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.

Monthly Employment Report and the Market's Reaction

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 monthly Employment Report was released this morning and according to the U.S. government payrolls dropped by 345,000. While this number would have been considered highly negative before the recession began, it was the lowest since last September and this was the fourth decrease in as many months. While job losses were less than expected, the headline unemployment rate came in above expectations at 9.4%. It was up from 8.9% last month. A more realistic number, which takes into account discouraged workers, indicates that the unemployment rate was actually 16.4%.

While you should look at U.S. government employment statistics with a jaundiced eye, the current report does seem to indicate that a sea change has taken place. For the first time since the Credit Crisis began, job losses for the previous two months were revised downward instead of upward. The March numbers originally came in at 699,000, but are now 652,000 and April was 539,000 and is now 504,000. It looks like job losses peaked in January at 741,000. This was the most since 1949. This was also the first report in a long time where government jobs didn't supposedly increase. According to the report, education, health care, and leisure and hospitality added jobs in May.

U.S. stock futures immediately went up after the report was released and bonds fell with interest rates on the 10-year rising 18 basis points (a basis point is a hundredth of a percent). Oil shot above 70, getting at least as high as 70.32, but then lost its gains (70 is an important resistance point). The U.S. dollar went down and so did gold and silver (they should have moved in opposite directions).

At this point it looks like the worse declines of the recession, already the longest in post war history, are over. This doesn't mean that the recession is over, just that things are getting worse at a slower rate. When the jobs numbers start to actually show increases in employment month after month, that is how you will know the recession has finally ended - and that looks like it is still many months away.

NEXT: The U.S. Dollar, Gold, and Oil

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.

Our Video Related to this Blog:

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.

NEXT:

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 Reaches 15%

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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Just because you don't have a job in the U.S. doesn't mean the government considers you unemployed. The monthly Jobs Report was released today and the headline number was an unemployment rate of 8.1%. This is however the rosiest possible interpretation of the U.S. employment picture. While 12.5 million people were counted as unemployed, there were an additional 2.1 million 'marginally attached' workers (also known as discouraged workers) - people who looked for a job within the the last twelve months, but not in the last four weeks. These people are not considered to be unemployed. A much larger 8.6 million workers worked part time last month and are considered fully employed even though they may have worked as little as an hour a week and wanted to work full-time. If you consider the discouraged workers and involuntary part-time workers as unemployed, the U.S. unemployment rate is actually 15.0%.

This 15% is calculated using the government's own numbers. This is more than enough reason to think things might be even worse than what the government is telling us. Every employment report since the Credit Crisis began in the fall of 2007 has had two downward revisions after the initial numbers were released and these have frequently been substantial. As an example, December 2008 jobs losses were initially reported at 524,000. That was revised to 577,000 last month and in the current Jobs Report the losses have now been updated to 681,000. An additional loss of 151,000 jobs for January and December combined showed up in today's report for February employment. You should expect that the January numbers will be revised downward again next month (the numbers are revised for two months). The 651,000 loss reported today will almost certainly be larger in the April and May reports.

Looking inside the figures you would also note that three categories have gained jobs every month since the Credit Crisis began - health care, education, and government. Most education and many health care jobs are of course government related. While it is possible that employment in health care is increasing, considering the poor fiscal condition of state, local and the national government in the U.S., it is quite incredible that more and more people are working in education and directly for the government. Where is the money coming from to pay for these workers and what are they being hired to do?

In the 1930s Great Depression, U.S. unemployment is believed to have peaked around the 25% level (approximately the same rate that was reached because of the hyperinflation in Weimar Germany in the 1920s) . This is just a rough estimate because the data gathering infrastructure that exists today, didn't exist back then. If you see the alternative unemployment numbers reach 20% or so, it would be reasonable to assume that current economic conditions are as approximately bad as they were in the 1930s.

NEXT: Stocks Look for Bottom, Oil 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.

U.S. Unemployment Rate Rises to 13.9%

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:

The Jobs Report for January was out this morning and even the official figures are grim. While the headline number stated an unemployment rate of 7.6%, the report itself had another unemployment rate of 13.9% buried within in. The 13.9% rate includes discouraged workers, those who have given up looking for work, and those who are working part time (even an hour a month), but want to work full time. Keep in mind these are the government's own figures. You can certainly substantially increase the top line 7.6% if you want something more realistic. The BLS (Bureau of Labor Statistics) itself will be doing so in the future as is.

Upward revisions have been the name of the game for job losses and the unemployment rate for many months now. The first figure which gets all the press coverage isn't as bad as the revision that takes place a month later and that in turn isn't as bad as the revision a month after that. As an illustration, October 2008 job losses were first reported as only 240,000, then a month later as 320,000, and then finally as 423,000. November started out as 533,000, then became 584,000 and is now 597,000. December was initially reported as 524,000 and is now 577,000. Expect it to be higher next month. There is almost 100% probability that the 598,000 lost jobs for January will be a bigger number in February and March. It is already the biggest loss since the 602,000 decline in December 1974 (the peak number for the worst recession since the 1930s).

The monthly revisions aren't the only ones conducted by the BLS either. There is also an annual benchmark revision done at the end of the year. This year's revision found that there were 311,000 less employed people than previously reported. This downward revision means that there were 3 million jobs lost last year, instead of the 2.6 million reported last month. This number exceeds the 1945 figure of 2.8 million jobs lost, which happened because of the closing down of defense manufacturing and decommissioning of millions of soldiers. There is no bigger number since that date until 2008. Any greater number would have take place during the Great Depression.

The bad news in today's Jobs Report were presaged by yesterday's Weekly Jobless Claims, which came in at a deep recession level of 626,000 (the highest since October 1982). The figures in this report indicated 4.8 million people were receiving unemployment benefits, even though the actual figure is 6.5 million. The 1.7 million receiving extended benefits are not included in the first number. It should also be kept in mind that a majority of the American labor force does not qualify for unemployment benefits and thus will never show up in these figures. As bad as the U.S. employment situation appears to be, assume it is much worse than the official figures indicate.

NEXT: Short term, the Market is Looking Better

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.