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YOUR BOTTOM LINE

The Politics and Economics of Friday's Job Report; Drought Causes Rising Food Prices

Aired August 4, 2012 - 09:30   ET

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


CHRISTINE ROMANS, HOST: There are only three more job reports until the election, how you feel about your job is more critical than ever.

Good morning, I'm Christine Romans. Mark Twain once said there are lies, damn lies and statistics. Let me give you the statistics. The job market created 163,000 new positions, net new positions of the month of July. And the unemployment rate went up to 8.3 percent.

When you dig into the numbers you can see it's the private sector that's doing most of the hiring here and it is the government sector that continues to lose jobs.

When you look within the sectors you can see that leisure and hospitality, 27,000 jobs created there. That's probably a sign that the consumer is still holding on. Those are low wage jobs, though, if you are working in them.

And in manufacturing 25,000 jobs created, net new jobs. That's even with the head winds from Europe.

I want to dig into the numbers longer term. Because one month is just one month. The trend is so important when you're looking at the jobs market. This is that terrible, disastrous financial crisis and all the jobs lost, millions of jobs lost in that period. And this is the recovery. And this is what politicians fight about. This is the recovery here. You had a weak spot last summer, a weak spot this summer and now a job market that's doing just a little bit, a little bit better.

So what are the politicians saying about it? I gave you the statistics. Here's the spin. The White House focuses on this. 29 months in a row of private sector job growth. The economy has now added private sector jobs for 29 straight months for a total of 4.5 million jobs during that period. And what about Governor candidate Mitt Romney and the Republican National Committee? They tend to focus on this. We've now gone 42 consecutive months with the unemployment rate above eight percent. Both of them are right, by the way.

I'm joined by CNN political director Mark Preston, Diane Swonk, chief economist of Mesirow Financial and Peter Navarro, professor of economics at the University of California, Irvine, and the director of the new documentary film "Death by China."

Mark, if the economy can do this three more times, President Obama will have gained back all the jobs lost at the beginning of his presidency. Does that get him re-elected?

MARK PRESTON, CNN POLITICAL DIRECTOR: Well, you know, historically or since World War II, a president hasn't been re-elected with the unemployment rate over 7.4 percent but as you point out, you know, he basically took office with the unemployment rate at 8.3 percent. That was in February of his first year in office. The question on voters' minds is exactly what you said. It's all about a trend line, it's all about people having hope and feeling that they're getting out of this bad economic situation. But they're also going to say to themselves, when does he become responsible for the economy? Is it one year in? Is it two years in? We've heard him over and over again, Christine, say he inherited this mess at some point, though, he has to take responsibility for it and that's what the Republicans are trying to attach to him right now.

ROMANS: And Diane Swonk, Mitt Romney is looking forward. He is claiming he can create 12 million jobs over the next four years if he is president. That has happened before, it happened from 1996 to 1999. Millions of jobs were created. How do you create 12 million jobs over four years? Is it possible?

DIANE SWONK, CHIEF ECONOMIST, MESIROW FINANCIAL: It's possible, it's not probable in this kind of economic environment when you come out of financial crisis and with the dysfunction in Washington, it's certainly not very probable at all. In fact, they sort of kicking the can down the road on the fiscal cliff and having that hanging over our head. Even if we avert it, there could be a down grade in our debt, which would have long-term repercussions and stifle growth over the longer haul. So I think that, you know, to compare this, it's first of all, for anyone to come in with a silver bullet, if there is a silver bullet to be shot, it would have been shot already.

ROMANS: And in economics we want numbers, you know, we want statistics. Not lies and damn lies. And frankly, when you in the middle of an election year, people -- people look at the numbers like this. Will it make them feel better about their personal situation what they saw this month?

SWONK: Actually, you know, I think, well, first of all, some of that month's data was skewed. The manufacturing data was skewed by the fact that the auto makers didn't retool and shut down --

ROMANS: That's right.

SWONK: -- like they usually do in the month of July, and these auto sales haven't been that great. So, there'd be some giveback on that. Encouraging, almost all of those leisure -- actually more than all those leisure and hospitality jobs, they are actually in accommodations and eateries. So, the rest of them were actually declines -- museums and stuff.

ROMANS: Right.

SWONK: People aren't going to museums, aren't doing cultural stuff. But they are taking some discretionary vacations. That's good. So, but there weren't things like increased hours work. The stuff you want to see that sort of is a signal that things going forward. And the unemployment rate when you broke that down, the households (inaudible). That really was a very nasty report.

ROMANS: Yes.

SWONK: So at the end of the day, the measure of our misery is the reality of 8.3 percent on the unemployment rate. It's the reality of a shadow unemployment rate in the double digits.

ROMANS: Right.

SWONK: It's the reality that we've had people that are getting marginalized more and more in a cumulative way. And you know, you can blame one person or the other, you can blame one party or the other, we got into this together. We need to get out of it together.

ROMANS: Yes, and there is no allowed bipartisanship. You know, Peter, I want to focus on something that Diane just pointed out that 25,000 manufacturing jobs added. There's this popular narrative that there's somehow this manufacturing comeback in the United States. Diane pointed out that it may have been fewer layoffs in, you know, temporary layoffs in the auto industry. What do you make of that?

PETER NAVARRO, PROFESSOR OF ECONOMISCS, U.C. IRVINE: Well, 25,000 new manufacturing jobs pales in comparison to the 6 million manufacturing jobs we've lost to China in the last ten years. And the thing about manufacturing jobs is that they have the best multiplier for new jobs. So if you have one manufacturing job, you get four more in services. So if we lose 6 million manufacturing jobs to China, that's 24 million jobs that we've lost over the decade and that's the problem here.

I mean if you look at the numbers, we have to create 300,000 jobs a month for two years just to drive that unemployment rate from 8 percent down to 5 percent. And the silver bullet here really, and what we -- what the politicians don't seem to understand, the silver bullet is getting our manufacturing jobs back on shore. We need to get Apple, Boeing, Caterpillar, Cummings (ph), GE, GM, Ford, they need to produce here in America, and they can't do that as long as our biggest trading partner cheats.

And I think we're really fooling ourselves here in this country if we think that the problem only dates back to 2007. As a practical matter, for the last ten years, we've grown at an annual rate of 1.6 percent GDP. Five and a half decades prior to that, we grew at 3.5 percent GDP. Now, one GDP point is one million jobs we create a year. So if we're losing 2 million -- 2 percentage GDP points a year, that's 2 million jobs.

(CROSSTALK)

ROMANS: Peter, listen to you talk about the last 20 years and using, you know, a wide, wide perspective. This is politics, right? In Washington people think in quarters in election years. But that's really --

(CROSSTALK) NAVARRO: And -- and more importantly, the corporate -- the corporate types do. And I think you're right. But if, you know, I think the candidate who's going to win in November is the candidate who takes this message to Ohio and Pennsylvania and Michigan. The best jobs program is not more fiscal stimulus, it's trade reform with China.

ROMANS: I'm not hearing much about trade reform on the campaign trail.

NAVARRO: And they need to understand that.

ROMANS: To be honest with you. We're going --

NAVARRO: I know, and --

ROMANS: Let's hold on, keep your thought. Because we have to go on -- pay the bills for two minutes and I want to talk about this more. Diane, Mark, Peter, don't go away. Up next, if a third of Americans jobs are low wage, low paying jobs, and the manufacturing jobs are all in other counties, what happens to the American middle class and which candidate has the policies to fix it? Plus, from an economic storm to the Midwest drought, I return home to Iowa to see the drought damage for myself. It's devastating. Crops, particularly corn is the reason you'll be paying more for your groceries next year.

(COMMERCIAL BREAK)

ROMANS: By the year 2020, almost a third of all American jobs will be low wage, low paying jobs. Peter Navarro, can the American middle class maintain the standard of living the way things are going right now?

NAVARRO: Absolutely not. I mean, if you look at Germany, 25 percent of their workforce is in manufacturing. Here in America, it's down to nine percent. We simply cannot generate a decent standard of living in a 3.5 percent GDP growth rate a year unless we have manufacturing. And I'm not talking about making t-shirts, I'm talking about things like making automobiles and aircraft and sophisticated medical equipment. We can do this here.

But the problem we face in this country is that our biggest trading partner not only cheats in terms of illegal subsidies and currency manipulation, it protects its own markets. I mean the idea, it was like, oh, great, they've got 1.3 billion people. Biggest market in the world, it's going to be a gold rush.

The fact of the matter is the Chinese won't even let us into their markets unless we surrender our technology. So, this is a structural problem that we've had for ten years now, and I would love to hear the White House, I'd love to hear Mitt Romney, I'd love to hear our congressional leaders start talking about the jobs -- the best jobs program is trade reform with China.

ROMANS: Let's bring Diane, because she is -- you are from Detroit, right?

SWONK: I'm an old Detroit girl. I am an auto analyst at heart. That's where I grow up. You know, this has been going on since the early 1980s. You know, we actually had output increase in the auto sector, and the number of jobs decrease because productivity gains picked up. And we're seeing onshore (ph) now because of some of the things Peter talked about.

China cheats. People don't like it when they set up a manufacturing plant, and in the next, you know, in the next six months China picks up all the technology and everything that they are making their profits on, all of a sudden, they give away. Wages are going up in China. All the things that are equalizers in China are now starting to repel people from China. Now, we're selling a lot of the cars in China, that we're importing over there and also producing over there.

ROMANS: But is it enough to make a dent in as Peter pointed out, the 6 million jobs that have gone?

(CROSSTALK)

SWONK: The 6 million jobs that have gone -- have gone for several reasons. I mean, first of all it was Japan, and then, you know, Honda set up in 1982 a plant in Ohio. You know, we've got foreign manufacturers setting up plants. You do not produce where you sell. We're getting very efficient at production, and where the job shortages are in the sort of, you know, 18-month licensing, sort of degrees, the machine tools, the jobs we never thought would exist in manufacturing again. That's what is coming back.

ROMANS: But tell me about those jobs. Is it -- when I talk to CEOs who work in that -- those industries, they tell me they just can't find American workers who can do these jobs. And they are not going to invest in the training, because technology might change too quickly. What do you want? I mean how can there be 13 million people out of work but nobody has any workers?

SWONK: You know, it is interesting, because, you know, the CEOs did not have to pay for education for a long time. And we have an educational system that trained people to work in factories without thinking. And now they have to work in factories and think.

ROMANS: Right.

SWONK: So, that's where the difference is. The good news is, we are seeing a ton of partnerships going on. On 18 months, you know, private sector, public sector partnership, with community colleges, state colleges.

(CRSOSTALK)

SWONK: And those -- those actually are working and those people are getting jobs. They're getting multiple job offers. The hit rate is really high. But, you know, I mean, Boeing is training people, six- figure jobs to work only on their equipment, where you are kind of stuck with their equipment, but it's a good job.

ROMANS: You know, Mark, for the politics of this, this doesn't really translate on the campaign trail, does it? You know, Peter is right, you don't hear this carefully crafted language about how you're going to handle trade issues?

PRESTON: No. Because it's not sexy enough. And what you will hear, is you will hear them, certainly Mitt Romney has said in the past couple of days that he's going to be harder on China and make it more difficult to this kind of sit down at the table with them and tell them that they have to, you know, work better with us.

But beyond that, people don't want to hear the bullet points, and they don't want to hear the bullet points, because bottom line they're trying to pay their mortgage, they are trying to put their kids through school, they are trying to save their jobs, they just want Washington to work correctly. They want President Obama or Governor Romney to deliver on the promises. But basically, you know, when we talk about the unemployment rate, this macro number of 8.3 percent, it's very important.

But the bottom line, Peter hit on it a little bit earlier, this is going to come down to swing states. The is going to come down to, to the unemployment rate when we get those numbers, you know, shortly, what is the unemployment rate in Nevada, what's it in North Carolina, what's it in Ohio, and what is it in Florida because those are the key states --

ROMANS: Yes.

PRESTON: That are really going to decide who wins the election.

ROMANS: In several of those key states, the unemployment rate is lower now than it was when the president took office. It will be interesting to watch. Peter, Mark, Diane, thanks everybody. Have a great weekend.

Farmers in the heartland are waiting for rain. Rain that won't come. I'll tell you how drought in the Midwest will cost you no matter where you live. That's next on YOUR BOTTOM LINE.

(COMMERCIAL BREAK)

ROMANS: You'll be paying more for your groceries next year. That's because the worst drought in 50 years is causing irreparable damage to crops and driving corn, soybean and wheat prices higher. More than 60 percent of the continental United States is experiencing some form of drought, and experts say it's getting worse. The Agriculture Department says beef prices will rise between four and five percent next year. Eggs, the price of eggs will rise between three and four percent. And you will pay three to four percent more for fresh vegetables.

Now the drought threatens our energy supply as well. Water shortages are forcing cutbacks in oil and natural gas production. Nuclear power plants, which rely on water for cooling, they've reduced their output. And with nearly 90 percent of the nation's corn in areas hit by drought, corn prices have spiked, that means ethanol prices are higher, ethanol prices are up 30 percent since the beginning of June. Now, the United States produces 38 percent of the world's corn and Iowa produces more corn than any other state.

I returned home to Iowa to see the drought damage for myself. I'd talked to fellow Iowans about what it means for their farm and their future. What they need more than anything else in Iowa right now, rain.

(BEGIN VIDEOTAPE)

ROMANS: What are the two things that farmers talk about when they sit around the cup of coffee?

UNIDENTIFIED MALE: Will it rain? Did you get any rain? Who got rain?

ROMANS: Three versions of rain.

UNIDENTIFIED FEMALE: Last week it was 105 degrees. And the ground temperature was 145 degrees.

ROMANS: So it's being baked from the top on the bottom.

UNIDENTIFIED FEMALE: Yes.

ROMANS: You can see there's not much there to help the plant to move the nutrients up and in to get that water up and in.

UNIDENTIFIED MALE: When it's 100 degrees, I mean that's just pretty much fries all this stuff.

ROMANS: It's fried.

This is, for some farmers, they've never seen in the field this many poor ears right now --

UNIDENTIFIED FEMALE: Probably not, not in the last 20 years.

UNIDENTIFIED FEMALE: I'm going to be honest with you, one time in my life I think I've seen a field like this, and that would have been '88.

UNIDENTIFIED MALE: But there is no moisture here --

ROMANS: Do you think farmers are more prepared after '88? Do you think more of them have insurance now?

JOE DIERECKX, FARM OWNER AND PRESIDENT, CLINTON COUNTY FARM BUREAU: Absolutely. So, in '88, we didn't have insurance, so we had to suck it up, really, and the government had a disaster program, and they tried helping us out. They required us, if we were going to be in the farm program, that we had to buy insurance so that we would protect ourselves.

ROMANS: Right.

UNIDENTIFIED FEMALE: So, to figure out if it's pollinated, if you just shake it like this, you can see that's how many are still attached, you know how many kernels that are probably going to abort. JAKE DENGER, FARM OWNER: My dad farms, you know, his entire life, my grandpa farmed his entire life. It is done.

ROMANS: This is done? If it rains, this is not -- it wouldn't help here?

DENGER: If it rained right now, it wouldn't be doing any good.

ROMANS: So you've sort of surrendered. The corn should be tall and lush and green in the fields. Instead, this is a cornfield, a dry, almost worthless cornfield. This farmer's decided to just plow over, chop up and feed it to his animals. This is basically the beginning of the harvest, the harvest that many thought this year would be great. Instead, at least in this case, it will be a bust.

UNIDENTIFIED MALE: This is just junk.

ROMANS: So, in this junk is seed cost, labor cost --

UNIDENTIFIED MALE: Yes.

ROMANS: Land cost, insurance cost.

UNIDENTIFIED MALE: Yes, they don't ever --

ROMANS: Spray costs.

UNIDENTIFIED MALE: -- stop the expenses from coming.

ROMANS: It just -- this keeps sending you a bill, but it's never going to send you a check.

UNIDENTIFIED MALE: Yes, that's right.

The last of my corn is there.

ROMANS: There she is, right there.

UNIDENTIFIED MALE: This year's corn is not going to look that pretty. It's not going to be as dense of the one, two, three, four, five, six bins I have, I think this one will hold my whole crop.

UNIDENTIFIED MALE: I've done pretty much all I can do for this crop, and we've just got to hope mother nature stabilizes what we have left.

UNIDENTIFIED MALE: We'll get by, hopefully, and it is what it is, try again next year. We only get one chance a year, so, try again next year.

(END VIDEOTAPE)

ROMANS: Coming up, he started out walking behind a team of horses cultivating corn. Today the farming is more high-tech, but the droughts are just as devastating.

(BEGIN VIDEO CLIP) UNIDENTIFIED MALE: '36 was real bad.

ROMANS: Wow. And it was bad in '56, it was bad in '88, there were some bad patches in 2005.

UNIDENTIFIED MALE: Yes, but they weren't as bad like it is this year. This year is going to be worse.

(END VIDEO CLIP)

ROMANS: When we come back, you'll hear from the people hit hardest by this drought.

(COMMERCIAL BREAK)

ROMANS: In colonial times, one farmer produced food for four people. Today, one farmer feeds 130. We use corn to make food, to feed our animals, we even turn it into ethanol to blend with gasoline and drive our cars. But farmers are getting older and family farms are shutting down, and now a worsening drought will shrink supplies of a very valuable commodity.

Here in my hometown of Eau Claire, Iowa, as long as anybody can remember, Argo General Store has been a place where farmers gather to talk about their crops. The people you see here have been regulars for decades. Today, they're grim but resilient about what is already an historic drought, and they are praying for rain.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Good morning, Harry!

HARRY VENHORST, 92 YEAR OLD FARMER: Good morning.

UNIDENTIFIED MALE: How are you in this morning, sir?

VENHORST: Good.

ROMANS: Hi. I'm Christine Romans, nice to meet you. My name is Christine.

UNIDENTIFIED MALE: Oh, this man is going to tell you just how bad it is.

ROMANS: How many years did you farm?

VENHORST: All my life.

ROMANS: All your life.

VENHORST: Yep.

ROMANS: So, when did you start?

VENHORST: That's all I've ever done. Huh?

ROMANS: When did you start farming?

VENHORST: I started by my own in '44.

ROMANS: In '44.

VENHORST: Yes.

ROMANS: So you've seen some beautiful crops and you've seen some really terrible crops.

VENHORST: This is one of the years it's a bad crop. This is about as bad as it was in '36.

ROMANS: In '36?

VENHORST: '36 it was real bad crop.

ROMANS: Wow.

VENHORST: Yes.

ROMANS: And it was bad in '56, it was bad in '88, there were some bad patches in 2005.

VENHORST: Yes, but they weren't as bad like it is this year. This year I think is worse.

ROMANS: Farming, has it changed a lot since when you started?

VENHORST: Oh, you talk about changed a lot, I walked behind the team of horses cultivating the farm. That time we cultivated corn, now they don't even cultivate it. That time, we kind of had 18,000 or 20,000 kernel plants to the acre. Now they plant 35,000, 38,000 plants per acre.

ROMANS: What's an acre of farmland around here, I mean --

VENHORST: About ten?

ROMANS: $10,000 an acre --

VENHORST: Yes.

ROMANS: -- which is tough if you're trying to buy a farm, you know?

VENHORST: Well, unless you're Harry.

ROMANS: Unless you're Harry?

VENHORST: Oh, that's not --

(LAUGHTER)

ROMANS: Coffee is on Harry this morning, everyone.

VENHORST: Yes, you get coffee out of Harry, you're going to be doing something.

(LAUGHTER)

UNIDENTIFIED MALE: This is an aerial photo of Harry's place. See all them little white dots?

ROMANS: Yes.

UNIDENTIFIED MALE: Well, that's where all of his cans of money are buried.

ROMANS: That's what it even says! Harry's coffee milk can burial plot map. Oh, you guys are funny. Tell me about what you see when you look at those fields.

UNIDENTIFIED MALE: It's not good.

MARTY RUWE, RETIRED IOWA FARMER: We're probably now only going to get to (inaudible) to combine, but there was some corn on the corn the last four years. This is not very good.

ROMANS: Yes.

RUWE: We need some rain, rain bad. Hopefully, we can save some beans.

BRUCE DEXTER, IOWA FARMER: It looked good, real good early, and now it is kind of worse and worse and worse. We're going to have some pretty decent corn, but it's most -- of it's not going to be very good. There's going to be spots on everything, I believe.

ROMANS: This is as bad as '88?

RUWE: I think it might be a little worse. It started earlier. In '88, it kind of got later and then dried up.

DEXTER: But we'll make it.

VENHORST: We went through good times, bad times, but farming is a great life.

(END VIDEOTAPE)

ROMANS: Lots of you are asking me about America's ethanol policy. Why are we using corn for fuel when corn prices are rising and we need corn to feed animals and people around the world? I want to know what you think about that. You can find me on Facebook and Twitter, at CNNbottomline and that ChristineRomans. I got more video and interviews on our blog, CNN.com/bottomline.

Back now back to "CNN SATURDAY" for the latest headlines. Have a great weekend.