Unemployment

In the boardrooms of corporate America, profits aren't everything - they are the only thing. A JPMorgan research report concludes that the current corporate profit recovery is more dependent on falling unit-labor costs than during any previous expansion. At some level, corporate executives are aware that they are lowering workers' living standards, but their decisions are neither coordinated nor intentionally harmful. Call it the "paradox of profitability." Executives are acting in their own and their shareholders' best interest: maximizing profit margins in the face of weak demand by extensive layoffs and pay cuts. But what has been good for every company's income statement has been a disaster for working families and their communities. Obama's lopsided recovery also reflects lopsided government intervention. Apart from all the talk about jobs, the Obama administration never supported a concrete employment plan. The stimulus provided relief, but it was too small and did not focus on job creation.

Jan Hatzius' economic team finally comes out with a report that bears presenting as it aptly discloses one of the core conundrums facing the Fed: you can have low unemployment (eventually... courtesy of many years of ZIRP and QE in an environment of "fiscal adjustment", or Goldman's term for Congressional "austerity"), or you can have low gas prices. But you can't have both. To wit: "The combination of tight energy markets and high unemployment poses a dilemma for monetary policy. If policy is kept easy to boost growth, unemployment will decline but the oil market is at risk of overheating. But if policy is tightened to confront the pressure from higher oil prices on (headline) inflation, unemployment is likely to remain  far above desirable levels for a long time to come." And while the price of gas can be (very briefly) controlled by various volatility enhancing margin moves by the exchanges (which for those confused are nothing but self-reinforcing loops - increased vol leading to a margin hike, leads to more vol, leading to more margin hikes, etc). Too bad the CME can't just lower margin on unemployment to -100%. But it can't. Which is why very soon the Fed will be forced to admit to the whole world that "ultimately, a return to equilibrium in both the oil and labor market is likely to require an increase in the real price of oil. In theory, policymakers could react to this by  targeting either a combination of temporarily higher headline inflation with stable core inflation, or stable headline with lower—and in an extreme case negative—core inflation."  And here Goldman throws a stunner: when debating the implications for fiscal policy (we all know what monetary policy will look like: QE 3 through N), the firm proposes the following: "one complement to a low interest rate policy could be a higher energy tax. If one believes that higher real energy prices will be needed in coming years, an energy tax would promote that shift and also capture some of the surplus that would otherwise have gone to foreign producers." Is the government about to unleash some EPS destruction in the E&P and refining space? It appears Goldman has already given the green light which is really all it takes.

They've FIXED the economy, alright ... in favor of the top .1%

And so much for all economic data indicating a drop. The BLS just reported the biggest monthly gain since February 2006. From the release: "Nonfarm payroll employment rose by 244,000 in April, and the unemployment rate edged up to 9.0 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in several service-providing industries, manufacturing, and mining." And yet: Birth/Death adjustment +175,000.

"Permanent increases in the monetary base foreshadow eventual increases in inflation that can increase, rather than reduce, unemployment."So, the Chairman was....lying?

The market rallied a bit in the afternoon as rising new claims for unemployment missed analyst guesses by...

The economy is in a structural readjustment that will leave the middle class higher and drier. Long-term factors will continue to negatively affect employment. We are headed to a higher level of permanent unemployment than the 5% that existed in pre-crash 2008.

Please move along, no recovery to see here...

The continuation of my rant on stagflation, and why it is mistakenly being called inflation in the media and how all of it is being denied by US.gov.

NFP reports March NFP at 216,000, above expectations of 190,000, and higher from an upward revised February 194K. Private payrolls at 230K on expectations of 30K. The unemployment rate at 8.8% is the lowest since March 2009. Underemployment (U-6) came at 15.7%. Average hourly earnings unchanged (0.0%), below expectations at 0.2%. Manufacturing payrolls below expectations at +17K on expectations of 30K, previous revised lower to 32K. But the kicker, as usual, continues to be the Labor Force Participation rate, which continues to be at a 25 year low of 64.2%. The average workweek was at 34.3 hours, unchanged from before, and confirming that from the Fed's perspective there continues to be a lot of slack in the economy.

The employment numbers are improving, but are there sufficient forces to drive a robust improvement? If not, what do these numbers really mean? Well, relatively little, unfortunately.

Do you see what happens Larry when your labor participation rate (wink wink BLS) doesn't plunge to near all time record and the unemployment rate reflects, gulp, reality (pro forma for Goldman Sachs currency swaps)? "Greece's unemployment rate in December jumped to 14.8 per cent, with
more than 40,000 people losing their jobs in a month, The Hellenic
Statistical Authority (ELSTAT) said Wednesday. ELSTAT, providing
the latest jobless data it has available, said that the December jobless
rate compared with 13.9 per cent in November. In December a total of 41,068 people lost their jobs, pushing the number of unemployed to almost 734,000. As
unemployment keeps rising, survey results released earlier this week by
the Greek daily Kathimerini newspaper showed that job prospects in the
coming months appeared to be gloomy, particularly in the construction
and manufacturing sectors. Greece agreed to a series of
cost-cutting measures in exchange for a 110-billion-euro (154 billion
dollar) rescue package by the EU and IMF in May to avoid bankruptsy." Not to worry, Greek CDS have just hit all time wides well north of 1,000 bps, confirm that all is fucked, which only means that the ECB is about to bail out the totally and utterly bankrupt country once again, as more European taxpayer money is thrown down the sovereign funding black hole. In other news Greece is not Libya (for now).

Pretty much  precisely what we noted earlier today: "A couple of behind-the-scene facts: from October to February, an epic
700k people have left the work force. If you actually adjust for the
fact that the labour force participation rate has plunged this cycle to a
27-year low the unemployment would be sitting at 12% today. Moreover
the employment-to-population ratio — the so-called “employment rate” —
stagnated in February at 58.4% and is actually lower now than it was
last fall when “double dip” was the flavour du jour."

Total NFP increases in February: +192,000, slightly below expectations of 196,000, and below the Goldman target of 200,000. January revised from 36K to 63K. Private Payrolls increased by 222K on expectations of 200K from 68K, manufacturing jobs increased by 33K from 25K, down from a 53K revised in February. From the report: "Nonfarm payroll employment increased by 192,000 in February, and the unemployment rate was little changed at 8.9 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in manufacturing, construction, professional and business services, health care, and transportation and warehousing." Average hourly earnings unchanged, and average weekly hours declined to 34.2 from 34.3.

In a January 2009 ABC interview with George Stephanopoulos, then President-elect Barack Obama said fixing the economy required shared sacrifice, "Everybody’s going to have to give. Everybody’s going to have to have some skin in the game." For the past two years, American workers submitted to the President’s appeal—taking steep pay cuts despite hectic productivity growth. By contrast, corporate executives have extracted record profits by sabotaging the recovery on every front—eliminating employees, repressing wages, withholding investment, and shirking federal taxes. Washington’s embrace of labor market flexibility ensured companies encountered little resistance when they launched their brutal recovery plans. Leading into the recession, the US had the weakest worker protections against individual and collective dismissals in the world, according to a 2008 OECD study. Blackrock’s Robert Doll explains, “When the markets faltered in 2008 and revenue growth stalled, U.S. companies moved decisively to cut costs—unlike their European and Japanese counterparts.” The U.S. now has the highest unemployment rate among the ten major developed countries.