Unemployment

When it comes to the fabled President's Working Group on Capital Markets, also known as the Plunge Protection Team, the myths about the subject are certainly far greater than any underlying reality. To be sure, vast amounts of popular folkflore has been expounded into the public arena, with most of it being shot down simply due to it assuming conspiracy theories of such vast scale that the human mind is unable to grasp the complexity, and ultimately the inverse Gordian Knot makes an appearance with the claim that vast conspiracies are largely untenable simply because it is impossible to keep a secret from so many people for so long. Yet what if the secret is not a secret at all but is fully out in the open, and is only a matter of interpretation, and contextualizing? Why just 3 years ago it would appear preposterous to allege the capital markets are a ponzi and that the Fed does everything in its power to keep stocks higher. Well, what a difference three years make: now the Chairman himself in a Washington Post OpEd has admitted that the sole gauge of Fed success is the loftiness of the Russell 2000, neither unemployment nor inflation really matter now that the Fed's third mandate has been fully whipped out. Furthermore, Keynesian economics, and the entire top echelon of the educational system have also been accurately represented as a paradigm which merely perpetuates the status quo as the alternative is the realization that the whole system is a house of cards. As for the global capital markets being nothing short of a ponzi, we merely point you to the general direction of Europe, the ECB and the continent's banks, where the monetary interplay is nothing short of the world's biggest pyramid scheme. Yet the PPT, or whatever it is informally called, does not exist? Consider further that only recently did it become known that the former SecTres Hank Paulson himself was exposed as presenting material non-public information to a bevy of Goldman arb desk diaspora hedge funds, headed by with none other than the head of the President's Working Group on Capital Markets Asset Managers committee David Mindich. So, if contrary to all the evidence that there is some vast underlying pattern, if not a conspiracy per se, one were to take the leap of faith and take the next step, where would one end up? Well, most likely looking at the Exchange Stabilization Fund, or ESF, which Eric deCarbonnel has spent so much time trying to unmask. Is it possible that the ESF, located conveniently at the nexus between US monetary policy, foreign policy and last but not least, a promoter of the interests of the US military-industrial complex, is precisely the  organization that so many have been trying to expose for years? Watch and decide for yourself.

Gallup, which unlike the BLS, does not fudge, Birth/Die, or seasonally adjust its data, has just released its most recent (un)employment data. And it's not pretty: for all those hoping that the Labor Participation Rate fudge that managed to stun the world a few weeks ago with a major drop in the November jobless rate, don't hold your breath. Gallup which constantly pools 30,000 people on a weekly basis, has found that for the past 4 weeks, both underemployment and unemployment have risen for 4 weeks in a row. And while the number of US workers "working part time and wanting full-time work" one of the traditional short cuts to boosting US jobs has risen to almost a 2 year high, it is the Job Creation Index in December which plunged in the last week, confirming that the Initial Claims data out of the BLS has been spurious and is likely to revert back over 400k on short notice. In summary, here is how Gallup debunks the BLS' propganda: "The sharp drop in the government-reported unemployment rate for November and the sharp drop in jobless claims during the most recent reporting week have combined to create the perception that the job market may be improving. Economists are wondering whether this means the economy is stronger than previously estimated. Political observers are wondering how fast and how far the unemployment rate needs to fall to significantly improve the president's re-election prospects. In contrast, Gallup's data suggest little improvement in the jobs situation. December unemployment is up slightly on an unadjusted basis. In fact, the government is likely to report essentially no change in the unemployment rate when it issues its report on December unemployment in the first week of 2012. Of course, this assumes that the labor force doesn't continue to shrink at so rapid a pace that it drives down the unemployment rate, as it did last month. Gallup's most recent weekly job creation numbers also suggest little improvement in the jobs situation. As a result, it may be wise to exercise caution in interpreting the drop in the government's most recent jobless claims numbers." Or, less diplomatically, the BLS is lying like a drunken sailor just as the economy is about to turn. And if BAC continues languishing under $5, it will turn very hard.

NFP Prints At 120K, Below Expectations Of 125K, Unemployment Rate Drops To 8.6% on Expectations of 9.0%. And for those wondering how it is possible to have such a major drop in the unemployment rate, here it is: Labor Force Participation down from 64.2% to 64.0% as ever more people leave the work force once again.

Once again, Goldman was correct. From the report, "Nonfarm payroll employment continued to trend up in October (+80,000), and the unemployment rate was little changed at 9.0 percent, the U.S. Bureau of Labor Statistics reported today. Employment in the private sector rose, with modest job growth continuing in professional and businesses services, leisure and hospitality, health care, and mining. Government employment continued to trend down." While October missed consensus by 15K, September was revised from 103K to 158K. The change in private payrolls was +104K on expectations of 125K (down from an upward revised 191K), while manufacturing payrolls, or whatever is left of them, was +5K on expectations of +2K. The labor force participation ratio was flat at 64.2%, just off the 30 year low. What is truly hilarious, and what confirms the L should be permanently scrapped from the BLS is that the initial August NFP number of 0 has now been revised twice to 104,000 or whatever suites the US policy at the time.

There's just one minor problem.

FED OFFICIALS SEE 2011 GDP 1.6%-1.7% VS 2.7%-2.9%
FED OFFICIALS SEE 2012 GDP 2.5%-2.9% VS 3.3%-3.7%
FED OFFICIALS SEE LONGER-RUN GDP 2.4%-2.7% VS 2.5%-2.8%
FED OFFICIALS SEE 2011 UNEMPLOYMENT 9.0%-9.1% VS 8.6%-8.9%
FED OFFICIALS SEE 2012 JOBLESS ESTIMATE 8.5%-8.7% VS 7.8%-8.2%
FED OFFICIALS SEE 2013 JOBLESS ESTIMATE 7.8%-8.2% VS 7.0%-7.5%
FED OFFICIALS SEE LONGER-RUN JOBLESS 5.2%-6.0% VS 5.2%-5.6%

With MSM reporting the seasonally adjusted first time unemployment claims down by 6,000, it's time for a reminder that this number is fake.

As noted previously, one key fly in the ointment in an otherwise better than expected jobs report (in which the participation rate also trended higher for a welcome change) was the manufacturing jobs data, which declined by 13,000. Perhaps at the end of the day this is the most important data point, since while declining government jobs at the end of the day is a good thing, government workers don't actually create anything of value for the economy. And as the chart below demonstrates, the long term trend is certainly not our friend. The second "fly", and the one that will certainly be used as a talking point by politicians, was the average unemployment duration. At 40.5 weeks, it just hit a new all time record.

High college dropout rate has been a persistent trend in the U.S. for decades.   One study put the cost to nation at $4.5 billion per year in lost earnings and tax revenues.  Meanwhile, Russia and South Korea now outrank the U.S. in terms of college graduate rate. 

Jobs? They don't need no stinkin' jobs ...

Therefore this week's number is worse than last year, worse than the average of the past 5 years, and worse than the past 4 years since the depression began in terms of the increase in new claims since the previous week.

It is a sad commentary on conventional economics that their well-intentioned policies will achieve the exact opposite of full employment. Obama's remedies will do nothing but perpetuate long-term high unemployment. And that is a hell of a gift to workers on Labor Day.

Key Highlights:

• At 0, the NFP number is a plunge of 85K, from a downward revised July, which was previously at 117. This is the biggest drop since September 2010
• The Household Survey saw an increase of 331K in the number of employed
• Average hourly earnings for all employees on private nonfarm payrolls decreased by 3 cents, or 0.1 percent, to $23.09. This decline followed an 11-cent gain in July. This is the first time the avg hourly earnings have been negative MoM since January 2008
• Underemployment, U-6, rose to 16.2%, from 16.1% in July
• The labor force rose to 153.6 million in August.
• Ironically the only good news in the report, was what many have been indicating is a negative for months: namely that the Labor Force Participation rate actually rose for the first time in months from the nearly 30 year low of 63.9% to 64.0%

Let's take a quick look at some numbers: 8, 160, 400, 350, 12 and 5. There have only been 8 weeks out of last 160 weeks that unemployment claims have been below 400 thousand claims. In normal circumstances we are worried about recessions when claims are rising above 350 thousand claims. Furthermore, jobless claims tend to plunge below 350 thousand a week within 12 months after the end of a recession. Currently we are still holding above 400 thousand claims after more than two full years since the recession statistically ended. Those are some pretty ugly numbers, but the most important number is 5. The reason that we think unemployment might move sharply higher is that every time the STA Composite Employment Index drops to a level of 5 or less the economy has been in a recession. Of course, it is during recessions that unemployment claims rise sharply as businesses cut back on their labor force to reduce costs. This is clearly seen in the chart.

The debate over whether or not continued deficit spending should be pursued is often characterized as a choice between the short term beneficial effect of Keynesian stimulus as against the long term growing, and ultimately unsustainable, government debt to which continued stimulus would contribute.This view assumes there to be a reliable relationship connecting increases in aggregate spending to increases in employment. The absence of such causality, however, would undermine the case for deficit spending.