September Jobs Report Indicates Economy Dead in the Water

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.


September was the 15th month with the U.S. unemployment rate was at or above 9.5%.  The underemployment rate, which includes forced part-time and some discouraged workers, rose to 17.1%. While the Great Recession supposedly ended in June 2009, well over a year later the employment figures have still failed to show any significant improvement.

Private sector hiring was tepid to say the least in September. While the BLS (Bureau of Labor Statistics) claims that there were 64,000 private sector jobs added last month, only two categories dominated hiring - 'leisure and hospitality' and 'health care and social services'. Leisure and hospitality, which includes drinking establishments, added 38,000 jobs. It is perfectly understandable why people would want to drink more considering the state of the economy.  Health care and social services (the mainstream media always leaves out the social services part), which is the only category that continually added jobs during the recession, added 32,000 jobs. Why social service jobs are counted as private sector jobs is a of course a mystery known only to the BLS. Education jobs are also counted as private sector, even though most of them are paid for with taxpayer money. Many health care jobs are of course also government funded.

Government jobs actually counted as government jobs dropped 159,000 in September. Almost half of this was accounted for by a loss of 77,000 Census positions. Considering the Census was supposedly finished months ago, this leads to the obvious question: What have these people been doing since then? Another 76,000 jobs were lost by local government. The Obama administration's February 2009 stimulus package provided a lot of funding for localities to pay for police, fireman and teachers. This funding seems to already be running out. What will happen in 2011, when the stimulus money has been completely spent?

The economic establishment has told us that the U.S. economy has had four quarters of recovery so far and we have already in the fifth. Employment hasn't shown any recovery however. Up to now, the claim have been that this is because employment is a lagging indicator (something that only showed up in the 1990s after a number of 'adjustments' had been made to how GDP and the inflation figures were calculated). The employment lag has already been several quarters and it now looks like it is heading for several years.

Disclosure: No positions.

Daryl Montgomery
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 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
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.

Bernanke Testimony Indicates Fed Still in Denial

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.


Fed Chair Ben Bernanke testified on Capitol Hill today and didn't disappoint. As usual, his lack of insight into the true state of the U.S. economy boggles the mind.

The key takeaway from Bernanke's remarks is that the U.S. economy is strong enough to withstand the fiscal tightening ahead. Bernanke then promptly undermined this claim by admitting that the housing market has "firmed only a little" since mid-2009 and that it will take a long time before 8.5 million jobs lost during the Credit Crisis will be restored. What Bernanke left out was that even though the federal government has spent trillions on bailouts and efforts to directly and indirectly prop up the U.S. housing market, it has managed to get only slightly better. As for the jobs lost, what will that number be after the 1.2 million temporary Census workers are let go in the next few months? A 10 million lost job figure is probably more realistic.

It is of course not surprising the U.S. economy has gotten better after the government has pumped trillions of dollars in extra spending into it and given banks credit at zero percent interest. What is surprising is how little improvement there has been given these extraordinary and unsustainable measures. There is little evidence of private sector hiring in the job market and moreover the weekly unemployment claims are stuck over the 400,000 number that indicates layoffs are taking place at a recessionary level. The U.S. economy is also dependent on consumer spending. This accounted for 72% of GDP before the Credit Crisis. Consumers not only have job problems, but they are also losing access to credit. While credit card debt is dropping rapidly, there was a minuscule increase of $1.0 billion increase in overall consumer credit in April. Loans held by the federal government increased by $1.7 billion.

Nevertheless, Bernanke is confident that "gains in final demand will sustain the recovery in economic activity" even though "support to economic growth from fiscal policy is likely to diminish in the coming year". Bernanke went on to state the federal budget deficit is was estimated to decrease by $500 billion in fiscal year 2011. It was not clear where in the private sector the 'final demand' would be coming from to make up the reduced spending from the federal government. It certainly doesn't look like it will be coming from the over leveraged American consumer. As for the reduction in the budget deficit, prior to the last year of the Bush administration, the record budget deficit in total was less than $500 billion. A reduction by that amount now indicates the federal government will be spending $1.1 trillion more than it is taking in during 2011. That is still an enormous amount of deficit spending and hardly indicates an economy that can function on its own without constant ongoing government stimulus.

What led to the tragedy of the Great Depression in the 1930s were major missteps from the Federal Reserve and the federal government. The Fed put the interests of the banking community over those of the American public and this is what turned a bad recession into a bad depression. This was combined with an ongoing campaign of denial of the problem on Washington's part. Herbert Hoover gave a press conference in June 1930 announcing the Depression was over (it was only just beginning). The similarities to all the talk coming out of Washington today about economic recovery should give investors pause.

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.

U.S. Unemployment 15.8%; Grade Inflation on Bank Stress Test

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

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While the headline number for the Employment Report this morning said that there was an unemployment rate of 8.9%, a more realistic number is 15.8%. The latter number includes discouraged workers and workers who can only find part-time work. Since the recession began in December 2007, the U.S. government admits to losses of 5.7 million jobs or 4.7% of the work force. This is the largest decline since the 1957-58 recession (please note that 1958 was one of the top 10 best years for the U.S. stock market in the 20th century and that the unemployment rate almost always peaks after a recession has ended). Yesterday, the long awaited and heavily leaked government stress test for banks was finally released. As one expert said the "apparent frankness" of the report should be a relief to the markets. 'Apparent' was the operative word in his remark, since this report has little to do with reality and is merely a feel good public relations ploy.

There was nothing good in today's unemployment report. There were 539,000 job losses overall and 611,000 losses in the private sector (the more important number that is never put in the headline). Lot's of part-time hiring of U.S. census workers (for 2010) by the federal government helped make the number look better. Even though there have been many recent announcements of state governments laying off workers because of budget difficulties, the report said state and local governments increased employment by 6,000. Other than government, only the health care sector added jobs (as is has every month since the recession began). There were massive job losses everywhere else. Job losses for February and March were increased by 66,000. Expect today's 539,000 number to be higher in the future as well, but no one will be paying attention when the worse number comes out - and the government is well aware of that.

To no one's surprise the Stress Test for U.S. banks showed they needed more capital, but not too much more capital that anyone should worry about it. The total given was $75 billion, not really that much considering these are the biggest financial institutions in the country. Bank America accounted for the largest chunk of this, with a need to raise $34 billion. Its government forced takeover of Merrill Lynch is what pushed it into a big capital deficit. Wells Fargo and GMAC were next on the list, with a need to raise $13.7 billion and $11.5 billion respectively. Citigroup only needs $5.5 billion. What happens if the banks can't raise the capital in the open markets? The U.S. government will provide it to them through TARP. All in all, you shouldn't pay much attention to this report . It was meant to be reassure the public and investing community that everything was actually fine with the financial system. And as long as the government is willing to continue to keep an unlimited supply of bailout money available, things with the banks will indeed be OK.

The stock market had a rather sharp sell off yesterday because it was too overextended on the upside. Some more selling will be needed to help relieve the pressure. This should be taking place in the near future. There is money to be made by buying into stocks which have had big gains followed by sharp drops and then trading out shortly thereafter. Watch for these opportunities. While a bigger sell off seems to be awaiting us in the summer, 2009 might turn out to be a decent year in the market. The best year for U.S. stocks in the last 100 was 1933, just off the bottom of the Great Depression. Other than a glimmer of hope that things would get better, the economic state of the U.S. was disastrous. Almost everyone avoided the stock market and missed the best money making opportunity of a life time.

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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.