The Only Suprise for March Employment Was that it Wasn't Even Worse

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. created only 120,000 non-farm jobs in March. The mainstream media cited this figure as a surprise because it was well below expectations. The real surprise was that the number wasn't even worse.

Winter month employment numbers came in at the 200,000 level and this was trumpeted as evidence that the economy was finally gaining steam. There were two problems will this line of reasoning. The first is that the U.S. needs to create approximately 150,000 jobs a month for the unemployment rate to stay even (this balances the loss of people retiring with new students and legal immigrants entering the job market).  In order to put any serious dent in the massive amount of unemployment that exists the monthly number of jobs being created needs to be well over 200,000. The second problem was the unusually warm weather during the winter that magnified the impact of the seasonal adjustments.

If seasonal adjustments boosted the numbers in January and February, then lower numbers should be expected in the normally warmer spring months. The weak March number seems to be bearing this out. It is interesting to note that the Retail Trade category lost 34,000 jobs in March. This does not support the idea that retail sales have actually been strong as has been claimed, but that the numbers have instead been artificially boosted by inflation. Retail employment is prone to large swings due to seasonal factors.

The official unemployment rate fell to 8.2% from 8.3%. The obvious question is how can this happen if less than 150,000 jobs were created and that's the amount needed for things to remain in equilibrium? It can only occur if more people than expected leave the labor market. This happened again last month  as has been the case during the entire economic "recovery"(millions of people have left the U.S labor market since the Great Recession began). The mass exodus from the labor market creates a huge reservoir of unemployed waiting to reenter the market if conditions actually improve. This reentry could keep the unemployment rate from falling well into the decade.

People of course do not leave the labor market in droves when the economy is on an upswing. The continued shrinkage of the labor market indicates an economic downturn. Don't expect to hear that from either the U.S. government or the cheerleading mainstream media. Politicians don't get reelected by telling the public bad news.

A key question that usually goes unexamined in reporting about the jobs numbers is the high price the U.S. taxpayer and consumer will be paying in the future for the jobs being created today. The U.S. has run deficits of $1.3 trillion or more since 2009. Pumping all of that money into the economy will of course create jobs, but at what cost?  Unless there is a free lunch, that money will have to be paid back either through higher taxes or higher inflation. Both will lead to lower job creation in the coming years.

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.

U.S. Employment Figures Don't Add Up

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.

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Fed chair Ben Bernanke is up for reappointment and is experiencing some difficult times with his congressional critics. Good news has suddenly and conveniently appeared to bolster his case however, including Bank of America planning on repaying the TARP money it received from the U.S. government and then a big improvement on the non-farms payroll number released on December 3rd. According to the Bureau of Labor Statistics, there were only 11,000 jobs lost in November 2009 and the losses for the previous couple of months weren't nearly as bad as they had reported (the last time there were actual job gains in the U.S. was in December 2007). Independent private surveys don't corroborate the government's numbers.

The U.S. government figures were not completely rosy by any means. They indicate that there were major job losses in Manufacturing and Construction, a significant drop in Information and in Leisure and Hospitality jobs, and amazingly a drop in Retail jobs during the height of the holiday season. U.S. Manufacturing employment fell by 41,000 in November and has declined by an eye-popping 2.1 million since the recession began in December 2007. Construction jobs fell by 27,000. There was also a loss of 17,000 jobs in the Information industries (half of that in telecommunications). Leisure and Hospitality lost 11,000 jobs. Jobs in retail declined by 15,000. You would not know this from reading the BLS press release however, unless you looked at the data attached to the bottom of it. The copy did not mention that there was a job loss in retail, but instead stated "there was little change in wholesale and retail employment".

So where did the job gains come from? Three categories had increases in employment -Professional and Business Services, Education and Health Services and Government. Professional and Business Services was the big gainer adding 86,000 jobs. However, 52,000 of those jobs were part-time. Education and Health Services added 40,000 jobs with 21,000 of these jobs coming from Health Care and presumably 19,000 from Education (which is not known for hiring people in November). Government added 7,000 jobs. The two consistent job producers since the recession began two years ago have been the Government and Health Care categories, with Education also frequently adding jobs (many health care and education jobs are government related).

The BLS claimed that unemployment fell from 10.2% to 10.0% in November. How can the unemployment rate fall when there are job losses? People have to leave the labor force. Barring a sudden population decrease of working age individuals, workers have to get so discouraged form the bad employment situation that they just give up looking. According to the BLS, 2.3 million people are marginally attached to the labor force and are not counted as unemployed because they did not look for a job in the previous four weeks. Another 9.2 million are working part-time even though they want full-time employment. The alternative unemployment rate which includes discouraged workers and involuntary part-time workers was reported by the BLS as 17.2%.

A check on U.S. government employment figures can be gotten from the ISM (Institute of Supply Management) Services and Manufacturing Indices, both of which survey employment as well as a number of other factors which indicate economic growth or lack thereof. The Services Index was released just yesterday and employment came in at 41.6 (under 50 means contraction). Employment in the services sector has been in decline for the last 19 months and dropped from October to November according to the ISM. All the job gains in the government employment report supposedly came from the service sector. There is a major contradiction here.

The November non-farms payroll figures are another government release indicating the U.S. economy is getting better. This one doesn't add up either. Healthy economies don't have major job losses in manufacturing and construction. Nor are jobs lost in retail during the holiday season (they are during depressions, but certainly not if the economy is improving). The big job gains were part-time, not permanent. The unemployment rate is improving because workers are so discouraged that they are leaving the labor force, not because jobs are being added. This doesn't happen if the economy is getting better either. Furthermore private surveys don't support the governments numbers. Investors should be wary. While markets can be fooled in the short-term, in the long-term they trade on reality.

Disclosure: None.

NEXT: Gold in Technical Correction as Dollar Rallies

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.

Non-Farm Payrolls and Its 'Statistical Quirks'

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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When deciding how credible this mornings jobs reports is, you only have to look at one number. According to the Bureau of Labor Statistics, employment in the auto industry went UP by 28,000 last month. Nobody believes this, and I mean nobody, not even the biggest government boot licking financial reporters. Even the mainstream media cautioned that this could be a 'statistical quirk', the polite term in the numbers industry for lying. You should assume that finding one 'statistical quirk' in a report is similar to finding one roach in your apartment. In both cases, there's a lot more that you're not seeing.

The headline number for the report was a loss of 247,000 jobs, which is bad enough as is. July was the 19th consecutive month for job losses. Since the recession has began in December 2007, the government admits that 6.7 million jobs have been lost. Goods-producing industries shed 128,000 jobs, and service-producing industries cut 119,000 jobs, including 44,000 in retail and 38,000 in professional and business services. Unemployment in retail (the largest individual private sector employer) seems to be accelerating. After the 'robust' auto industry gains, health care was the biggest job gainer. Government also added about 7 thousand jobs, but this information was left out of the BLS press release even though it is always reported (when information that has always been available suddenly disappears watch out).

According to the government, the unemployment rate declined to 9.4% (actually 16.3% if you include discouraged workers and involuntary temp workers). You may ask how is it possible for there to be a significant job loss and for unemployment to improve at the same time (could it be another 'statistical quirk')? It's simple - 422,000 people 'conveniently' left the labor force. Even though the O'bama, Bernanke, and Geithner and the BLS in its press release tell us that the economy is improving, large numbers of people are giving up looking for jobs because they think there is no chance of finding one. Somehow, I don't think both of these contradictory views are possible. One of them seems to be a lie - pardon me, I meant 'statistical quirk'.

If you listen carefully to what Obama and Bernanke have been saying for the last several months, you will notice that 'things are getting less worse' is the gist of their statements. The Obama litany is: the financial meltdown has ended (which happened during the Bush administration, but he still takes credit for it), the rate of job loss is slowing, and the stock market is doing better. Bernanke also concentrates on the stock market is getting better theme (and I am sure this is not taking place without some government assistance). The recession is indeed getting 'less worse', although not as much as the government claims. There is also a huge gaping chasm between getting less worse and getting better. However, the government may be able to solve this problem in the future with bigger 'statistical quirks'.

NEXT: The Smoking Gun of the Economic Recovery Scam

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.

Britain Points the Way to U.S. Economic Future

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.

Our Video Related to this Blog:

As of today, Great Britain is officially in recession, joining the U.S., Japan and Germany. Britain's GDP shrank 1.5% in Q4 2008, after shrinking 0.6% in Q3 2008. Those are at least the official figures, it is quite probable that the actual ones are even worse. Notable declines took place in the banking, retail, and manufacturing sectors (just like in the U.S.). The FTSE fell below 4000 and the pound dropped to 1.35 per U.S. dollar, a 23 year low, on the news.

Great Britain was once the premier economy in the world. The British pound was once the world's reserve currency. A rigid class system which guaranteed entitlement to those on top - similar to contemporary Wall Street in the United States - followed by socialist practices that offered entitlement to those on the bottom have over time eroded the country's economic dynamism. Early in the 20th century the capitalist free for all and innovation friendly U.S. began to assume economic preeminence after World War I. U.S. currency dominance was made official at Breton Woods in 1944 toward the end of World War II.

One of the most shocking stories in the history of technology illustrates quite clearly how Britain and U.S. attitudes differed in mid-century and why the U.S. became the post World War II economic powerhouse that it did. Both Britain and the U.S. developed early electronic computers for war time use. At the end of the war, the British government destroyed even the plans for the computers fearing they would fall into the hands of the Russians. The U.S. made the plans publicly available by publishing them, engendering one of the biggest growth industries of all time. The lesson of openness and transparency is currently being lost in the U.S. however with the Federal Reserve and Treasury engaging in significant and frequently secret manipulation of the financial system. In the long term this is only going to prove to be disastrous - although the short term results have been horrendous enough as is.

The response of the British prime minister, Gordon Brown, to the current British recession is that it is a result of global events. In case anyone has forgotten, Gordon Brown was the Chancellor of the Exchequer (equivalent to U.S. Treasury Secretary), who took the decision to sell half of British gold reserves in 1999 , when gold was around $260 an ounce, to buy among other things, U.S. dollars. Brown also has presided over a subprime crisis, 125% housing loans to people who could never pay them back were common, that is much worse than in the U.S. Unfortunately, while Gordon Brown is one of the most economically incompetent officials ever to run a major economy, he has plenty of company on the world stage these days. George Bush is certainly in the running for a close second. Many Japanese leaders in the last 25 years would be up there as well. Because economic idiocracies are common place in the world today, drastic action will be required to fix things. If the U.S. doesn't take appropriate action soon, it will be following Britain down the path of long term economic and currency decline.

NEXT: Unemployment Everywhere

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.

A Black (Plague) Friday for Retail

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.

Our Video Related to this Blog:

Profit for most U.S. retailers is determined by sales from the day after Thanksgiving (known as Black Friday) to the end of the year. There is an old saw in the trade that retailers actually lose money up to Thanksgiving day, and that shopping the next day determines the tone for the holiday season. As of now, that tone looks like it's going to be pretty cacophonous. Retail sales are being hit by a negative wealth effect caused by declining home and stock prices and a reduction in employment and available consumer credit. Without a good holiday shopping season, a wave of retail bankruptcies should be expected next spring - and this is one industry the Fed is not likely to bail out.

This past spring there were eight mostly mid-size retailers that went under, including Sharper Image, Levitz, Fortunoff and Linen 'n Things. In July the department store chain Mervyns declared bankruptcy and on November 11th, Circuit City. Crushing debt levels accumulated during the credit craze days in the early 2000s is what led to the first bankruptcy filings. The high debt load, which is common throughout the industry, combined with a tanking U.S economy will be responsible for the much bigger number of retail failures next year. The set up for Black Friday is bleak. In October, the consumer confidence figures were the lowest on record, literally falling off a cliff. Consumer spending plunged 1%. Same store sales were the worse in 35 years, with apparel retailers generally suffering the most. Discounters, such as Walmart did well however.

Don't expect relief from home prices or the stock market either. The just released Case-Shiller report has U.S. home prices falling 16.6% year over year in the third quarter. The stock market may close the year with the biggest drop on record, although it's too early to make that call. S&P 500 earnings were estimated to be down 21% in October, with financial and consumer discretionary firms bearing the brunt of the losses. Amazingly, brokerage analyst earnings estimates for 2009 have S&P profits increasing 17%, even though many of their own companies are only surviving because they are on the government dole. Recent reports have also indicated hefty outflows from mutual funds, close to 20% of the total so far this year, with investors increasingly losing confidence in the U.S. stock market.

Historians estimate that there was a 35% chance of surviving the bubonic form of the Black Plague during the Middle Ages. Hopefully, the survival rate in U.S. retail will be higher than that. Even healthier chains are closing large numbers of stores however. This pattern is likely to accelerate further and not just because of the bad economy. Rising real estate values have increased rents and have made the break even point for profit much higher than it used to be, just as sales are falling. The Internet of course, offers a cheaper alternative. Expect a lot of empty stores in the future. Also a lot less jobs in the industry. This in and of itself has major implications since retail is the largest employer in the private sector.

NEXT: When Silence Isn't Golden

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.