The Good News, Bad News Jobs Report

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.


There was something for both bulls and bears in the April employment report. The government stated that 290,000 jobs were created last month, a solid enough number. Despite these job gains, the headline unemployment rate rose to 9.9%. If certain discouraged workers and forced part-timers were added, the unemployment rate would have been an incredibly high 17.1%.

It is of course puzzling that the unemployment rate can go up from 9.7% to 9.9% while the U.S. economy is supposedly adding 290,000 jobs. The mystery is solved according to the BLS (Bureau of Labor Statistics) by noting that 805,000 jobseekers reentered the labor market in April. Interestingly, a similar number of workers left the U.S. labor market in a one-month period between December 2009 and January 2010. Perhaps the BLS just misplaced them for four months and finally found them again? Labor force participation is one of the areas where it is easiest to fudge the numbers to make the employment statistics look better.

Seasonal 'adjustments' can also improve the numbers quite a bit as well. The economy usually adds jobs at this time of year and they are appearing right on schedule in the employment report. For an example of how seasonal adjustment works, note the employment numbers in the education category in June. There is generally a 20% reduction in education employment once the school year ends. You will see no such drop in the employment report. The BLS should perhaps give the seasonal adjustment term another name, such as 'make-believe adjustment' for instance, so the public can have better insight into how the employment numbers are created.

The BLS did at least admit that the government hired 66,000 temporary workers in April to help conduct the census. Census hiring has been going on since March 2009 and should have peaked in the last two months. Sources estimate total census-hiring in the range of 1.2 million. I have not found anything near this amount added to the government category in previous reports. However, temporary workers in the Business and Professional category have ballooned during the census hiring period. A footnote in the employment report indicates that jobs added in 'other' categories may be included in the Business and Professional category. We will have to see what happens there in a few months when almost all of the 1.2 million census workers are no longer employed.

To see if the job situation is actually improving, it is always a good idea to compare year over year figures. According to the BLS, the number of people 'not in the labor force' is over two million higher in April 2010 than it was in April 2009. This increase reduces the reported unemployment rate. The employment to population ratio is more than a percent lower today than a year earlier. The worse comparison though is for long-term unemployment (27 weeks or over). This number has grown considerably and is on its way to doubling. A year ago there were 3.7 million long-term unemployed and last month there were 6.7 million. This indicates that the unemployment rate is not just high, but a significant number of the unemployed are having trouble getting new jobs - and this will continue to be the case.

According to recent polls, just 21% of Americans consider the economy to be in good condition. The view of the average person is very different from the numbers produced by the statisticians in Washington. Even with the job increases that took place in April, there are approximately 1.5 million less people employed in the U.S. today than one year ago. When the $800 billion stimulus bill was passed in February 2009, the Obama administration claimed it would create 3.5 million additional jobs. There seems to be some inconsistency between the hype and what has actually taken place. Is it any wonder that the American people don't trust the numbers coming out of Washington?

Disclosure: None relevant.

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.

Government Wants to Play Good Bank, Bad Bank

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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The buzz on the wires yesterday was talk that the Obama administration is considering a good bank, bad bank policy. This would entail the government becoming the bad bank (like somehow that hasn't already happened) by buying up most, if not all, the toxic assets in the banking system. For anyone who missed it, this was the original intent of the biggest waste of government money of all time TARP program (Troubled Asset Relief Program). The Federal Reserve has also been doing this is various ways as well. Yesterday's reports said that the federal government would take on an (additional) trillion dollars in bad debt. As usual, the downside risk of major inflation that would result from implementing this policy was ignored by the media.

There was plenty of other 'good' news for the market to rally on as well. The House passed an $819 billion stimulus bill (it still has to be approved by the Senate). The bill would cut taxes at bottom instead of the top of the income structure (the most effective way to stimulate the economy), provide billions of dollars for infrastructure projects, help states balance their budgets, and provide relief to people who've lost their jobs or homes. Getting in touch with their Herbert Hoover roots, every Republican in the House voted against it. Just as a reminder, all the Republican leadership supported TARP and provided the votes from the rank and file to insure its passage.

The Fed also held up its end of the bargain yesterday as it two day meeting ended. To no ones surprise, it announced that it was keeping its zero interest rate policy in place. The Fed also reiterated that it will continue to buy mortgage-backed securities and other assets. The stock market rallied on this and all the other highly inflationary news and and as been the case for many months, the U.S. dollar counter intuitively rallied (only counter intuitive if you don't assume the government is manipulating it behind the scenes). Beaten down financial stocks led the way up.

Wells Fargo was one of the biggest winners, rising 30%. It only lost $2.55 billion last quarter.... or so it claims. Those results didn't include its Wachovia purchase, which would have increased Wells Fargo's loss by $11.2 billion (based on the reported figures, the reality is actually much worse). The bank took a whopping $37.2 billion in credit write downs at Wachovia. Even without the Wachovia losses, Wells Fargo still lost 79 cents a share. Analysts were completely off the mark as they have continually been since the Credit Crisis began and were expecting a 33 cent gain. While this should have tanked the stock, it didn't. Wells announced it was keeping its dividend and wouldn't need any more TARP funds (which is has been using to pay its dividend), so the stock shot up. Whoever said Disney was the king of fantasy, never looked at the U.S. banking system.

NEXT: GDP - Report is Bad, Reality Worse

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.