Friday, September 2, 2011

Recovery Goes Jobless in August


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.

More evidence that the U.S. economy is grinding to halt was provided by the August non-farm payroll numbers today. According to the BLS (the Bureau of Labor Statistics), the U.S. economy produced no additional jobs in August, the unemployment rate remained unchanged at 9.1%, and average hourly earnings declined. The June and July numbers were revised downward with 58,000 less jobs than originally reported.

Almost every category lost jobs in August except for health care and social assistance, professional and business services, and mining and logging. Health care and social assistance added 30,000 jobs. This category was the one perennial gainer during the Great Recession and its aftermath. Even though many of these jobs are government related, they are classified as private sector by the BLS. Professional and business services added 28,000 jobs. A footnote in the report states that this number includes jobs from other unspecified categories (could those be government jobs that are included to make it look like private sector employment is better than it actually is?).  Mining and logging added another 6,000 jobs.

Year over year comparisons were even more dismal than the monthly numbers suggested. There were only 400,000 more people employed in the U.S. this August compared to August 2010 (see Household Data, Summary Table A on the BLS website for the details). This is the actual net number of new jobs created in the last year. This has averaged 33,000 a month. At the same time, the non-institutionalized civilian population has been growing at almost 150,000 per month. Yet, during this time period, the unemployment rate fell from 9.6% to 9.1%.  This has happened not because a lot of jobs were created, but because approximately 2.3 million people left the labor force.

Despite close to zero percent interest rates and the trillions of dollars of stimulus thrown at it, the U.S. economy seems incapable of producing jobs. The only thing that has prevented the reported unemployment rate from rising into the double digits is the large numbers of people exiting the labor force (they are not counted as unemployed). This doesn't happen when a real economic recovery takes place. People rush into the labor force as jobs become more plentiful. Unemployment rates also don't remain at the 9% level if the economy is doing well as has constantly been reported. Mainstream press claims to the contrary,  a "jobless recovery" just doesn't exist in the real world (nor are there tall midgets or thin obese people). Based on the jobs numbers, investors should assume that the U.S. has been in a chronic state of recession and chronic stimulus is needed to keep things from getting worse.   

Disclosure: None

Daryl Montgomery
Author: "Inflation Investing - A Guide
Organizer, New York Investing meetup

This posting is editorial opinion. There is no intention to endorse the purchase or sale of any security.

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