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JPMorgan Chase economist: Job recovery still in the '8th inning'

Jim Glassman has a wide-ranging curiosity, and he puts his knowledge to work as managing director and head economist for commercial banking at JPMorgan Chase.

Glassman moves easily from talking about energy prices to manufacturing to the presidential election. Just about anything can influence the economy, so he keeps tabs on it all.

Sometimes he comes face-to-face with Jamie Dimon, JPMorgan Chase's high-profile CEO. "If I see him, I see him in an elevator. And then you have to worry about what [question] he's going to fire at you," Glassman said.

But it's hard to picture Glassman caught unprepared, even if they stop at every floor. Glassman said Dimon devours the economic research he receives: "He has a way of taking the way we think about it in economic terms and putting it in his own terms, and probably connects with more people."

Glassman was in Buffalo recently for a speaking engagement. With spring training in full swing, he pitched a baseball metaphor about the nation's job recovery:

Jim Glassman, economist with JPMorgan Chase (Courtesy JPMorgan Chase)

Q: Where you do you sense we are with the economy?

A: I think the eighth inning. By that I mean, if you look at official unemployment, it implies we are in the ninth inning, that we're back to full employment. But the problem is, there's a couple of pockets of hidden unemployment that are not really reflected in the unemployment rate. This is what the (Federal Reserve's) been struggling with for a long time. You might think, if we're fully employed, why has the Fed been sitting on the sidelines, and why are they only now slowly moving back? Because the economy just doesn't feel like it's in the ninth inning yet.

The populations that I'm focused on that are not really reflected in the official unemployment rate, are all the part timers, the people who have been put on part-time schedules. They want to be full time but they're part time.

This is a really unusual thing in this last decade. ... Normally, in good times you have about 4 million people working part time involuntarily. In the recession, that exploded to 9 million people. If you're part time, you're not considered unemployed.

The other population is all the young adults that vanished during the recession. ... Three million young people, 20 to 45 years of age, people in their prime working years, just dropped out and gave up looking for jobs. Most of them went back to school for more-specific job skills. ... Now, as we're watching the job market get better, all those people are coming back in again. It's a reminder that if you're trying to figure out what's the true picture in the U.S., you really  should be aware of these two populations of people.  ... I get an estimation more like 6.2 or 6.3 [percent] if I add these two populations. It's all getting better, but it's another way of saying, we're not quite there yet. We probably need another year or two before we can actually claim we're at full employment. And I think that must be on the Fed's mind, because it's going to take them a couple years to get the Fed funds rate back to something more normal, if they go slowly.

Q: Why do you think the upstate New York economy tends to grow more slowly?

A: In this last round, it might be because you are feeling a little bit of the pain that's been going on in the energy sector. And that's been affecting Canada, and the Canadian dollar dropped in response, so that's always a big issue for people in Buffalo, because there's a lot of cross-border traffic that takes place. The U.S. is more expensive to them.

The technology sector on the West Coast, the financial sector in New York City, those are much more volatile industries. People might say, 'Oh why can't we get a piece of that?'  I think it's a blessing. Because yeah, good times are great, but when times are tough, that volatility turns out to be really difficult.

The other thing that's going on right now on the coasts, Washington [state], Oregon, California, Florida and New York, they've been getting a lot of outside money coming in to the real estate market. So Chinese into the West Coast, Central American and Brazilian money into Florida.  In New York City, you were getting a lot of European money, until the Euro came down. ... Probably Buffalo is not part of that -- that seems to be driving the coasts more than anything. We've seen as the economy has come back, it's the coastal regions that have come back the most. And that was also where the real estate problems were most severe.

Q: How would you gauge the health of U.S. manufacturing?

A: The value of what we produce in this country has been pretty steady as a share of the economy. The thing that's going on is, the number of people we employ in manufacturing is drifting down. To economists, that means that innovation is the big disruptor. It's less about Mexico and China and globalization. In fact, we think that globalization is creating jobs. We have seen production shifting around. We are doing more auto production (in Mexico).But I really think the bigger challenge for manufacturers and guys in the industrial economy is about innovation.

We're all facing this to some extent. But if you're living in the industrial economy, there aren't as many opportunities popping up in new jobs. We've seen 20 million [manufacturing] jobs go to 12 million. People find jobs, but the jobs they're getting are paying less than they were, and I think that's why there's so much frustration in Pennsylvania, Ohio, Michigan and Wisconsin.

Q: Do you think people have learned lessons about what led to the last recession?

A: I'm not sure about that, because we have short memories. But I think the people who did learn a lesson are the people who provide the credit that was financing it.

The U.S. is very unique, compared to anybody else in the world. In the U.S., housing is financed by the capital markets. There's a lot of focus on banks, but honestly, it's the capital markets that provide the financing. (A bank) makes you a loan, they take that loan and package it as a security. And then some investor buys that  -- maybe it's the teachers' [pension] fund, maybe it's the Chinese, maybe it's Europeans -- and really financing of the U.S. market is provided when investors buy mortgage-backed securities, which provides the credit. What we learned from the last decade was, when house prices got crazy, investors didn't realize that if it doesn't stay up there and prices come down, people may walk.

I had so many outside investors tell me, 'I never realized Americans would walk when they go underwater.' That's the lesson the investor community learned., which makes me think we'll have more discipline next time this occurs.

We always repeat mistakes. But I know for sure the next time, if we ever saw a repeat of this, you'll never hear analysts in my community say, 'Don't worry, because we've never seen house prices go down at a national level.' That's what we heard in the last decade. When you heard that sound, what was going on was, the investor community knew that  something was out of line, but they were trying to tell themselves, that was OK because house prices don't go down. Now the history books have evidence that actually did happen.

Q: President Trump has criticized free trade agreements. How could his stance affect exporting?

A: It's very tricky because there are trade abuses, I'm sure. Clients tell us about this all the time. So I think the administration is right to try to focus on if there are trade abuses if they cut deals. The problem is, part of what is driving the U.S. trade deficit is, we're open to a lot of poor countries. Asia, for example, is 10 percent of our living standard. So we're going to be out of balance for a long time, until their living standard rises.

The problem is, if we're too protectionist, if we do things that undermine the development that is taking place at our partners, then we're going to hurt ourselves, as well. ... Our exports are up a couple trillion dollars over the last 10, 15 years. And yes, it's true the U.S. has a trade deficit. But what that really means is that, globalization is taking us three steps forward, but maybe one step back. ... I think the business community is hoping is that what Washington does is stay more focused on trade abuses, but don't get in the way of the development's that taking place, because we help ourselves when we help others.






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