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Sunday, July 6, 2014

And now for some good news, unless your an executive at GM

Tony Paradiso

The end of a long weekend is no time to dwell on bad news. Fortunately, there’s sufficient good news for everyone who is not an executive at General Motors.

I thought that with GM emerging from bankruptcy, it would no longer be a target of my sarcasm. Tesla was to be the new focus for my warped sense of humor, but GM keeps pulling me back. ...

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The end of a long weekend is no time to dwell on bad news. Fortunately, there’s sufficient good news for everyone who is not an executive at General Motors.

I thought that with GM emerging from bankruptcy, it would no longer be a target of my sarcasm. Tesla was to be the new focus for my warped sense of humor, but GM keeps pulling me back.

There’s now a betting line on the number of vehicles General Motors will ultimately recall. Personally, I’d consider recalling every car it has manufactured just to end the death by a thousand cuts. Last week, the company announced three new recalls, which brings the North American total to more than 29 million.

The investigation of those responsible continues. But not to worry, no current senior executives were involved. Last week, GM released an internal report that cleared CEO Mary Barra and her executive team. As is usually the case in these instances, the fault lies with lower-level workers who sought to protect the company’s reputation and stock price.

On a more positive note for the auto industry and the economy in general, auto sales continue to shine. Industrywide sales increased 1.2 percent in June, despite two fewer selling days this year versus last year. According to Autodata Corp., the annualized sales rate is at its highest level since July 2006.

Chrysler registered the largest gain at 9 percent, followed by Nissan, Toyota, and yes, General Motors, which managed a 1 percent increase. I presume that car buyers are a forgiving lot. June was not a stellar month for Honda or Ford. Both companies experienced a 6 percent drop in sales. In Ford’s case, the decline was not totally unexpected. It continued to taper its sales to fleet buyers, and the company is also preparing to introduce a new F-series pickup truck.

Let’s stay with the car theme and turn our attention to gas prices. If you traveled during the holiday weekend, you already surmised what I’m about to tell you: Expect gas prices to hit multiyear highs this summer. Going into the weekend, the average cost of a gallon of unleaded was about $3.67, almost 20 cents higher than last year. The only year that we experienced higher prices was in 2008.

Unrest in the Middle East is, and will continue to be, a contributing factor. I’m so glad we liberated Iraq. And what a blessing the Arab Spring has been. The saying “Be careful what you ask for” comes to mind. Although oil production in the U.S. is at all-time highs, we continue to rely on oil imports. That includes from Iraq, which in April was the sixth-largest oil exporter to the U.S..

OK, now for the good news. Factory orders expanded for the 13th straight month in June. The Institute for Supply Management’s Purchasing Managers Index fell slightly from May to June, but still registered a respectable 55.3. Any reading above 50 signifies economic expansion. For the quarter, the index averaged 55.2, up from 52.7 in the first quarter. More encouraging, the news orders component of the index increased to 58.9 for the month.

Worldwide, the factory data is mixed. Things are booming in the U.K., and activity in Spain hit its highest level since 2007. On the flip side, France’s factory sector contracted in June, while the world’s third-largest economy – Germany – was unchanged. In China, the world’s second-largest economy, activity ticked up slightly from 50.8 in May to 51 in June. The numbers out of China may be modest, but manufacturing activity has now increased for four consecutive months.

The question then becomes, Is this increased factory activity translating into jobs? Unfortunately, the answer to that would be no. However, the good news is that overall, our economy is adding jobs at a faster pace. Last week’s employment report indicated that 288,000 new jobs were created last month. In addition, the April and May numbers were revised up 22,000 and 7,000 respectively.

With the June numbers exceeding 200,000, it was the first five-month stretch in which job creation has been above 200,000 since the late 1990s. The news was enough to propel the Dow over 17,000 and put the S&P within spitting distance of 2,000.

The problem is that the quality of the jobs being created remains on the poor side. Of the 288,000 new jobs, 79,000 of them were in the low-paying retail and hospitality sectors. The manufacturing sector only added 16,000 jobs and construction jobs increased a modest 6,000.

As a consequence, wage gains continue to be lackluster. The average hourly wage for private-sector workers rose a mere 6 cents to $24.45. The year-over-year gain is only equivalent to the rate of inflation.

More encouraging is the broader measure of unemployment that includes discouraged job seekers and people working part time who want full-time work. Although the number dipped only slightly in June to 12.1 percent, it is more than 2 percentage points lower than a year earlier.

Progress continues, albeit at a pace below what we would like. However, I expect growth to accelerate through the third quarter. In fact, my guess is that this quarter will be the year’s best – so enjoy.

Author, professor, entrepreneur, radio and TV commentator Tony Paradiso can be reached at
tparadiso@tds.net.