July Jobs Report Shows U.S. Economic Statistics Are a Joke

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.

According to the Labor Department, the U.S. added 163,000 jobs in July. Also according to the Labor Department, the U.S. lost 195,000 jobs in July. So the U.S. economy is either doing OK or it's falling apart big time. Or maybe something between the two is happening. Confused? You should be.

Two separate surveys are used for the employment report. In one, they ask businesses about the amount of hiring they've done in the previous month and in the other the ask people whether or not they have a job. The amount of jobs created for the month is determined by the business survey and the unemployment rate from the survey of households. As more than one article on the July employment report pointed out today, "economists say the business survey is more reliable". So if you think you're unemployed, but an economist says you have a job, the economist is right.

The unemployment rate ticked up to 8.3% according to the household data.  The two surveys have frequently not seemed to match in the past with minimal job gains resulting in drops in the unemployment rate. The Labor Department explained that this occurred because millions of people have left the U.S. labor force since the "recovery" began in 2009 (150,000 more left in July). Even though these people are unemployed, they are not counted as unemployed and this makes the unemployment rate look better. Why millions of people would stop looking for work during a "recovery" has never been answered. Usually, this type of behavior takes place during depressions.

The Labor Department did not discuss the massive discrepancy between its two employment surveys in its press release. Instead it gave a rosy assessment of all the jobs created last month. This included 25,000 new jobs in manufacturing, even though the recent ISM Manufacturing report (a private survey) indicated U.S. manufacturing activity shrank last month.  So an industry that is losing business is hiring lots of new workers. That certainly makes a lot of sense all right.

One possible explanation for the discrepancy was that "inappropriate" statistical adjustments were made to the numbers in the business survey. While one should never rule out gross incompetence when discussing the output of the government statistical offices, a more cynical person might think that there was a purposeful effort to produce better numbers than actually exist because it's an election year. After all, those pesky downward revisions months later never get any notice from the press and the ugly truth can always be told later when no one is paying attention (and after they've voted).

Disclosure: None

Daryl Montgomery
Author: "Inflation Investing - A Guide for the 2010s"
Organizer, New York Investing meetup
http://investing.meetup.com/21

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

July Consumer Spending - Reports of Its Health Greatly Exaggerated

 

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. stock market reacted jubilantly to July's consumer spending numbers. Apparently, it didn't see the bad news the BLS report contained. Some of this was understandable since the AP (Associated Press) article -- carried by hundreds of news outlets -- seems to have reported more favorable numbers than the ones the government released.

The important take-away from the report was that disposable personal income adjusted for inflation (or more accurately adjusted to reflect some of the inflation that actually exists) was down 0.1%. So if there was any increase in consumer spending, it was taking place on money being borrowed by already tapped out consumers. U.S. consumer debt, including mortgages, is already more than the $15 trillion GDP. Federal government debt is approaching that amount.

Both the BLS and AP reported that consumer spending increased by 0.8% in June. This number is unadjusted for the official inflation rate. The rise was concentrated in the durable goods component of the report. The BLS reported this as being up 2.0% and AP had it up 1.9%. Apparently, U.S. consumers ran out and bought more automobiles and automobile parts in July. According to the government, they then spent less on non-durable goods (items that last less than a year). According to AP, they spent more.

The BLS report had non-durable goods spending down 0.3% in July. AP reported it up 0.7%. Both reports had spending on services being up, the government by 0.5% and AP by 0.7%.  The story reported by AP was far more favorable that the one told by the U.S. government, which was in turn much more favorable than would be the case if some realistic inflation rate was used. The discrepancy for the non-durable and services numbers in the two versions is probably a consequence of AP using numbers not adjusted for inflation. These numbers will always make things look as favorable as possible. This is not news; it's public relations that favors Wall Street and makes the government look like it's doing a better job with the economy than is actually the case. Traditionally, this would be referred to as propaganda.

While the spending on durable goods was concentrated in transportation, increases for services took place because Americans were using more electricity to run their air conditioners during the record hot weather in July. This does not indicate the economy is getting better, nor that it is even flat. It indicates that it was hot in July. Yet, the AP couldn't wait to quote economists that claimed the consumer income and spending numbers that it reported indicated a U.S. economy with rosy prospects. Perhaps they should try including comments on the actual numbers next time.

The BLS report can be found at: http://www.bea.gov/newsreleases/national/pi/2011/pi0711.htm

One of the hundreds of places the AP report can be found is:
http://finance.yahoo.com/news/Consumers-spending-rebounds-apf-1701587266.html?x=0&sec=topStories&pos=4&asset=&ccode=

Disclosure: None

Daryl Montgomery
Organizer, New York Investing meetup
http://investing.meetup.com/21

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.