Unemployment

The Fed's monthly statement on the economy was out today and it was more redundant than a repetitive semantic pleonasm and less telling than a gay soldier (though it's not clear that anyone asked).

Private payrolls +50K on expectations of +160K! Manufacturing payrolls plunge 13K on expectations of +5K. Previous revised down to -7K. As Zero Hedge expected the ADP was totally and completely off. And so the myth of the recovery can suck it.

The negative incentive effects of unemployments are well known. What's maybe not discussed enough are the less visible effects of jobless benefits, which include reduced productivity on the job, not to mention reduced savings thanks to it being known that unemployment brings with it a check from the government

With unemployment stuck at 10% for about a year now, and with the real unemployment rate probably well over 20% if one removes all the BLS gimmicks, by now it is rather clear even to 2 year olds, that the New Abnormal is one where unemployment of 5% is merely a pipe dream, and that the Fed's attempt to revert to an abnormal mean, and blow the biggest bubble ever in the process, will do nothing to fix what is now a new structural baseline unemployment level. And yet, just to prove that the Fed will take taxpayer money and spend it on the most Captain Obvious topics ever, has just released a paper titled "Is Structural Unemployment on the Rise?" Adding insult to monetary injury, paper authors Rob Valetta and Katherine Kuang conclude that not only are worries about a "new normal" misplaced, but that jobs will promptly revert back to old levels. Sure why not - as we showed recently, it will only take the creation of 240,000 jobs a month for about 6 years straight to get back to the old unemployment level. It will also mean that luckily, at some point California will not have to borrow $40 million a day to fund its unemployment insurance payments. Lastly, with one brief paper the San Fran Fed has proven that all is good in the world, and those traitors responsible for 26 weeks of constant equity outflows, just like the 42 million Americans subsisting on food stamps, are complete morons for being "timid" in light of these stunning results. We expect as this paper's findings are broadly disseminated for world peace to finally break out, FX wars to end, consumer confidence to jump by 100%, and gold to drop to its Fed mandated price of $35/ounce.

Fitting in perfectly with the previous article by Ron Paul suggesting the dissolution of the US welfare state, we now read that insolvent California is borrowing $40 million each day from the Federal government to pay for unemployment insurance. And while we won't comment on the ethics of all of America paying for one insolvent state's unemployment problems, what does need to be highlighted is that California, which already owes $8.6 billion to the government will have to cut a check for $362-million to Washington by the end of next September. As California, as pointed out earlier, is insolvent, it will never make this payment. Which means that we now have a timeline of when the Fed will start bailing out bankrupt states, and that QE3 will next focus monetizing on municipal debt.

A review of employment data shows some good signs, but not enough to overcome the negative headwinds.

Not even two full days have passed since the announcement of what will become the single biggest monetary stimulus/experiment in the history of the world (since anything that never ends is by definition "biggest"), and here come the fiscal aid panhandlers. In an email just sent out by the Derpatment of Labor, Hilda Solia has officially requested an extension of the EUC program which is expiring in November and which will leave 2 million unemployed Americans without insurance benefits after November (and 6 million by the end of next year). Obviously this plea for fiscal heroin will be granted: how else can the country that has now become a utopian experiment in socialist-fascist fusion, supposed to delude the world that 42 million Americans on food stamps are actually not going to benefit from Ben Bernake's actions? And after all, if the DOL is denied, how else will the bankers defend themselves when 60 million cold and hungry Americans come knocking on their door, asking for a little of that $3+ trillion of Fed luvin'?

• Unemployment rate: 9.64%, just shy of 9.7%, compared to September's 9.58%
• U-6 Rate at 17%, down 0.1% from September
  
• September data revised from -95K to -41K
• US Change in Nonfarm Payrolls (Oct) M/M 151K vs. Exp. 60K (Prev. -95K, Rev. to -41K)
• Change in Private Payrolls (Oct) M/M 159K vs. Exp. 80K (Prev. 64K, Rev. to 107K)
• Birth/Death adds 61K after adding just 11K last month
• Those unemployed for over 27 weeks increases to 6,206, represents 41% of total unemployed
  
• Change in Manufacturing Payrolls (Oct) M/M -7K Exp. 5K (Prev. -6K, Rev. to -2K)
• US Average Hourly Earnings (Oct) M/M 0.2% vs. Exp. 0.1% (Prev. 0.0%, Rev. to 0.1%)
• US Average Hourly Earnings (Oct) Y/Y 1.7% vs. Exp. 1.6% (Prev. 1.7%)
• US Average Weekly Hours (Oct) M/M 34.3 vs. Exp. 34.2 (Prev. 34.2)

As America reaches its two year anniversary from the immediate economic collapse that followed the Lehman bankruptcy, punctuated mostly by vast and broad layoffs across every industry, arguably the most relevant topic that few are so far discussing is the expiration of full 99 weeks of maximum claims (EUC + Extended Benefits) for cohort after cohort of laid off Americans. And since these people are certainly not finding jobs in the broader labor market (which continues to contract and thus make the unemployment percentage far better optically than the 10%+ where U-3 should be), their next natural response will be to get very angry at the teat that has suckled them for so long, and is now forcing them to go cold turkey. Which is why we read with little surprise that now in Indiana, and soon everywhere else, unemployment offices are starting to add armed security guards. Of course, the official explanation if a benign one: "Armed security guards will be on hand at 36 unemployment offices around Indiana in what state officials said is a step to improve safety and make branch security more consistent." Why the need to improve safety all of a sudden? The 99 weeks cliff of course. Which means that on your next trek to the unemployment office to collect that last stimulus paycheck from Uncle Sam, you will most likely see the masked fellow below.

It depends where you live, your race, income and age ...

One definition of insanity is doing the same thing again and again and expecting different results. Unless the government substantially changes its approach, unemployment will keep rising.

An interesting "Goldilocks" read, in which total jobs missed expectations of -5K wildly, yet Private jobs missed much more modestly by just 11K (and beat Goldman's expectation). The unemployment rate came in at 9.6% on expectations of 9.7%. The actual number of people unemployed was 14.767 million, a small decline from August' 14.860, and since the civilian labor force continues to refuse to increase at 154.1 million, the jobless rate is obviously flat. Government workers declined by 159,000, and census took out 77,000. And of course, prior data was revised adversely for both August and July. Yet the most notable number appears to be the U-6, which jumped to 17.1% from 16.7% in August. The reason futures are struggling on this report, is that it is not so bad to guarantee QE2, and is most certainly not "good."

The hits just keep on coming for the administration's failed economic policies. While everyone is focused on tomorrow's NFP which will likely indicate a 9.9% unemployment rate, Gallup today confirmed that the unemployment rate has once again pushed into double digit territory. "employment, as measured by Gallup without seasonal adjustment, increased to 10.1% in September -- up sharply from 9.3% in August and 8.9% in July." Conveniently for the BLS, the deterioration in labor markets occurred late in September and will likely not show up until the October report: "Much of this increase came during the second half of the month -- the unemployment rate was 9.4% in mid-September -- and therefore is unlikely to be picked up in the government's unemployment report on Friday."

The Minneapolis Fed's recent addition, governor Kocherlakota, gave a speech in Missoula, Montana in which he noted the obvious, that GDP growth and inflation are both starting a decline which, if Goldman is right, will end up very close to breakeven to zero, and most likely will be materially lower. The one part of his speech that bears highlighting is his discussion on the ever deteriorating employment picture, which he classified as "disturbing."What Kocherlakota focuses is the topic of mismatch, which he classifies as follows: "There are many possible sources of mismatch—geography, skills, demography—and they probably interact in nontrivial ways." And on the topic of mismatch, the Fed governor admits that the Fed is hopeless to fix it: "The mismatch problems in the labor market do not strike me as readily amenable to the kinds of monetary policy tools currently available to the Fed." We wonder how long before the Fed realizes that not just the mismatch component of unemployment, but all of it, is not "amenable to monetary policy" tools, now that ZIRP is in session. And yes, fiscal policy during a time of structural unemployment can only provide temporary pull-forward boosts, such as the census and other Cash-4-Clunkers type programs. In other words, 10%+ unemployment is coming and will be here to stay.

No matter how the Obama Administration tries to spin it, employment numbers are soft and getting softer. There do not appear to be any basic economic factors that would cause employment to rise. Here is a look behind the numbers.