Retail Sales and Employment Not as Good as First Reported

 

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 has much cheerleading in the mainstream press lately about the improving employment situation and strong 2011 holiday retail sales. Just released figures indicate it may have been much ado about nothing.

Retailers depend on the holiday season for their yearly profits. Major efforts were made in November to get people to start buying early. This worked and retail sales were up 0.4% during the month. Strong early numbers don't necessarily mean overall numbers will be greater however. It can simply mean that buying activity was frontloaded and the later numbers will then be weak. This is exactly what happened. Retail sales were up a whopping 0.1% in December (retail sales are not adjusted for inflation, the number would be negative if it had been).

Looking inside the report shows how incredibly weak the consumer is. Excluding autos, which are highly volatile, retail sales were 0.2% lower -- the first drop since May 2010. Core retail sales, which exclude autos, gasoline and building materials were down 0.1%. Even though it was the height of the holiday buying season, spending at electronic and appliance stores was down 3.9% and spending at department stores was down 0.2%. Once again, if the numbers had been adjusted for inflation they would have been even worse.

So how come U.S. consumers aren't spending more now that the employment situation is supposedly getting better?  Well, maybe it's because it isn't. The big news lately has been the declining weekly claims which have fallen below the traditional 400,000 per week that indicates recession. However, for the first week of 2012 they came in at 399,000 -- back at recession levels. This was up from the 372,000 reported the previous week (three states including mega-sized California didn't send in their claims numbers for this report).  Of course, the mainstream press blew the trumpets about the "good", but highly questionable, 372,000 number, just as it did for the 200,000 jobs that were allegedly created in December 2011.

Among these jobs were 42,000 new messenger positions. While it's more likely that 42,000 messengers were hired in December than 42,000 nuclear physicists, that doesn't mean it is believable. Messengers work in a field with declining employment. The December jobs report has been criticized as having "statistical adjustment" problems. Non-statisticians generally refer to this as lying about the numbers. Of course, the appearance of suddenly improving economic news (not to be confused with an economy that is actually improving) at the beginning of a presidential election year should not be surprising.

As the election season heats up, there will be a desire for the government to report that economic conditions are better than they actually are.  This does not mean the news will necessarily be good, it will just be better than it actually is. Expect the bad news to come out after the November election.  Until then, invest with caution. 

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.

Weekly Claims and Trade Deficit Not as Good as Reported

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.


Stocks reacted enthusiastically to the weekly unemployment claims for the week ending September 3rd and to the improvement in the U.S. trade deficit during July. As usual, the mainstream media hyped up the headline number, but 'forgot' to report some important details.

Weekly claims falling the week before or during a major holiday is a hardly unusual and has nothing to do with an improving employment picture. The 451,000 number reported for the week before Labor Day was the lowest number since the week that contained the July 4th holiday. The problem is not that unemployment offices are closed, but the bureaucrats that tabulate the statistics can't work faster to produce the numbers in a timely fashion. In this report, apparently 9 states didn't have their numbers ready, so two of them estimated their numbers and the BLS estimated the numbers for the other seven. This information doesn't appear to have been included in the intitial press release from the BLS. Some bloggers caught on to it though and Bank of America sent out a note later about what had happened.  Stocks in both the U.S. and overseas rallied on the BLS release showing an improving jobs situation based on incomplete data.

The market was also excited about the trade deficit decreasing in July. While no trade deficit is definitely a good thing (something that hasn't occurred in the U.S. since the 1970s), this is not necessarily true for a lower trade deficit. If the trade deficit is decreasing because of surging exports, that is indeed a positive. If it is decreasing because of a big decline in imports, this can indicate business and consumers are spending less because of poor economic conditions. Falling imports accounted for most of the July decrease. Of the increase in exports, capital goods accounted for 82%. This is surprising considering the July durable goods report showed a significant decline in production of capital goods in the U.S. If exports are surging for capital goods, why is production falling?  There seems to be some contradiction here.

The stock market shouldn't have been happy with either of these government reports. Without the positive spin the mainstream media gave them, it probably wouldn't have been. The truth is that weekly unemployment claims have been continually at recession levels for over two years now and there is no evidence yet of their improvement (even a one week drop below the 400,000 recession level, quite possible before the election on November 2nd, wouldn't mean employment is on an upswing). As for the trade deficit, it was cut in half during the Credit Crisis because the economy was collapsing. An improving trade deficit can actually be sending a negative message. Investors need to know the details and the historical context of any given economic report before they can react appropriately to it. Lots of luck in getting that from the mainstream media.


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.

Some Recovery, Half a Million More Unemployed Last Week

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.


After more than a year of economic 'recovery', the Department of Labor reported weekly unemployment claims rose to 500,000 last week. Any number at 400,000 or higher indicates recession. The last time weekly claims were below that number was the week of July 17, 2007 - more than three years ago.

The unemployment problem has two components - not enough hiring in the private sector and too many job losses for people who have jobs. The lack of hiring can be seen in the monthly non-farm payrolls report and the too much firing shows up in the weekly unemployment claims. Not all U.S. workers are eligible to collect unemployment however so the weekly claims numbers understate the actual number of people who lost their job. Even with the understatement, unemployment looks bad enough as is.

The number of former workers collecting extended benefits rose to 4,753,456 in the week ending July 31st (the most recent data). This was up 260,105 or over 5% from the previous week. A year earlier in 2009, only 2,961,457 were in this category, which includes people unemployed for over 26 weeks. So the number of people who are long-term unemployed and have not yet exhausted their benefits has risen over 60% in the last year -a year when economic recovery was supposedly taking place.

Since November 2009, the weekly jobless claims have mostly been in the 450,000 to 500,000 range. There is no noticeable trend of improvement. This is amazing, not just because of trillions in deficit spending that the government told us would make the economy better, but over the long-term (and three years is the long-term) this number should automatically drift down. Companies have to have a certain minimal amount of employees to run their operations. As time goes on, the number of people that can be terminated drops significantly and so should weekly unemployment claims. This drop in claims wouldn't mean the economy is getting better, although the mainstream media would blast headlines claiming that was happening, it would mean that there aren't a lot of people left to fire. At this point in the cycle, since claims aren't dropping, business activity has to be continually declining to maintain the same high unemployment numbers. That's the definition of a recession, not a recovery.

Investors should not be surprised if the weekly unemployment claims numbers start looking better soon and for the next couple of months. The U.S. employment situation is a major embarassment for the administation and there is an important election in November. This week, the president is making appearances in  five states to make the case that it was worth borrowing trillions of dollars for stimulus spending and doing so has put America 'back on the road to recovery'. The last nine months of weekly unemployment claims certainly aren't supporting this view. With a statistical adjustment here and there though, the numbers could suddenly look a whole lot better, even if the economy isn't improving at all.

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 Admits Major Policy Failures; Stocks Soar

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.


What's wrong with this picture? In his bi-annual testimony before congress yesterday, Fed Chair Ben Bernanke admitted that after more than a year and a half of zero interest rates and $3 trillion in federal deficit spending since 2008, the best case scenario for the U.S. economy is slow growth and high unemployment. The S&P 500 is up 2.5% so far this morning on this 'good' news.

Bernanke's congressional testimony included the following statements (emphasis added by me):

"Most [FOMC] participants viewed uncertainty about the outlook for growth and unemployment as greater than normal, and the majority saw [at the June Fed meeting] the risks to growth as weighted to the downside."

"financial conditions--though much improved since the depth of the financial crisis--have become less supportive of economic growth in recent months."

"many banks continue to have a large volume of troubled loans on their books, and bank lending standards remain tight. With credit demand weak and with banks writing down problem credits, bank loans outstanding have continued to contract."

"After two years of job losses, private payrolls expanded at an average of about 100,000 per month during the first half of this year, a pace insufficient to reduce the unemployment rate materially. In all likelihood, a significant amount of time will be required to restore the nearly 8-1/2 million jobs that were lost over 2008 and 2009."

The market dropped as Bernanke delivered his testimony yesterday afternoon - and he was blamed for bringing it down. The Dow closed more than 109 points lower. The Dow was then up more than 117 points right after the open today and the Nasdaq gapped up over 26 points. The mainstream media reported bullish news out of Europe and good corporate earnings instantly turned market psychology around. One major news service stated, "earnings Thursday showed that if the economy is slowing, many companies are not being affected too much by the downturn". In other words corporate profits have decoupled from the state of the economy. While this may sound completely idiotic, it may not be as absurd as it initially appears to be.

If the federal government has spent $3 trillion of borrowed and printed money in the last two years, that money has to have gone somewhere. Either direct or indirect government purchases could be responsible for the current batch of good corporate earnings, although sales to the economically strong economies in East and South Asian are behind better performance for many U.S. companies that do most of their business overseas. So the private sector of the U.S. economy can be dead in the water, but corporate earnings can be good because the government has become such a large component of the economy (as is the case in socialist states).

While corporate earnings are up and cash levels are at record highs, the money doesn't seem to be flowing into the general economy. Despite the supposedly great state of corporate America, there are few announcements of major business expansions, nor is hiring picking up. The usual evidence of a robust corporate sector is simply not there. Weekly jobless claims in fact rose 37,000 to 464,000 this week. While 'seasonal adjustments' were cited behind the big increase, weekly claims have been at recessionary (if not depressionary) levels for two years now. Apparently there are negative seasonal factors in winter, spring, summer, and fall.

The alternative explanation for today's big stock market rally, despite major gloomy news, is the not so invisible hand of government manipulation. Bernanke made it clear early on that he was more than willing to interfere in the markets. When the Fed began its rate lowering campaign in August 2007, it did so one hour before monthly futures expired and this created a huge rally that wiped out the profits of the shorts (and gave a huge gift to the parties that were on the other side of the trade - the big Wall Street banks perhaps?). More recently, the Fed created a huge global liquidity facility on May 9th, after the Flash Crash, and markets soared - at least for awhile. Since there are major elections in the fall, investors should assume that powers that be will not want a crashing stock market and the announcement of a new recession. It will be interesting to see how they try to cover this up.

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.

Stocks Weaken With the Economy

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.


U.S. stocks are in sell off mode this morning with all major indices trading below their 200-day moving averages. If current trends continue, the Dow and S&P 500 will give a bear market trading signal next week.

Problems in Europe continue to be a drag on the markets. The prices of Greek debt credit default swaps (CDSs), a type of bond insurance, are rising rapidly again. Experts say they are now indicating a 57% chance of default. Meanwhile, strikes are planned throughout France because the government is trying to raise the retirement age to 62. Investors should assume that EU attempts to reduce the socialist gravy train will be fought tooth and nail by the populace everywhere on the continent. Good news came out of Australia however. Prime minister Kevin Rudd was forced out because of his unpopular 40% super-tax on the mining industry (a key part of the Australian economy).  Australia doesn't have the debt problems that exist in the U.S. and Europe.

In the U.S., the economic numbers continue to be less than impressive. After the disastrous New Homes Sales report yesterday indicated a 33% drop in sales in just one month, the Durable Goods report showed a 1.1% decline in May. Weekly claims fell to 457,000, still well within recession levels, and this got some positive commentary from the cheerleading section of the press. The stock market didn't seem impressed however. While weekly claims have been much better this year than the depression levels they were at early in 2009, they have yet to indicate that the U.S. has recovered from the recession that began in December 2007.

The technical picture for stocks turned south again this Wednesday with the Dow and S&P 500 falling and closing below their 200-day moving averages. The tech heavy Nasdaq dropped below its 200-day yesterday, but managed to close just above it. It looks like it will close below it today. The small cap Russell 2000 is trading below its 200-day today for the first time since earlier this month. The 50-day moving averages for all the indices are still above their respective 200-days in a typical bull market pattern. The 50-days are all falling however and in the case of the Dow and S&P 500, it looks they will be crossing below their 200-days next week. This is a classic bear market signal.  Investors should be watching this carefully.

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.

Our Current Economic Illusions

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.

Our Video Related to this Blog:

When reading economic statistics, you should see if they are consistent (they rarely are) and make sense based on real world observations (lately they don't). On Thursday, December 3rd the U.S. productivity numbers were released, as were same store sales and weekly unemployment claims. The story these three pieces of data are telling are quite different, which means at least one and possibly two of them are not correct.

Productivity in the U.S. is supposedly up astronomically. It rose by 8.1% last quarter and this is after being revised down from being up 9.5%! The recent downward revision of third quarter GDP from 3.5% to 2.8% meant the productivity numbers would be lower as well. Productivity is essentially the amount of GDP produced per worker. Since employment is falling in the U.S. and GDP is supposedly rising (the two moving in opposite directions is illogical) productivity has to go up. According to the government, it is going up a huge amount. Is there any major new technological advance or innovation accounting for this? None, that anyone knows about. Economists claim that productivity has gotten better because the least productive workers have been fired. While this might give the numbers a percentage or so boost, it wouldn't give them an 8% boost. The alternative explanation is that GDP is being grossly overstated by the U.S. government. There is substantial documentation that this has indeed been the case for the last three decades.

Same store sales is not a government report and the November numbers clearly show an economy in trouble. Sales were down 0.3% year over year. While this may not seem so bad initially, it is when you consider sales were down 7.7% last November, which was the height of the Credit Crisis meltdown. They are even lower now. Analysts (who are almost always wrong) originally forecast a 5% to 8% increase for this November. Consumer spending accounts for 72% of U.S. economic activity and is still obviously in bad shape. Yet, the government tells us that GDP is growing nicely. There seems to be a contradiction there.

If you read the mainstream media coverage of the weekly jobless claims you would have seen that the U.S. employment situation is getting better because there were only 457,000 new claims during the week of Thanksgiving. Of course, you might consider that few employers would lay off workers right before a major holiday and that state unemployment offices were closed because of the holiday, so this would obvioulsy lower claims. The BLS (Bureau of Labor Statistics) states that they make some 'adjustments' for this though. Claims at even the 400,000 level indicate significant recession and they need to drop to the 300,000 level to indicate a healthy economy (you will see much higher numbers cited in most mainstream media reporting). Continuing claims are still rising and have hit 5.5 million. This number doesn't include an additional 4.5 million on extended umemployment benefits. A large percentage of the American work force is not eligible to collect unemployment as is, so the numbers are even worse than they appear. While there are those who claim that unemployment is a lagging indicator, statistics from the past don't support this notion. The real lagging indicator seems to be the truth about what is really going on in the economy.

NEXT: U.S. Employment Figures Don't Add Up

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.

If You Ignore the Facts, Things Are Good

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:

We are going to see a lot of new economic data in the next few days, including the monthly jobs report tomorrow. How the market reacts in the first four trading days of the quarter can give us a lot of insight on where stock and commodity prices will be heading in the next few months. The Consumer Spending report was already out this morning and spending for August was up 1.3%, the biggest gain since October 2001. The rosy numbers were due to the Cash for Clunkers program which ended August 31st... so don't expect September's numbers to look as good. The ISM Manufacturing report for September will be out later this morning and might provide more insight into the post Cash for Clunkers era, although the October report next month will be more revealing.

Weekly jobs claims surged upward to 551,000 this morning. The big rise was a surprise to economists and other people who's expectations are based on fantasy. Any number at or above 400,000 indicates the economy is in recession, 551,000 indicates a somewhat severe recession. A healthy economy has weekly claims at the 300,000 level. The idea that the economy can be recovering while unemployment gets worse is absurd and merely reflects how manipulated U.S. GDP figures are. The government can also 'statistically adjust' the jobs report as well. Watch to see how many people left the labor market in tomorrow's report. This is the fudge factor that the government uses to keep the reported unemployment rate from getting too high.

While all the money pumping the Fed has done in the last year has had only temporary and limited impact on the economy so far, it has certainly revved up the stock market. Last quarter was the best quarter for U.S. stocks since the fourth quarter of 2008 - the beginning of the tech bubble blow off that lasted until the beginning of 2000 and was followed by a Depression level drop in stock prices. The last six months have been the best two quarters for U.S. stocks since March 1987. Five months later U.S. stocks dropped 40% in only a few days. That was also at beginning of a bubble blow off. Only a handful of stocks survived the 1987 crash unscathed - most of them were gold miners. So far history seems to be repeating itself vis-a-vis money pumping and stock price behavior.

The IMF (International Monetary Fund) released revisions to its GDP predictions this morning. It now expects global GDP to decline only 1.1% this year, instead of 1.4% and for GDP to increase by 3.1% next year, instead of by 2.5%. While the report had the usual cheer leading bullish tone, a remark made at the press conference inadvertently revealed the truth. The IMF spokesman stated that the report "should not fool governments into thinking the crisis is over". Apparently they wanted to make it clear that their report was only intended to fool the public. The IMF also stated that the pattern of global demand needs to be rebalanced and this could not happen at current exchange rates and that countries with huge export surpluses needed to revalue their currencies upward. Doesn't that imply that countries with huge export deficits like the U.S. will see their currencies revalued lower? So much for that good news.

NEXT: Unemployment Rises as Car Sales Collapse

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.

No Recovery in Jobs

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 was out this morning and it contained little evidence that an economic recovery was taking place with a loss of 216,000 jobs in August. The headline unemployment rate jumped to 9.7% (a 26-year high), while the alternate figure which includes discouraged and involuntary part-time workers rose to 16.8% (the highest since this number has been published). This was the 20th month in a row that there has been a loss of jobs. U.S. employment in the private sector is now lower than it was in 1999.

Revisions in June and July's numbers indicate an extra 49,000 jobs were lost in those months. It is quite likely downward revisions will take place for the August number as well, which is based on a survey of businesses. The separate household survey (which is much more accurate because it is a large random sample) indicated that 392,000 jobs were lost in August and unemployment rose by 466,000. The only industry group in the private sector to add jobs in August was health care. It has consistently added jobs during the entire Credit Crisis.

Weekly claims to collect unemployment insurance came in at 570,000 this week. This is still well above the 400,000 level that indicates a recessionary economy. A true economic recovery would lower this number well below 400,000 and keep it there. Many American workers are not eligible for unemployment, so when they become unemployed they don't show up in the weekly claims or total numbers receiving jobless benefits. That number has reached 6.23 million and while rising lately has had some dips because a number of unemployed have exhausted their benefits and are no longer included.

As bleak as these figures are, the mainstream media managed to put a positive spin on them because the total job losses came in slightly better than expectations (the unemployment rate was worse though). News articles for some time have indicated that a 'jobless recovery' would be taking place. A jobless recovery is an oxymoron and there is no such thing. This only first appeared after the early 1990s recession was supposedly over. It appeared again in the early 2000s. Why at these times and not before? The government started making major statistical 'improvements' to the GDP numbers and related figures in the 1980s and followed up with more in the 1990s. After this was done, it was possible for the economic statistics to have a recovery despite what was happening in the real world. Only when employment starts increasing and job gains become consistent will the recession actually be over.

NEXT: Gold Breaks $1000

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.

Unemployment - Truth Worse than Even Government Reports

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:

Today's weekly jobless claims came in at 573,000, well above the cut off of 400,000 level which is usually considered recessionary. The four-week moving average, which is considered more important because it is assumed that the errors in each weekly report will cancel each other out, came in at 540,500. Continuing claims, all the people who are collecting unemployment, reached 4.43 million. Both numbers are the highest level since the deep recession of 1982 when official unemployment reached double digits. The increase in people on the unemployment rolls was the biggest since 1974, another year of major recession and a major bear market.

While no one could argue that these numbers aren't bad news, the truth is actually much worse. Somewhat less than half of the American labor force is eligible for unemployment. This part of the population never shows up in the official numbers cited above. This does not mean however that you can just double all the government figures to get at the true numbers. You would have to assume that the half of the U.S. labor force not eligible for unemployment is equally likely to be unemployed as the half that is and this is certianly not true. On the other hand, it is also certainly true that the ignored half or the labor force does not have an unemployment rate of zero.

The monthly unemployment figures published by the BLS also underestimate unemployment, but do so in a different way. People who are "no longer looking for work" also known as discouraged workers are not counted. The underemployed or people who have worked even a minimal amount part-time are counted as employed. The Labor Department does publish an alternate measure of unemployment, which counts part-time workers who want full-time work, as well as anyone who has looked for work in the last year. This number which still cuts out a number of people indicates that the current U.S. unemployment rate is closer to 13%, not the 6.7% officially reported in last months employment report (almost double, but not quite).

In times of great economic calamity for developed economies, unemployment can reach a quarter of the labor force. It was estimated to be 25% at the bottom of the U.S. Great Depression in the 1930s and almost that same number during the hyperinflationary collapse in Germany in the early 1920s. If the alternative unemployment figures reach 20% or more this time around, it can safely be said that the current economic crisis has gone beyond recession and has become a depression.

NEXT: Herbert Hoover Policy - Working Just as Well Today as in the 1930s

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.

Employment Losses Revealed After the Election

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:

When post-election government economic reports are released in the next several months, don't be surprised if conditions are much worse than those reported before the election. This shouldn't be interpreted as conditions having actually significantly deteriorated (although this is probably happening as well), but that there is now less motivation for the Bureau of Labor Statistics (BLS) to fudge the figures to make them look better. The Employment Report released this morning is a case in point. While this report generally contains more fantasy than a Harry Potter novel, apparently there is some limit to the BLS's job conjuring . Now that the election is over, we find that unemployment shot up significantly in October and job losses for August and September were much higher than originally reported. Must be 'coincidence' that they missed reporting on those bigger job losses before people voted.

While the unemployment figures are still grossly understated, they are bad enough as is. A loss of 240,000 jobs took place in October and the official unemployment rate rose to 6.5% from 6.1%. September's job losses were revised upward to 248,000 from the previously reported 159,000 and August now has a loss of 127,000 jobs instead of 73,000. So far the number of jobs have shrunk every month this year and according to the BLS, the total loss is now 1.2 million. The official unemployment rate is now as bad as it got in the 2001 recession and is heading toward the higher levels of the 1991 recession (as you go back in time, each recession was worse in the U.S. until 1974).

Evidence that the BLS is underreporting unemployment can be found in the statistics for the number of people collecting unemployment insurance. It has already hit a 25 year high of 3.84 million, a level last reached in the devastating 1982 recession. Unemployment is paid by the states and there are already five states with insolvent unemployment trust funds and another eight states teetering on insolvency. To handle this situation, the federal government has been 'lending' the states money at very low interest rates. For their part, the states are trying to raise unemployment insurance rates paid by companies, many of which are having serious financial problems of their own (many states lowered unemployment insurance taxes when the economy was good and companies could afford to pay more). Few things are more certain than a number of state unemployment trust funds will need a major bailout by the federal government in the not too distant future.

While it should be axiomatic that a growing economy creates jobs and a deteriorating economy losses jobs, the U.S. government still has not acknowledged a recession exists even after 10 months of steep job losses. More proof of recession can be found in weekly unemployment claims. These were 481,000 last week and have been over the 400,000 level, usually considered the cutoff for an economic decline, for a long time. Perhaps now that the election is over one of the government's other great works of fantasy, the GDP report, will start to veer closer to reality.

NEXT: China Bails Out Asia - at Least for Today

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.