mostly because the government was shut down for almost half of the quarter. From January to mid-November, the government was shut down. But most economists are figuring a rebound and somewhere in the 3% to 4% growth range. I'm favoring more towards the 4% range. And we'll just have to wait and see how these future job numbers look. Also, remember, these job numbers are constantly revised. So you can't get too excited when you have a real good number as we did in January. And you shouldn't get too worried if you have a bad number in February. They'll likely be resolved. And we'll see how the rest of the months go to see if there's a trend. Okay. And I just wanted to add, there were also a number of job strikes in the last month, which may have contributed as well. But those job strikes won't be happening in the month of March. So we'll keep an eye out on that. But just let me get your thoughts on the unemployment rate going up as well. I think it was 4.4%. Yeah, it was 4.3% last month. It went up to 4.4%. Now, there's a number of factors that go into account there. It's not just that we lost jobs, but it's what the labor force participation rate was. In other words, are we still getting the same amount of adults, same percentage of adults entering, being part of the job market or not? So again, we can't really tell by one month. We're going to have to wait and see what happens going forward. Clearly, though, this is not good news. Okay. So moving on from the jobs report, let's talk about President Trump announcing a $20 billion reinsurance program for oil tankers and other maritime traffic going through the Strait of Hormuz. Do you think this is a net benefit for energy going through the Strait? Yes. So a large amount of oil flows through the Straits of Hormuz. I don't know if Iran has the capability to shut that down. All of their large naval vessels have been destroyed. They still have a number of smaller ones, these speedboats they have that may be able to do some damage. So oil companies, when they have tankers, they fill it up with oil and they take it to the destination. They have insurance. So should anything happen, the insurance covers any losses. Because it's a war situation, the insurance company said, don't go through there, even though the U.S. says it's okay. Don't go through there. We're still concerned that it's very dangerous and we may lose tankers and we're not going to pay for it if you go through there. So President Trump said we would issue a reinsurance program. So what does that mean? So if the insurance company's losses get large, the reinsurance company will pay the losses. The idea is to minimize the risk to the insurance companies so they'll continue to insure the naval vessels and they'll be able to flow through. If they don't go through, it severely restricts the supply of oil. And when you restrict the supply of anything, the price goes up. Already, oil, I think it's approaching $80 a barrel. I didn't look this morning, but it's approaching $80 a barrel. That's translating into gasoline in the $3.30, $3.35 a gallon range, which we don't want. So the idea of this reinsurance is to try to keep the Straits of Hormuz open and knowing that vessels will be insured and insurance companies' loss will be minimized because the federal government, U.S. government, will reinsure. So as you said, this program is trying to make sure that oil moves through the Strait. But do you think companies have considerations besides insurance that sometimes maybe it's just not worth it because of physical security of the Iran war? Yeah, so that's certainly there. And we want to try to minimize it. Now, President Trump has said we're going to keep the Straits open. We've destroyed all of the large vessels Iran has. They still have drones. We now have these laser shooting things that will shoot the drones out that we're starting to use. But the idea is we have to give confidence to these companies so that they don't take that view. There's too much risk. I don't want to take the risk. I'm not sending any oil through. That would cause so much of a disruption in the oil market. Oil prices would go up even higher and gasoline prices would go higher. Fortunately, the world is not that dependent on Middle East oil as it was 30, 40 years ago. So if you had a problem in the Middle East, oil prices would really spike, probably going up over $100 a barrel. Because we don't rely so much on Middle East oil, even if it's curtailed like this, price will go up, but it probably won't go up anywhere near $100 a barrel. And if Trump's plan in this reinsurance gives companies and insurance companies and oil companies enough confidence to keep going, then it will minimize any of the negative effects of high energy prices on the economy. So, Michael, are taxpayers on the hook then if payouts do in fact happen to insure these ships? Yeah. Anytime the government spends money, remember the government doesn't have any money. All the government has is what they collect in revenue, mostly from individual taxpayers and corporations. So if the government has to spend more money, it's the taxpayers that ultimately have to pay that. Now, Trump will argue, I don't think we're going to have to spend that much on this reinsurance because we'll keep the streets open. Even if we have to spend some, that's going to be less of a burden to us than having the price of oil go up real high and energy prices all around will go high. That will have a very negative impact on the economy and could end up costing hundreds of billions of dollars. So Trump will say it's a cost benefit and Trump will say it's worth it to reinsure here, even if the taxpayers may be on the hook for some of it. All right, Michael, before we wrap up here, I wanted to talk to you about how this impacts China because as you know, China is a major customer of Iranian oil. So how is China's economy going to be impacted by this war in Iran? So China gets over half of its energy. I saw one study that set up the 70% of its energy from the Middle East. With China's economy, a lot of the data we get from China is not that reliable. They've been saying that they've been growing 8% to 10% a year. Some of my colleagues that study the Chinese economy say it's probably much less than that. Well, they've been saying 8% to 10% and it's probably grown at about 4% or 5%. Now they're saying it's going to only grow at about 4% or 5%, which really means it will slow down to probably the 1% or 2% growth range. For a country like China that has a lot of consumer debt, a lot of housing that the Chinese people have has been financed, taking out very large mortgages, as long as you're generating income, both the country and individuals, having debt is not a problem. But if you start to see reductions in income, both for the country and individuals, and they can't meet the mortgage payments, then you start to run into defaults. And with China, that's a very sensitive problem. They won't let large-scale defaults happen, but it will be a problem for them. And it could be a very costly problem if this thing lasts fairly long. And I just wanted to add, Michael, China is a manufacturing economy, exporting economy, and for manufacturing, what do you need? You need energy, right? So without its major supplier, Iran, I mean, is that going to just exacerbate its debt situation, as you mentioned just now? Yes, it will. Now, China's exports to the US have gone down, but China has been able to find other countries, mostly in Asia, for their products. And as a result of that, their total exports have not gone down that much. But if energy is cut off, as you point out correctly, to produce goods, you need energy to operate these factories. And if the supply gets cut off, they're going to have to start shutting down some factories because they don't have energy, and then that could cause their economy to really slow down and cause problems. Okay. Well, Michael, great conversation, as always. Hope you have a great weekend. Thank you for your time. Thank you.