U.S. Employment — The Spring of Discontent

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 BLS, the U.S. economy created only 69,000 jobs in May 2012. The previous two months were revised down, March from 154,000 to 143,000, and the April from 115,000 to 77,000. Although the U.S. economy is not creating enough jobs for new entrants into the labor force, the BLS claimed the unemployment rate was only 8.2%.

Early in the year, the mainstream media was filled with reports of the recovering job market and a U.S. economy on the upswing. The average reported monthly job gain was 226,000 a month in the first quarter — a healthy amount if it were true. There was more than enough reason to believe it was not true however. The jobs numbers are seasonally adjusted and the winter was unusually warm meaning the usual large layoffs in industries like construction didn't take place. Nevertheless, the BLS adjusted its figures as if they had.

If the better figures in the winter were created by seasonal adjustments and not a better economy, then the spring figures should consequently be weak. This is exactly what has happened. The telltale sign can be found in the May Construction employment number — down by 28,000 last month when it should have been strong.

Almost all the job gains came from only two sources last month, Health Care and Social Services (33,000)  and Transportation and Warehousing (36,000). Health Care is the only category that consistently added jobs during the Great Recession. If the BLS numbers are projected out to the distant future, almost every American in the labor force will eventually be employed in this field.

As usual, comparisons with five years ago indicate that the U.S. economy is still in serious trouble. There were almost 3.7 million less people employed last month than in May 2007. At the same time, the over-16 noninstitutional population has increased by nearly 11.5 million or around 192,000 per month. Yet, the BLS claims that the U.S. labor force has grown by a little over 2.2 million or approximately 37,000 a month. There is a major disconnect between those numbers and it indicates that a lot more Americans are unemployed than the BLS headline number indicates.


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.

New Home Sales: Still at Depression Levels

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 June New Homes Sales figures were released today and the Commerce Department claimed they were up almost 24%. Stocks rallied strongly on the supposedly good news. A revision of May's all-time low number to a much worse all-time low number is what gave the appearance of a strong rebound.

New home sales for May were originally reported at a 300,000 annual rate last month. This compares to a high of around 1.4 million in 2005. It was also the lowest number ever recorded in the history of the data. As bad as 300,000 was, and it was truly awful, there was a significant downward revision for May sales in the current report to only 267,000.

May sales were also not the only month with a downward revision. The figures for April were originally reported as 504,000 in the report released in May. Then in the report released in June, they were revised lower to 446,000. Then in today's July report they were revised downward again to 422,000. Do we see a trend here?

The home buyer tax credit was good until the end of April. With the revised numbers, new home sales actually fell 37% in May, not the merely disastrous 33% originally reported. The drop from the originally reported April number was 47% however. If you wish to claim there was a 24% rebound for the numbers in June, as the government did, you need to put it in the context of a 47% drop first taking place, otherwise you are comparing apples to oranges. No matter how you look at it though, new home sales were and still are at depression levels.

New home sales figures have been continually revised downward for several months now. It is highly likely that the 330,000 number just reported for June will be revised lower next month and quite possibly lower again the month after that. The Commerce Department reports the best number possible the month of the release. The mainstream media then gives that news big attention and uses it to reinforce an image that government programs are being effective. When the downward revisions take place in future months and indicate things aren't quite so rosy, that news gets buried in the article - if it is mentioned at all. This is not the only U.S. government data where this pattern exists, nor does this only take place in this country. Investors shouldn't let themselves be tricked by this game.

Disclosure: No positions.

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.

First of the Month Indicator Gives Bear Market Signal

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.


It was a horrendous day in the markets on Friday June 4th. Trouble began when the euro broke support and selling then spread from Europe to North America. A disappointing U.S. jobs report added to the downward pressure and stocks sank. The small cap Russell 2000 had a mini-crash. The first four trading days of the month were down for the second month in a row, indicating we have established a bear market trading pattern.

Problems began in Europe with rumors of a possible default of a major French bank. Another European country, Hungary, indicated its finances were in trouble. The euro (FXE) fell below the key 1.20 level and traded as low as 1.1919 taken out the 1.1920 low in March 2006. Adding to the woes in Europe was the May employment report that came in well below expectations. Almost all the jobs added were from Census hiring and those jobs will disappear almost as quickly as they appeared. U.S. markets gapped down on the open.

Selling in U.S. stocks was almost continuous throughout the day. By the close, the Dow was down 323 points or 3.2%. The S&P 500 dropped 38 points or 3.4%. Nasdaq was worse still, losing 84 points of 3.6%. The Russell 2000 though gave up 33 points or 5.0%. The rule of thumb is a 5.0% drop in one day is a mini-crash. The Dow closed at 9932, which is the second recent close below the key 10,000 level. This one took place on Friday, so it appears as a loss of technical strength on the weakly charts, a more serious problem than if it had occurred just on the daily charts as was previously the case.

Even worse was that all four major indices were down for the first four trading days of the month. This is a typical bear market pattern. It does occasionally happen in bull market rallies though, so to be significant there needs to be two months in a row with a loss in the first four trading days. May also saw just such a loss, so the two down months in a row have now taken place. A bear market doesn't mean the market isn't going to go up again. Bear markets are known for their sharp and sudden short covering rallies. Traditionally, it means that traders should switch to shorting the rallies instead of buying the dips. Adept short-term traders can of course play the market both ways.

Classic market watchers will not consider stocks to be in a bear market until they've lost 20% of their value. Investors of course should never accept that type of loss. By the time that confirmation takes place; a lot of money is already gone from your brokerage account. So far, the Dow is down 11.5%, the S&P 500 12.5%, the Nasdaq 12.3% and the Russell 2000 15.0% from their respective peaks. Market observers agree that this is a correction because all the indices are down more than 10%.  Informing investors of how much they've lost after the fact is not particularly helpful. The idea is to avoid these events before they take place. If you check, you will see I published a number of articles warning of the sell off before it started.

Disclosure: No positions

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.