A former economics research professor named Alfred Tella has an informative article out today in RealClear Markets titled What Is Unemployment Telling Us?
It is interesting to learn quantitatively that for an equivalent percentage loss of jobs, the rate of unemployment as measured by the BLS has been lower than expected in the last two downturns.
The author points out that one of the surprising aspects of this Great Recession's unemployment rate is that this is occurring even though people who receive all the forms of unemployment benefits are not considered dropouts from the labor force. One truly has to be a dropout to thus lower the denominator used to calculate the rate of unemployment.
As most know, when jobs return, the measured labor pool has tended to expand as people who dropped out of the labor force re-enter it, believing that jobs are again available.
The recent (or current if still ongoing) depression/Great Recession always struck me as far more severe than any downturn I can remember relative to baseline, though the 1973-5 recession was pretty awful given actual physical shortages of oil and various products.
Remember that this time, nominal retail sales dropped over 10%. Since they typically rose 7% yearly, we are looking at close to a 20% drop in actual sales vs. that which was predicted based on the prior trend. Worse, various measures of commerce and industrial production dropped 20%.
Snapbacks from prior depressions or severe recessions were generally stronger than the current one. Paradoxically, this slow recovery provides support to various markets in the short term, as traders and investors seek out yields above zero and trading profits.
Yet the financial stress lines are building. A relatively small straw in the wind is the continued losses in and shrinkage of the U. S. Postal Service.
The strategy of "privatizing" governmental functions such as Fannie Mae and the Post Office is being revealed as a sham. This trend was capitalism without capital.
As George Soros said recently, one way to make money in the markets is to join a bull market that is fated to go to excess, and of course not stay at the party to late. Based on the massive fraud in governmental finances and those of its allies in Big Finance, the big-picture fundamental case for gold remains.
As in the easy money period after the 2001 recession, I believe that the odds favor growth fueled by money-printing. The excess will not be in housing. Right now the growth, such as it is, is relatively balanced and thus the view here is that specialty discount/deep discount retail (TJX, ROST, DLTR) as mentioned here several times before remains in a cyclical bull market but is no longer "cheap". One thing people do when they drop out of the labor force is cut discretionary spending and spend more time seeking bargains, an effort that might not have been worthwhile when they were working or looking for work.
Copyright(C) Long Lake LLC 2010
Showing posts with label unemployment rate. Show all posts
Showing posts with label unemployment rate. Show all posts
Friday, March 5, 2010
Friday, August 7, 2009
Unemployment Rate Decline Not a "Win" When It Is Due to More Labor Force Dropouts
From Marketwatch:
Friday's nonfarms employment report out of Washington is a classic of the genre.
The Labor Department report showed U.S. unemployment fell in July to 9.4% even as the economy lost another 247,000 jobs, the smallest decline in nearly a year.
Even a cursory glance at the numbers tells you something's missing. That something, of course, being the number of people who gave up looking for work. Because that figure exceeded the number of jobs lost by nearly 200,000, the unemployment rate actually fell.
A win is a win, no matter how ugly, and the headline number did go down.
We beg to differ. "A win is a win" is simply not an appropriate statement. The win is not that the rate went down because more people dropped out of the labor force than were net fired vs. hired. That is a loss and must be called what it is: bad news. Not unexpected, but bad. What one sees that is better is the rate holding steady or even rising as more people (re)-enter the labor force while more hiring is going on. A self-sustaining expansion has been predicted for months by the Economic Cycle Research Institute and other forecasters but has not actually occurred.
The "win" is the general decline in the net firing/hiring balance. Unfortunately, it is taking massive monetary stimulus and direct injection of money into the private sector from a borrower- the Feds- simply to create the worst jobs creation situation in the 20th month after a recession began since WW II. Unfortunately it is the financial sector that has been propped up and already enriched massively after its misdeeds led a basically prosperous and well-functioning society into a depression.
The redoubtable Jeremy Grantham recently opined that fair value for the S&P 500 is 880. The only sector he thinks is undervalued, or at least is at fair value, is high quality U. S. blue chip stocks. The good news for the stock averages is that what passes for low P/E's in a stock market that never approached an extreme of historical undervaluation can be found in global companies with decent charts and dividend yields that while generally below that of a 10-year T-note compare favorably with cash or CDs. Long-term investors, especially those who are afraid of sustained and rising inflation, can buy and hold. EBR continues to hold to the quaint notion that an asset class proven as risky as publicly owned common stocks, where the benefits of the good times accrue disproportionately to the insiders, should not be heavily owned by individuals unless the current income from them makes it worth the risk. Because this situation is not in evidence, the Grantham advice makes a lot of sense.
Copyright (C) Long Lake LLC 2009
Friday's nonfarms employment report out of Washington is a classic of the genre.
The Labor Department report showed U.S. unemployment fell in July to 9.4% even as the economy lost another 247,000 jobs, the smallest decline in nearly a year.
Even a cursory glance at the numbers tells you something's missing. That something, of course, being the number of people who gave up looking for work. Because that figure exceeded the number of jobs lost by nearly 200,000, the unemployment rate actually fell.
A win is a win, no matter how ugly, and the headline number did go down.
We beg to differ. "A win is a win" is simply not an appropriate statement. The win is not that the rate went down because more people dropped out of the labor force than were net fired vs. hired. That is a loss and must be called what it is: bad news. Not unexpected, but bad. What one sees that is better is the rate holding steady or even rising as more people (re)-enter the labor force while more hiring is going on. A self-sustaining expansion has been predicted for months by the Economic Cycle Research Institute and other forecasters but has not actually occurred.
The "win" is the general decline in the net firing/hiring balance. Unfortunately, it is taking massive monetary stimulus and direct injection of money into the private sector from a borrower- the Feds- simply to create the worst jobs creation situation in the 20th month after a recession began since WW II. Unfortunately it is the financial sector that has been propped up and already enriched massively after its misdeeds led a basically prosperous and well-functioning society into a depression.
The redoubtable Jeremy Grantham recently opined that fair value for the S&P 500 is 880. The only sector he thinks is undervalued, or at least is at fair value, is high quality U. S. blue chip stocks. The good news for the stock averages is that what passes for low P/E's in a stock market that never approached an extreme of historical undervaluation can be found in global companies with decent charts and dividend yields that while generally below that of a 10-year T-note compare favorably with cash or CDs. Long-term investors, especially those who are afraid of sustained and rising inflation, can buy and hold. EBR continues to hold to the quaint notion that an asset class proven as risky as publicly owned common stocks, where the benefits of the good times accrue disproportionately to the insiders, should not be heavily owned by individuals unless the current income from them makes it worth the risk. Because this situation is not in evidence, the Grantham advice makes a lot of sense.
Copyright (C) Long Lake LLC 2009
Friday, April 3, 2009
Yves Smith Says Team Obama Uses "Big Lie" Technique, and Other Unpleasantries of the Day
Today is another busy news day.
The Economic Cycle Research Institute is out with its monthly U. S. Future Inflation Gauge. ECRI has maintained this measure for over 60 years. It has fallen massively over the past 18 months and is back near its lowest level in history at 79.3, at about a 51-year low. Inflation probably averaged 1% in the next 5 years after sinking to that level, only rising after the guns-and-butter Viet Nam era (1964 onward).
ECRI also reports another marginal uptick in its Weekly Leading Indicator, which remains well below its very low level of November 2008 and still at a very severe 22% below year-ago level. This suggests a continued slowing of the economy through year-end, with stabilization at very low levels of economic activity.
I intend to do a post on the ECRI and its usefulness, or lack of such, to investors, in the near future.
Consistent with the above, there is truly bad news behind the headlines of the Labor Department's unemployment report. Not headlined are two data points. The average supervisory work week has shrunk to a record low since records began in 1964: 33.2 hours.
And, consistent with the lack of work available and the very low USFIG, January's unemployment number was revised upward substantially, from 655,000 to 741,000.
Labor Department's broadest measure of unemployment is U-6, which can be found on Table A-12 of the basic unemployment report available at www.bls.gov, shows that almost 1 in every 6 members of the labor force is either unemployed, underemployed or too discouraged by labor market conditions to bother actively looking for work. While comps are difficult to obtain, it would appear that the definition of unemployment used in the 1930s is more like U-6 than the headline U-3 (8.5% in March). Given that the Obama "stimulus" program has no relation to FDR's emergency work programs, it is virtually certain that U-6 will hit 18% sooner rather than later.
(Note also that ADP's March non-farm job loss count was 742,000, exactly the current Labor Dep't count of Jan. job losses. The ADP and Labor numbers have tracked each other very well for some months now (www.adpemploymentreport.com); expect further downward revisions in the Labor numbers for Feb. and March, I'm afraid.)
Moving along to the blogosphere, it is interesting to observe how certain passionate critics of the Bush-Paulson approach to the financial crisis have stayed objective after Mr. Obama became President, and others have kind of sort of joined "Team O" while trying at the same time to be interesting and objective.
Amongst the former, I would note Mish at www.globaleconomicanalysis.blogspot.com. He has a series of posts excoriating the PPIP and has not fallen for Team Obama hype. Mish is of the Austrian school of economics and has an amazing track record of forecasting the economic downturn and the low-inflation/deflation environment. He also is a darn good market timer.
Another blogger who was definitely in the Obama hope-change camp is Yves Smith of www.nakedcapitalism.com. She has definitively changed her tune, and her site is currently displaying a variety of well-informed opinions and reports. Here is a quote from Yves herself from the conclusion of today's post, Treasury Trying to Defend Bank Gaming of Public-Private Partnership:
The dishonesty of this crowd is just breathtaking. The Bushies were blatantly high handed, while Team Obama prefers the Big Lie and assumes we are all too dumb to see through it.
Well! Obama-phile no more, it would appear.
Finally, also on NC is the overlooked report that Hedge Fund Bridgewater Says No to Public Private Partnership Program:
Now illustrating our (Ed: Yves'/NC's) latest concern, that the Treasury may turn out to be the Gang That Can't Shoot Straight, our ongoing reservation, that there may be no way to make the program work for banks and investors even with hefty government subsidies, may be coming to pass. . .
The turndown by Bridgewater is particularly significant. (Ed: They only manage $80 B!)
Is this the beginning of the end for PPIP?
What Nouriel Roubini recently called the "Made-Off" economy, with Ponzi schemes built into the system of much greater scale than the Madoff one, is currently on a glide path to a 1995 level of economic activity, if one takes the numerical ECRI weekly leading indicator as predictive. Given potent deflationary forces and "crowding out" of private borrowing by the massive projected Federal deficits, the outlook for business remains unexciting, and when brilliant thought leaders such as Yves Smith start describing Team Obama as using a technique associated with Team Hitler, one should watch out for the public to gradually adopt that viewpoint.
Copyright (C) Long Lake LLC 2009
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