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Cutting Through The Fed's Bullshit Becoming Far Too Easy
As usual the Federal Reserve, when dealing with the public, is confident it is dealing with subhuman idiots, as only its Wall Street masters are clever enough to read between the lines of perpetual fraud spewing forth from the Marriner Eccles building. Maybe those who buy into this "bull market" with both hands potentially fall into that category, but others, like ConvergEx's Chief Market Strategist Nicholas Colas, are still capable of rational thought. Today, the Fed came out with its latest bout of projection insanity. It is hereby totally refuted.
From ConvergEx:
Fed Reality Check – Analyzing Recent (Lofty) Labor Market Expectations
Summary: According to the minutes from its latest Federal Open Market Committee (FOMC) meeting in April, the Fed predicts unemployment will fall to 9.3% this year followed by 8.2% in 2011. In order to reach these projections, by our calculations, the economy will need to add 385,000 jobs each month from now through December 2010 and 323,000 each month from now through December 2011. These already seemingly high numbers appear even more extraordinary when taking the government’s temporary hiring of census workers out of the equation. Also, in the 3 months since the FOMC’s prior meeting, unemployment projections became more optimistic: The average expected unemployment rate for this year dropped 0.3 percentage points from 9.6% to 9.3%.
There are experts in every field. College professors, sportswriters, doctors, lawyers, etc. They all give advice or guidelines, which we generally accept as fact and/or follow because they know more than we do on a given subject. This is not to say they’re never wrong.
As an example, Sports Illustrated polled its “all-star lineup of college basketball writers and editors” for their final four picks prior to March Madness a couple months back. When all was said and done, the selected “all-stars” were collectively 34% correct in their predictions, while one gentleman was 0 for 4 in his picks. Safe to say, you might expect more than 34% from the experts.
And what about the Preakness Stakes? After the Derby, Super Saver was a 5/2 favorite among the “expert picks around the country,” but as is not uncommon, the favorite didn’t win and in this case the victor was Lookin at Lucky, who went in with 3/1 odds.
Similarly, the economists at the Fed are considered to be experts on the economy. Just like other experts, part of their mission is to make forecasts for the rest of us, given that their knowledge on the economy, by virtue of their jobs, is greater than ours. Not to say we can’t or shouldn’t evaluate the accuracy and feasibility of their conclusions…
Conclusions such as unemployment rate predictions, which, in our opinion, are the most critical of the FOMC’s collection of economic indicator forecasts. While the Fed’s mandate is to create both price stability and full employment, excess capacity is presently taking care of price stability, so employment growth is the larger unknown in the foreseeable future. Therefore the pace of job creation will likely also inform the Fed’s thought process on how/when to raise rates. That being said, the latest “expert” predictions on the labor market – coming from 17 Federal Reserve Governors and Reserve Bank presidents – show they expect on average an estimated unemployment rate of 9.3% for 2010, which will fall to 8.2% by the end of next year.
Below we outline our use of a yearly one percent labor force growth rate to estimate the number of jobs that need to be created to achieve the Fed’s predicted jobless rate. Why one percent? For starters, one percent is the historical annual population growth rate of the U.S. The labor force rate, however, might be even higher since we do not know how fast discouraged workers will come back into the workforce looking for jobs. Right now they are not looking for work so they are not considered part of the workforce, but if/when things improve, they will reenter the labor force and that will tend to increase the unemployment rate.
The closest we have recently come to 9.3% unemployment was a 9.4% rate in May 2009, when there were a total of 131.2 million people employed in the U.S. Factoring in an annual increase in the labor force of one percent, payrolls would need to reach 133.2 million by this coming December to reach the Fed’s projected 9.4% unemployment rate. With 130.2 million people presently employed, that works out to an addition of 385,000 jobs in each month, May through December – and that’s just to reach 9.4%. The low-end Fed projection is 9.3%. Considering the economy added 290,000 jobs (more on this later) last month, 385,000 seems a touch ambitious to say the least.
Even more extraordinary are the numbers it will take for unemployment to fall to the Fed’s target 8.2% rate by December 2011. February 2009, when there were 132.8 million people with jobs, was the last time unemployment was at 8.2%. Again factoring in a yearly one percent increase in the labor force, the economy needs an additional 323,000 jobs each month for the next 20 months to hit the Fed’s average estimate.
In the past 2 decades (see Chart 1 ) the economy has only added 385,000 jobs on 8 separate occasions and a monthly addition of 323,000 or more jobs has only occurred 10% of the time. Lofty expectations, right? Well, unfortunately this year there’s another factor that comes into play – the government’s temporary hiring of workers to conduct the decennial census.
Though on select occasions such temporary hiring has had a positive effect on net payrolls, it has overestimated permanently employed workers in each of the 2 latest months reported (March and April). Chart 2 shows net jobs added in each of the past 12 months, with both the BLS monthly reported number as well as nonfarm payrolls excluding the impact of government jobs. The jobs picture has undoubtedly picked up this year, but assuming a majority of the government’s hiring in the past 2 months has been of temporary census workers, March’s addition of 230,000 jobs is really only 174,000 permanent jobs, while April’s 290,000 increase in payrolls totals 231,000 when excluding the 59,000 workers hired by the government.
We would make a few comments on the construction of the Fed’s predictions. Economic projections are submitted by a total of 17 people – the Federal Reserve Governors and the Reserve Bank presidents who vote on interest rate policy at the FOMC meetings. The range of projections that is quoted in the press, or the central tendency, is comprised of 11 predictions, as it excludes the 3 highest and 3 lowest estimates. The actual range for all 17 votes in many cases shows much more variety (i.e. uncertainty). For example, the current central tendency for unemployment is 9.1% to 9.5%, while the actual range is 8.6% to 9.7%.
When compared with projections from January’s FOMC meeting, the most recent estimates show the Fed’s labor market expectations have improved. At the beginning of the year, all but 2 of the 17 voting members expected the unemployment rate would be at a minimum of 9.4% by the end of 2010. Now, the majority of votes (12 of 17) calls for a rate of 9.3% or lower. Projections for 2011 were for the most part unchanged.
Perhaps net monthly nonfarm payroll increases thus far in 2010 influenced slightly more optimistic projections from the Fed - which is understandable – but the sheer number of additional jobs that need to be created to hit these projections seems a bit out of reach given the lack of a specific blueprint for where these jobs will come from. On the other hand, suppose the Fed were to choose a more pessimistic route and suggest unemployment were going higher. Imagine the effect that might have on a company’s hiring plans.
We look forward to the next jobs report in hopes for another addition of 200,000+ permanent, non-census related jobs, as any increase in net jobs is a plus for economic recovery. While skeptical the economy will month-after-month add the jobs necessary to hit the Fed’s proje cted jobless rates, it appears the worst is behindus in terms of the employment picture – it just may be a longer road to recovery than many anticipate.
Finally, just as proof that even the Fed – like all other “experts” – has gotten it wrong before, we make one final note. In June 2008 the Fed predicted 5.3% to 5.8% unemployment for 2009. Even after the Lehman collapse, the Fed vastly underestimated the severity of the recession, forecasting 7.1% to 7.6% unemployment in 2009. The lowest jobless rate in 2009? 7.7% in January. Which – as we are all aware – escalated to +10% by October.
h/t KK
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Perhaps, the Fed has given new order to the BLS to put its Birth-Death model into hyperdrive?
The Gulf Oil Spew is a goldmine for Birth-Death modeling...
Just a couple more spills and the economy will be at full employment!
I'm doing the best I can. I created and failed 100 companies just today.
This would put anything the FED says to sleep for good: North Korea Threatening Attack on South now
http://news.yahoo.com/s/nm/20100525/ts_nm/us_korea_north_59
Hark! Tis' the Rhyme of the Ancient Marriner.
Whoa Nellie! Hold the Boat! Wait a Minute!
They could be Right As Rain!
Instead of New Job Growth each month, if enough People Leave the Workforce, the Unemployment Rate Falls.
Let's not Assume they're Only Projecting Job Growth!
Yeah, and fon't forget all those empty FEMA camps around the country. If they were filled up with enough cheap labor from the local populace (and I mean cheap) this could also give the economy a boost.Hell, next year they could all be employed and banging at producing $30 BD-players for all we know.
And if enough people's UI runs out and they become 'discouraged' then they don't count either. I think you are right to point out that the offical unemployment rate may have little or nothing to do with job creation.
It's hard to believe that the Fed would stoop to using useless or misleading data to try and fool us.
I feel so violated.
Shoot.....States, counties, townships, boroughs and municipalities are still furloughing without meaningful head count reduction. Until they begin to dial back to the new normal of reality, they will remain the shadow inventory of public sector welfare transfer payments. In fact, propping public sector employment is a bailout unto itself.
And let's not go into the pension issues.
Sounds like the Federal Reserve's statistics/opinions should be thought of as coincident or lagging... as opposed to predictive or leading. I suppose the only meaningful purpose they offer may be to predict 'herd mentality' as the 'herd' changes direction based on the voice of God... errr Bernanke!
Welcome back, haven't seen you in a while.
Thanks... fun to be back now that the market's upward grind seems to be over... a little more to comment on...
"Fed predicts unemployment will fall to 9.3% this year followed by 8.2% in 2011"
"the economy will need to ads..."
Piece of Fuckin' Cake
Let's add some jobs and subtract some unemployed:
BLS will add 1.9 million jobs by the Birth/Death model each year
(Bush added 1.7 million by B/D in 2007... so a little inflation... bite me)
2.3 million will be Marginally Attached in 2011
Congress just passed unemployment benefit extension to end after the election 12/31/2010 and...
You guessed it... after payments run out, they are Marginally Attached and NO LONGER Unemployed by U3...
That was too easy Tyler...
We just disposed of 6.2 million unemployed with the magic of numbers... Now that is some economic policy you can believe in... "Yes we can!"
wars and rumors of wars
US warns over Beijing’s ‘assertiveness’By Kathrin Hille in Beijing
Published: May 25 2010 17:50 | Last updated: May 25 2010 23:59
http://www.ft.com/cms/s/0a97c53a-681a-11df-a52f-00144feab49a.html
(seems to me that if a nation were opportunistic, this might be a good time to test out the Obama Doctrine -- or perhaps Timmay's big adventure did not go as swimmingly as the MSM headlines would have one believe)
He refused to swallow and provide a reach around?
What?
Navy bureaucrat:
Wahp wahp wahp. I'm important. Wahp wahp wahp. Keep me floating around in my dumb boat.
The Art of War .... "To capture the enemy's entire army is better than to destroy it; to take intact a regiment, a company, or a squad is better than to destroy them. For to win one hundred victories in one hundred battles is not the supreme of excellence. To subdue the enemy without fighting is the supreme excellence." --Sun Tsu
I suspect "Coming One Day Soon" .... China to U.S. "Byte Me"
It's not about adding new jobs, it's about the soon-to-be millions no longer looking for work.
I like the way you think.
If no one has a job, but nobody is looking for work, the unemployment rate is 0%.
Problem solved.
Exactly... something he's likely COUNTING on in that projection. And then if the impossible happens & legitimate unemployment actually decreases due to magic... he's safe in that case too. So this is a good prediction either way, from the perspective of predicting a useless stat.
I posted this earlier, and got junked by a punk.
well surely you didn't think that the fed would think it was not dealing with subhuman idiots. when a nation collectively believes that al-qaeda blew up the wtc, that obama is a natural us born citizen, that lee oswald killed president kennedy, then surely the assumption is ripe that the american booboisie would believe its crapulent prognostications....oh and the one about the cia not being actively interested in the price of gold is a real hoot.
www.obamacrimes.com
www.ae911truth.org
Bernanke on tap in 1/2 hour giving speech. Wonder what he'll say......
Considering the BLS birth/death model added 188K to the jobs report last month I find it hard to believe that this guy did not rip into that fact. I mean, sure, some people started businesses, but with credit contracting there is no way 188K started businesses or were hired by new businesses. Additionally, with consistent prints of 440K, 470K last week, of initial claims we got serious problems. Just to break even we need to create 1.6M+ jobs a month, not including population growth. The picture is much grimmer than most will ever admit.
This just means they will have to come up with new equations to get the numbers they want.
The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.
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The FED does not have the tools to promote employment, nor do they even strategize on how it would be accomplished. Employment to the FED is unimportant.
The FED promotes the finance sector of the economy and not manufacturing. It is not really intereseted in production.
The FED control of price has just recently been embarked upon with real estate through the MBS buy, but this is not to stabilize it, was to move bad debt from the banks to the FED.
The FED's only real tools of consequence is for setting of interest rates to ensure the banks make enough profit on the spread. Long term rates are important if they permit a policy to buy Treasuries.
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The FEDs real power is in the ability to control our politicians and nations fate, by controlling our money and money creation. Ben can influence the path of our Nation in declearing resumption of swaps on a Sunday afternoon, and our elected officials don't even seem to know what it means.
The real damage is to undermine the health of the nation. The real price is freedom.
Mark Beck
The Fed are experts on the economy? As in central planning? Absurd. The Fed manifestly suck ass by any metric, most of all by their supposed mandate to preserve price stability (clown currency down 95% in 95 years) and full employment (virtual breadlines - food stamp recipients - hitting 40 million). Bermonkey is an idiot. A money-printing fetishist. No more, no less. Bubbles from The Wire could do the job. Before he got clean.
Come on Privatus--don't hold back. Tell us how you really feel!
This is what happens when you hire propeller heads instead of bankers to run a bank.
Correct me if I am wrong but the fictional BLS number is determined by the following equation:
Number of new businesses opened X number of potential employees hired = BLS (or total guess)
In other words, whatever number floats your boat.
Let 15+ millions illegal immigrants go home, problems solved. This is second time I make this suggestion to Obama.
and hire punks at less than minimum wage - never!
Why not let market set interest rate by supply and demand, risk and reward? So we don't need FedResev who most of time does wrong thing.
Amen boeing!
"While the Fed’s mandate is to..."
That is the best headline EVER - Laughing to hard to read the rest!
Absolutely the Gulf Oil spill is a boon. We can hand a bunch of people shovels, have them go out to the beach and skim sand - and by the time they have skimmed about a quarter mile or so -- they can go back and start all over again because the oil has once again come ashore and saturated the sand where they just skimmed it 3 hours ago. BRILLIANT!! If all goes according to plan - we can have an entire generation of professional sand skimmers. Les see now -- at say $70.00 an hour plus benefits - since they will after all be government jobs - that works out to about $140,000.00 + benefits!! WOW - and since they won't be paying their mortgages, that gives them a LOT of money to go buy STUFF!! BUY STOCKS!!!
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