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YOUR BOTTOM LINE

Hiring Slows Sharply; The Rich & The Rest

Aired April 6, 2013 - 09:30   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


CHRISTINE ROMANS, CNN HOST: Thanks. See you at the top of the hour.

A record-setting stock market, a recovery in housing, a boom in energy but where are the jobs?

Good morning, everyone. I'm Christine Romans.

The economy is doing better. Analysts have been raising estimates for first quarter economic performance, but the resilience is not translating into faster job growth. Last month, the economy created just 88,000 net new jobs, far short of the expectation.

The unemployment rate dropped to 7.6 percent. But that's because nearly 500,000 people dropped out of the labor force. In fact, the labor force participation rate fell to its lowest level since May 1979.

But we saw losses in retail, what economists are arguing about now or discussing politely is whether you've seen the expiration of the payroll tax holiday that didn't have an effect to the first couple of months of the year, maybe it was starting to bite a little bit, and that could be reflected in the retail jobs or maybe there's something, some reason -- sequester talk, all kinds of other things happening in the economy, Europe, maybe people are feeling less confident and spending less, and translating into fewer of those retail jobs.

Greg Valliere is the chief political strategist for Potomac Research Group.

Rana Foroohar is "TIME's" assistant managing editor in charge of business and economics.

So nice to see both you.

Rana, let me start with you. This maybe is just another spring slowdown. We've seen over the past few years.

Look at the pattern there. We've seen job gains in January and February and a pullback, and beginning of the year, gains and a pullback. Ben Bernanke even said maybe there's that pattern. It could happen again here.

Why the slowdown in job creation?

RANA FOROOHAR, ASSISTANT MANAGING EDITOR, TIME: Well, I think that you saw an unexpected strong first quarter to be fair. You know, at the end of last year, there -- everyone was holding their breath. You know, we were waiting to see what was going to happen with the tax increases, with deficit talks, and we've got over that and there was this sense of OK, things are booming, consumers are spending a bit.

But, really, if you look at the jobs numbers, you know, they haven't changed that much in the last few years. Wages are not up.

So, if you think about our consumer economy, 70 percent of our economy is based on consumer spending, you can't really have a sustained robust recovery unless people have more money to spend and that requires the unemployment rate going down. So it's a chicken and egg cycle here.

ROMANS: Absolutely.

You know, Greg, Republicans jumped on this report, House Speaker John Boehner saying "The president's policies continue to make it harder for Americans to find work. Hundreds of thousands fled the workforce last month and unemployment remains far above what the administration promised when it enacted its stimulus spending plan."

Is that politics or is that fair?

GREG VALLIERE, CHIEF POLITICAL STRATEGIST, POTOMOC RESEARCH GROUP: Oh, that's politics. I think, Christine, that Boehner and the Republicans were largely responsible for the sequester, and we don't know for sure how much the sequester impacted this number. You know, it was a very cold and snowy March in much of the U.S. and I think that was a factor as well.

But for the Republicans to complain when they were complicit with the sequester, to me, is disingenuous at best.

ROMANS: Payroll tax holiday, Greg, to be fair, I mean, that was something that when it went away at the beginning of the year, we were surprised that the strength in the economic reports. Could it be that is starting to bite?

VALLIERE: Yes. You know, for the first couple of months, Christine -- January, February -- everything looked fine, into March, it looked fine. But when you combine the payroll tax hike, which does hurt consumers, and then you combine all this anxiety over furloughs and layoffs coming with sequester, you add them up plus high energy prices, you know, the stars are in alignment for weaker growth.

ROMANS: And then, Rana, there's this other thing, too, this idea that we're entering in some kind of a new phase in the American economy where the normal economic growth that we're used to seeing doesn't translate to the commensurate jobs growth you're used to seeing.

FOROOHAR: Absolutely, and this is a huge shift. In the past, when companies would do well workers to a lesser extend would also do well. But in this age of globalization, you really see the disconnection between the fortunes of America's largest and richest companies and its workers. So, if you look at large multinational firms, they make about 60 percent of the profits of the S&P, but they make up under 20 percent of the jobs in the country.

So, you know, these firms can put jobs anywhere increasingly. Many people's jobs higher up the white collar food chain can be done by software and technology, so that's another compressing factor.

ROMANS: All right. Rana, Greg, stick with me. We're going to come back.

We got a lot of things to discuss about what's happening with the economy and jobs, right after the break.

(COMMERCIAL BREAK)

ROMANS: We're talking with Greg Valliere, chief political strategist for Potomac Research Group, and Rana Foroohar, "TIME's" assistant managing editor in charge of business and economics. Nice to see both of you this morning.

Manufacturing jobs fell by 3,000 in March. President Obama says he wants to create a million new manufacturing jobs in four years, you guys, but the manufacturing jobs of today require a skill set that's pretty high tech.

Rana, you recently wrote, quote, "While all the technology will translate into higher end jobs, it will also mean -- barring dramatic growth -- fewer jobs overall especially in the middle. Positions will either be high end or lower paid since workers still have to compete with cheaper overseas labor."

The middle.

FOROOHAR: Yes.

ROMANS: I'm so worried about losing the middle because that feeds right into this income, the standard of living inequality in America.

FOROOHAR: Absolutely. It goes back to the point about how 70 percent of our economy is about consumer spending. If you lose the middle, it's really hard to have a recovery.

You know, there have been a lot of hopes pinned on manufacturing and I'm still relatively bullish that longer term, American manufacturing can create more job growth. I think you do see a lot of interesting technological developments, you see companies line G.E. hiring software engineers, they're becoming big employers in Silicon Valley.

It's bifurcated. It's very high end, or it's lower paid. Those union jobs, those $25 an hour jobs, those are gone.

ROMANS: So, you know, Greg, there's two things happening -- the long- term structural change that she's just talking about this, this hollowing out of the middle and then there's this very short term -- the Federal Reserve pumping all this money into the system to keep the economy going.

VALLIERE: Sure. ROMANS: So, if we're looking at first quarter, let's say first quarter economic growth 2.5 percent, a jobless rate at 7.6 percent, with all of that historic, unprecedented Fed stimulus and also the stimulus that is the budget deficit, I mean, we're kind of going along at 2 percent and 7.5 percent unemployment, we have those two things pushing us, too. I mean, that can't go on forever.

What does that say about it?

VALLIERE: Well, I'll make two quick points, Christine. Number one, if there's a life preserver, it's really cheap natural gas prices. And there's a trend, an amazing trend of European and other foreign companies relocating their factories in the U.S., because energy prices are so low. That's one good among many negative.

As far as the Fed goes, I think the big development from the unemployment report is that the Fed's probably going to have to stick with Q.E.3 and borrow $85 billion a month, not slice it back for many, many more months to come.

So, in some respects, there's not a bad scene area know for the markets. You've got really loose monetary policy and pretty tight fiscal policy.

ROMANS: But, Greg, there's the markets, and then there's everybody else, right?

VALLIERE: You're right.

ROMANS: There are the markets and when I say, oh, housing is recovering and the Fed is propping up the economy and stocks are at record highs. I get all this mail from people who say it doesn't feel any different than to me that it did 10 years ago. That's a real problem.

VALLIERE: It's maddening and it's glacial. The progress on unemployment is going to take years before we get to 4 percent, 4.5 percent unemployment. No way to sugar coat that. It's going to be a slow process.

ROMANS: What is the legacy going to be of this -- I mean, it's early to start talking legacies -- but you're talking about a glacial process, what is the legacy of this president and his economic policies?

VALLIERE: Well, I think we still are looking at a recovery that will gradually gain momentum. Again I wouldn't overreact to one number but it could be 2014, 2015 before the economy is really humming.

ROMANS: What do you think?

FOROOHAR: Yes, I'm going to have to agree with most of that. I mean, I think the sad thing is that the president could have probably done more on the economy if we'd had less political gridlock. You know, let's face it the government and the dysfunction in Congress has been a major headwind to growth in this country. ROMANS: House Speaker John Boehner says it's the president's policies to blame, and the job support this week is proof the president's policies are hurting the job market.

FOROOHAR: Yes, you know what? I'm going to disagree with that. I actually believe when you have slower than average growth, you need investment to create more growth, investment in right things, education, infrastructure, if we could have gotten more of that, we'd be better off today.

ROMANS: Oh, but that's stimulus, Greg. And stimulus is a very dirty word, a very dirty word, with interest rates this low, shouldn't you be borrowing money to build out infrastructure and create jobs?

VALLIERE: No, the next debate is going to be on more cuts. We're going to have a big debate this summer on entitlement cuts.

ROMANS: All right. Greg Valliere and Rana Foroohar, nice to see both of you. Have a good weekend.

VALLIERE: OK.

FOROOHAR: Thank you.

ROMANS: What do Kobe Bryant and your third grade's teacher have in common? Not much. And that's the point.

Up next, the grand illusion in America starts with income.

(COMMERCIAL BREAK)

ROMANS: One America, two economies. The rich versus the rest. Each week, we tell you about the things that are improving like jobs or housing, but are you feeling it?

CNN Money has a fascinating video that visualizes income inequality in the United States. It shows how much the rich make in just 60 seconds.

OK, that's first bubble is Kobe Bryant's income. He's an all-star forward for the L.A. Lakers, for course. In just five seconds, he's earning $14. That's twice as much as the minimum wage worker makes in two hours.

On the right is Rex Tillerson, CEO of ExxonMobil. He's banking almost $5 in 15 seconds.

At 25 seconds, an average physician makes only 34 cents.

In half a minute, an elementary school teacher hits 21 cents.

In the meantime, let's go back to Kobe Bryant's bubble. He's back there over at $81 and Rex Tillerson, he's got more than $14.

By 50 seconds, the president is earning $2.40, and if we add up to a minute, a median wage worker in the U.S. has 27 cents. You see, it's an interesting video at CNN Money. But you got the point. If you look at incomes, there are two Americas growing further apart.

Mort Zuckerman is editor in chief at "U.S. News & World Report."

Welcome to the program.

You just wrote an op-ed recently in "The Wall Street Journal," you called this phase of America the grand illusion, because the happy talk and statistics give a rosier picture than facts justify. You say the country is not advancing, actually. We're going backwards.

Why?

MORTIMER ZUCKERMAN, EDITOR IN CHIEF, U.S. NEWS & WORLD REPORT: Well, simply because we've had very, very slow rate of growth in the economy, over the three years in 2010, '11 and '12, cumulatively, the economy grew by a little bit over 6 percent. But typically in a recession, we grow at 15 percent. And this is in the context of the largest fiscal stimulus and the largest monetary stimulus in our history. So, something has not worked in our economy.

And the disproportionate number of people who are unemployed are low wage people. We do not count the unemployment, the fact that we have 8 million people who are working part-time and want to work full time, and they get not only lower wages, as you were pointing out here, but they get very few benefits and they have an unstable economic life.

ROMANS: So, I want to read something you wrote about the labor market. You said, "Just to absorb the workforce's new entrants the U.S. economy needs to add 1.8 million to 3 million new jobs every year at the current rate, it will be seven years before the jobs lost in the great recession are restored.

Whose fault is that? Or is that -- is this a natural reaction to a very unnatural financial crisis?

ZUCKERMAN: Yes. The financial crisis was something that is unprecedented. We haven't had that kind of financial crisis since the 1930s, in terms of the drop -- the huge drop and the rapid drop in financial assets, there was a bubble in the world of finance and it blew up.

However, that's not the only issue. The issue is did we have the right program to respond to the decline? And that's where I disagreed with the administration. I felt we had the wrong program.

But what we should have done was to spend the money in different ways. I'm not saying it would have ended immediately, but we'd be much further along in terms of the recovery.

ROMANS: Did this administration made it worse?

ZUCKERMAN: I don't know if they made it worse.

ROMANS: They wasted time, you say?

ZUCKERMAN: Yes, you have a few -- there's a period of time when you could really make a difference in turning around the economy, turning around the optimism or pessimism about the economy. That part was missed because we literally got too much in the way of politics, determining what our stimulus program was, and we lost the chance to do a lot of things I think would have dramatically improved the economy.

ROMANS: What would you like -- what would have dramatically improved the economy?

ZUCKERMAN: Number one, I would have absolutely increased the amount of what we call infrastructure. Infrastructure at least if you're spending money, you have something to show for it. On top of that it improves the efficiency of the economy.

When we built the interstate highway system, the rate of growth of the economy jumped between 2 percent and 3 percent a year. So that -- we have a huge need for infrastructure bridges and roads.

ROMANS: That would be a new form of stimulus and stimulus is now a dirty word in Washington because, you say, they botched the first one.

ZUCKERMAN: It didn't work. That's right.

No, it's not a new form. We've done it before. As I say, many times, we had done it before.

But we could have spent the money, we could have financed those kinds of infrastructure developments with very low interest rates. That would have a job multiplier effect that has long been proven. We just didn't do enough of that.

I mean, another thing that we absolutely had to do in my judgment was to increase the number of people who are qualified in the world of science and engineering and mathematics.

ROMANS: Yes.

ZUCKERMAN: We have a huge shortage of these people. We had an industry there where we're doing very well and we don't have the people to expand the industry.

ROMANS: You don't have the right skilled workers that the economy is demanding right now.

ZUCKERMAN: That's right. We have to focus a lot more on that.

ROMANS: You know, one thing that's pretty clear, though. The rich get better every year. I mean, over the past few years, they did the infamous 1 percent. And you're among these.

So, I really want your view here. The recent tax data from the IRS shows $370,000 is the minimum amount to get into the top 1 percent. That's up 5 percent from the previous year. The average income among top earners is $1.12 million. That's up from the prior year. Meantime median household incomes are falling. It's $50,000 a year. This is according to the Census Bureau. It's down from the year before.

So, the rich are getting richer. The rest of us are trying to get by. We see this divide and we worry that it's permanent.

ZUCKERMAN: Well, it's been around for a long time, gap between the relatively well-to-do and the people who don't do as well.

ROMANS: Natural byproduct of capitalism?

ZUCKERMAN: It's a natural byproduct of capitalism and today, it's a natural byproduct of education, because we are in a very different kind of an economy where intellectual capital and education capital is just as important as financial capital. That's where we haven't done enough.

ROMANS: All right. Mort Zuckerman, we'll have you come back. We'll talk about it again very, very soon. Nice to be with you. Have a nice weekend.

ZUCKERMAN: OK. Thank you.

ROMANS: Coming up, you probably made a pile of money in the market, at least on paper. But when is it time to turn those green arrows into greenbacks? A look at the art of selling, next.

(COMMERCIAL BREAK)

ROMANS: I want to bring in Ali Velshi, CNN's senior business correspondent and host of "YOUR MONEY."

Ali, after hitting that record highs, it looks like we've seen a little bit of a pullback in stocks.

ALI VELSHI, CNN CHIEF BUSINESS CORRESPONDENT: Yes.

ROMANS: Let's talk about potential market trip wires here.

VELSHI: So, first of all, let's see how it works. On Friday, we had the jobs number out. This week, you had North Korea talking about nuclear attacks. You have China, with people dying of H1N1. Just a few, but that scares people, even made it into Hong Kong.

So, folks are worried. When a market is this high, you worry about what happens. But look what happened. The market opened and it's sold off.

It's almost within moments, you saw people who thought this was a high market buying in, because they had opportunity, some stocks had dropped 2 percent and 3 percent. And they got in.

So, you always have to think in a high market like this, what are good opportunities? What would you buy if you weren't in the market? Would you hold on to a stock?

But the trick, as you and I have discussed isn't finding the good buys. That, anybody can do. When do you sell when a market is doing what it's doing?

ROMANS: And, you know, there's lots of rules. Some people have rule that's 25 percent after you have had a 25 percent gain. Some people say after their investment has doubled, they take out their original principal and they keep it going.

VELSHI: Let the rest dry.

ROMANS: Absolutely. But, you know, when you have so many people talking about profit taking, my concern is the little guy is getting it in the end and the big guy is getting out.

VELSHI: Right. So, you've always pointed out that if your money had gone in at -- in October of 2007, when things were feeling good and you invest and all of a sudden, you now just made back all of that money. So you are now skittish but stayed in. I'm going to take my money and go.

What you need to do is not look at the market as an index. That may only go up 1 percent or 2 percent for the whole year, the S&P 500 or the Dow.

But there are sectors that are beaten down and undervalued. There are stocks like Caterpillar which suffered because China was slowing down construction. That's undervalued.

There are stocks on the S&P 500 and Dow pay 3 percent, 4 percent dividend. You think you can get that on a bank account?

So, now, you can't be sloppy here is $1,000. I'm putting it into the market. Now, you have to be specific. You want sectors, you want geographies, you want values. They're a little harder to find.

You actually have to tune in to this show 9:30 on Saturday morning.

ROMANS: It's always interesting. You point out talking taking money out of the market, we don't mean all the money out of the market, because you should always be exposed. And a lot of times, people say they're not exposed at all to stocks and really get hurt when there is a pullback. You can't predict when the market is going to rise again.

VELSHI: There are eight asset classes. Stocks are one. You know, large cap stocks. The thing we talked about is S&P 500. That's one class out of eight. Cash is one class out of eight.

There are six more classes most people don't even know about. If your 401(k), you will have seen them. You'll see that pie chart.

Be in all eight asset classes at all times. You may only need 2 percent in precious metals but one day that will be useful to you when everything else goes down. Be diversified.

You and I say it -- I get bored when I say it to myself.

ROMANS: You bore me, too.

VELSHI: You have to it. Boring but important is what the show -- no, the show is actually not boring and it's important. But so much of the stuff we talk about is boring but crucial.

ROMANS: All right. Ali Velshi, hey, it's been a fun 12 years. Thanks.

VELSHI: It has been.

ROMANS: I'll see you again at 1:00.

VELSHI: All right.

ROMANS: I'm not saying good-bye yet.

You know, a pullback in the market could be the right time to take some money off the table. People ask me all the time whether to get in, the smarter question might be when to get out.

(BEGIN VIDEOTAPE)

(MUSIC)

ROMANS (voice-over): Kenny Rogers sang about it in the gambler. But knowing when to hold and fold is key to building stock market wealth. Dow just wrapped up its best quarter since 1998. The other major indexes have also soared, but you don't make any real money until you sell.

One strategy is to cash out, lock in your gain.

UNIDENTIFIED FEMALE: Most stocks that have great earnings in sales will run up on average historically, about 20 percent, 25 percent before they begin pulling back in price. So, you might want to think about locking in profits at 20 percent, 25 percent.

ROMANS: And if you bought a stinker in this bull market, don't hang on.

UNIDENTIFIED FEMALE: You should always consider selling a stock if it falls 7 percent to 8 percent below what you paid for it.

ROMANS: And if company's profit start to decline, that could be a warning to get out.

NED RILEY, RILY ASSET MANAGEMENT: The first thing I'll tell people is to watch the momentum in earnings year over year. If there is a deterioration in a growth rate, then one should be weary.

ROMANS: Weary is exactly how some money managers feel about this market. CNN Money surveyed nearly 30 of them. Their prediction: stocks won't end the year much higher than where they are now. Others say we're due for a pullback. CARTER WORTH, OPPENHEIMER ASSET MANAGEMENT: One, two three, four years, that's a great bull market. But history shows when you have very euphoric bull phases, they give way to corrections. It's a normal thing.

From the November lull, we're up 20 percent. At this point, this is exactly where a normative pullback or correctional pause occurs.

ROMANS: Problem is that most of us, can't time the market, which is why the Oracle of Omaha's advice may apply.

WARREN BUFFETT, CEO, BERKSHIRE HATHAWAY: You want to be greedy when others are fearful, and you want to be fearful when others are greedy. It's that simple.

ROMANS: So, next time you check your 401(k), ask yourself, are you feeling greedy?

(END VIDEOTAPE)

ROMANS: All right. We want to hear from you: are you fearful? Are you greedy? Are you buying stocks? Are you thinking about taking some profits? Have you rebalanced your portfolio? Are you still wondering whether it's time to get in, in the first place?

Find us on Facebook and Twitter. Our handle is @CNNBottomLine. My handle is @ChristineRomans.

I'll be back later today at 1:00 p.m. Eastern with Ali Velshi on "YOUR MONEY."

"CNN SATURDAY MORNING" continues right now with the top stories.