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Freeman Cebu Business

Double dip: Remote but wage increase might just do it

FULL DISCLOSURE - Fidel O. Abalos -

Allegations by certain sectors and groups that the government is engaging in double speak as far as the economy is concerned, is spreading like wild fire across the country. The heat generated by the election fever even make it worst as politicians and the so-called pro-poor or pro-labor party lists, in trying to corner affluent seats in congress, are trying to help flare it up. 

These allegations stem from the government economic managers pronouncement that any wage increase is too soon and too harsh and could spell disaster as the economy may experience a “double dip”.

The laymen are just wondering, what this “tasty ice cream promo-sounding” phrase is all about.   A “double dip” recession or a “W-shaped” recession happens when the economy, in a recession, emerges from it with a short span of growth but quickly falls into another recession. It happened in the United States in the early 1980s. Recession pervaded from January 1980 to July 1980. Its economy shrank at an annual rate of 8 percent from April to June of 1980. Then, the economy experienced a quick period of growth when in the first three months of 1981 the economy grew at an annual rate of 8.4%. Unfortunately, as the Federal Reserve raised interest rates to fight inflation, the economy dipped back into recession from July 1981 to November 1982, thus, the “double dip”.

Frankly, whether the world economy is truly recovering or is in for a “double dip” largely depends on one’s optimism or pessimism. Even if we have same sources of facts and read them the way others do, our interpretations could still be different. This is very normal because we simply have different persona. Therefore, while some maybe considered “prophets of boom”, others have remained constantly “prophets of doom”. 

For instance, as the Christians observed the Lenten season, there were two very encouraging statistics that brought about positive outlook. These were two correlating statistics that could mean that the US economy (the world’s biggest economy and where the world’s economy depends) is on its way up the pit. First and foremost, in a recently released report, the U.S. economy gained more jobs in March than any other month in the last three years. The U.S. Labor Department said, that “the economy gained 162,000 jobs in the month, compared to a revised reading of a 14,000 job loss in February”. Though unemployment rate remained 9.7% high, notably, however, this is the third increase in jobs in the past five months. Such encouraging development could mean that the labor market has begun to stabilize.

Relative to this encouraging statistics is the report that the gains were spread across various sectors of the economy. Reportedly, 60% of ailing industries have added jobs after a four-year hiatus. The long-battered industries like construction (which was in crisis since June 2007) added 15,000 jobs. On the other hand, the manufacturing sector added 17,000. Notably, 2,500 of these new hires came from auto plants and their parts suppliers. Likewise, retailers added almost 15,000 jobs and leisure and hospitality industry accounted for 22,000 more jobs.

Corroborating this rosy development are the current gains in car sales in the month of March. Compared to March of last year, double digit increases were reported by car manufacturers. Toyota, General Motors and Ford recorded increases of 27%, 21% and 43%, respectively.

The prophets of boom declared that these increases are more than just “a flash in the pan”. They firmly believed that (with this and other encouraging economic indicators considered) the road to a steady recovery is well-paved. Indeed, knowing fully well that consumer confidence and spending account for more than two-thirds of the US economy, then this bit of positive news is totally refreshing for the rest of the world. Logically, with new jobs coming, more and more Americans will have money to spend.

Based on the same facts, the prophets of doom, however, have different perceptions. While they are not fully committed to the idea that the economy will slide back into recession and, therefore, a “double dip”, they strongly feel that serious possibilities are not remote for two reasons. First, a large part of the growth they have had has been driven by the stimulus. As construction companies complete government projects financed by the economic-stimulus package, most of their workers will be out of job soon.    Second, “the rise in manufacturing production is to a large extent an inventory bounce — and this, too, will fade out in the quarters ahead”.

These apprehensions shouldn’t be taken as empty scares. Some facts within those rosy pictures are just too important to ignore. First, the fact was, out of the job increases, a big chunk (about 40,000) were government hires to do new census tasks. Second, while it was true that car sales increased, most buyers are those who remained awash with cash (who own big vehicles) despite the crisis and are buying smaller cars for fuel efficiency.

Though, we can set aside these disturbing developments as purely obtaining in the United States, the fact still remains that the entire globe is dependent on its economy. Therefore, it will just be as disturbing for us, a negligible group of islands in the pacific. 

Indeed, indications of a steady recovery rest in the performance of the private sector. When consumers’ demand rise and new investments start pouring in, then, truly, we can say a genuine road to a steady recovery is paved. Otherwise, the economy may still be in limbo.   This is a very precarious condition where, probably, the Philippine economy is in right now. 

Then, the unreasonable advances from some labor unions came. Demands for three-digit increases are hovering around the business community. Like an axe ready to fall right on the business community’s head, it seems that it won’t be easing up as most of these pestering groups are party-lists and are trying to win votes from the society’s biggest sector.

Whatever selfish motives some may have, however, there is no shade of a doubt that the demand for a wage increase is noble intentioned and will have wide political support. Sadly, however, businesses are still trying to psyche themselves up to try to establish a stronger hold on whatever assets left from the menacing downturns they were in. Whether labor unions considered these businesses’ predicaments in demanding for these increases, we do not know. Certainly though, these demands are totally devoid of sympathy.

For your comments and suggestions, please email to [email protected].

DOUBLE

ECONOMY

FEDERAL RESERVE

GENERAL MOTORS AND FORD

JOBS

LABOR DEPARTMENT

UNITED STATES

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