Friday, August 6, 2010

July Payroll Report Marks 3 Years of Job Losses

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.

The U.S. lost 131,000 thousand jobs in July. It has now been three years since the first job losses appeared in August 2007. Despite over three trillion dollars in government deficit spending since then, the employment situation has yet to turn around.

While job losses date back to August 2007, they didn't become consistent until 2008 and 2009.  Every month in that two-year period, except November 2009 had a decline in payrolls. Job gains were reported between January and May 2010, with payrolls increasing over 200,000 in March, April and May. The U.S. economy needs to add 200,000 jobs a month just to stay even because of new entrants into the labor force (recently the mainstream media has downgraded this long accepted number to 100,000 in an effort to make things look better). Unfortunately, most of those jobs added in the spring were part-time temporary Census positions and now those people are being fired, so job losses have returned. There was a loss of 221,000 jobs in June - revised downward from the originally reported loss of 125,000.

The BLS (Bureau of Labor Statistics) reported this month that the private sector added 71,000 jobs. Only three sectors accounted for most of these 'gains' - Health Care, Motor Vehicles, and Transportation and Warehousing. Health care and Social Assistance added 27,000 jobs. Health care has been the only sector to continually add jobs during the downturn. Government and Education were the other two categories that frequently added jobs. Education and Health Care jobs mostly come from the government or are paid through government programs and should not be considered private sector. Motor Vehicles gained 21,000 jobs through the magic of seasonal adjustments, not by actually hiring more workers. Transportation and Warehousing added 12,000 jobs.

The headline unemployment rate (U-3) for July was reported as 9.5%. This compares to 4.6% rate in August 2007. Including forced part-time workers and some discouraged workers (U-6), sometimes referred to as the underemployment rate, the July 2010 rate was 16.5%. The reported unemployment rate would have been much worse if close to a million people didn't supposedly leave the U.S. labor force in May and June of this year. This was a truly amazing finding considering as many as 6.6 million American students graduated from high school and college in those two months. While all of them didn't enter the labor force, most of them that did were without jobs when they graduated. Where are they in the statistics?

The U.S. labor situation began to deteriorate three years ago. Since that time, trillions were spent in bailouts, there has been approximately $3.5 trillion in federal deficit spending, and the Fed has kept interest rates as zero percent starting in December 2008. The public was promised over and over again that each program would make things better. The stock market has rallied on that good news over and over again. Empty promises and fantasy statistics will only work for so long however. At some point we will find out for just how long.

Disclosure: No positions.

Daryl Montgomery
Organizer, New York Investing meetup

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.


Broken Bob said...

Thanks for your excellent commentary, Mr. Montgomery. Reading between the lines of your analysis, one gets the impression that government stimulus programs have been totally inept. However is it not true that sans government stimuli, the employment picture would have been even more horrific than the scenario that unfolded? What do you think of Dr. Krugman's analysis, which is at least as pessimistic as yours *except* he predicts deflation and imminent danger of a Japanese-style "lost" period? You warn of hyperinflation, but how the heck can that occur as we kiss our corporate masters' rings, grateful for keeping us employed with wages frozen while under threat of layoff? As for all the cash that's been printed by the Fed, it is in the clutches of the uber-rich. The very last thing they want to do is share it with the middle class wage earner, a necessary cog if there is to be inflation. Please reconsider that part of your analysis. (P.S. This comment is not meant to be critical -- on the whole your analysis is excellent. But please explain how inflation can occur when 80% of the population is dirt poor, and getting poorer by the day in this dismal economy.)

New York Investing meetup said...

To Broken Bob:

How can hyperinflation exist when 80% of the country is dirt poor?

How poor was Zimbabwe when it had 94% unemployment (yes that was the UNEMPLOYMENT rate, not employment)? It had the 2nd highest rate of hyperinflation in world history. Increased impoverishment of the public is the handmaiden of hyperinflation. The two states are not contradictory, but go hand in hand.

Broken Bob said...

Neither the Zimbabwe dollar nor the Weimar German mark had been the world's reserve currency prior to hyper-inflation. How does one hyper-inflate the dollar, the world's reserve currency, without hyper-deflating everyone else (as U.S. demand for imports falls to zero due to price)? Perhaps in a future column you can explain how this scenario can realistically develop in the future, e.g. first step = loss of world reserve currency status for the dollar? Do you see any signs of this occurring and if so, please identify them in a future column. And again thank you for your excellent posts, and for your response to my original question.

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