Unemployment

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.

Through it's policies encouraging the offshoring of jobs, mergers, decreasing of economic activity to fight inflation, and allowing wealth to be concentrated in fewer and fewer hands, the government has channeled water away from U.S. jobs, creating the worsening unemployment drought ...

Private payrolls come in at +67K as Birth Death adds 115K, compared to just 6K previously, as U-6 rises from 16.5 to 16.7%, highest since April. Total Part time workers (all industries) increased by 401k from 18,157 to 18,558; part time workers for economic reasons increased by 331K. Workweek unchanged month over month at 34.2 hours, with average hourly earnings up slightly from 0.2% to 0.3%. 42% of the unemployed were out of a job for 27 weeks or longer, compared to 44.9% previously; average duration of unemployment at 33.6 weeks.

When it comes to pointless (and bullish) reversion to the mean exercises,it seems nobody has a problem with saying stocks have to go back to 1,500 just because that's where they were, and the unemployment rate has to go back to 5% cause that's how we know the Fed is the immaculate and flawless piece of art it is, and always gets things under control to near-peak efficiency. Well, here at Zero Hedge we (again) decided to take the reversion to the mean approach and flip it, instead applying it to a deteriorating indicator, the labor force participation rate. The first chart below demonstrates the LFP rate, which a derivative of the chart we presented earlier, has now plunged to the lowest level in over 25 years, or 64.6% (gotta go back to December 1984 for the first time this was passed). So we decided to "normalize" the LFP by keeping it at the peak achieved at the turn of millennium, or December 1999, when it hit a peak of 67.1%. Now as everyone knows the US population has been soaring since then, and with the cost of living increasing ever more with each day, and as more and more family members are forced to join the work pool, it makes sense that in a normal economy, the LFP should continue rising instead of declining. We thus kept it constant at the 67.1% level (instead of doing the conservative thing and pushing it higher along the trendline), and ran the unemployment numbers through, assuming this part of the jobless equation was constant. To our surprise, we found that the U-3 rate (not the U-6), which today was supposed to be 9.5%, in fact turns out to be 13.0% as of July: an all time record save for the 13.6% recorded in December 2009. And if instead we use the trendline number of a 68.5% LFP rate, the unemployment rate today would be 14.7%. In retrospect we sympathize with Christina Romer's decision to get the hell out of Dodge.

It's official: the double dip is here. Goldman's Jan Hatzius just lowered his GDP forecast for 2011 from 2.5% to 1.9% (kiss goodbye all those 93 EPS estimates on the S&P), increased his unemployment forecast from 9.8% to 10.0%, boosted his inflation expectation from 0.4% to 1.0%, and said that QE lite is now on the table, as he expects that "the FOMC to announce that they will reinvest the paydown of mortgage-backed securities in the bond market at next Tuesday’s meeting." Look for all other sell-side "strategists" (here's looking at you Neil Dutta) to lower their economic outlook in kind, and the 2011 S&P consensus to decline accordingly.

Goldman chief economist Jan Hatzius has created a useful preview of tomorrow's NFP number (consensus +90,000 private, -65,000 overall), explaining why Goldman has a more negative outlook on the number than most (+75k and -75K, respectively). Jan's conclusion on tomorrow's, and recent trending data :"Our view remains that the primary job market problem is a shortfall in labor demand." More relevantly, Hatzius does an extended analysis of the Beveridge curve (i.e., the relationship between unemployment and job vacancies) to determine if there has been a shift in the overall level of structural unemployment, as opposed to the more simple seasonal variety. Hatzius' modestly negative conclusion: "The answer is that the vacancy rate has not picked up by enough to push gross hiring sufficiently far above gross separations—i.e., layoffs plus quits—to create large numbers of net new jobs... Structural unemployment may well increase over time if large numbers of people remain without a job for long periods of time, and thus lose their skills and attachment to the labor force. But it is not clear that this process has started yet."

The Spanish banks rallied after the (faux) stress tests, just to have reality spank them the following week. This time around, will the revolution be televised, or covered through a blog?

In keeping with the tradition of digging America into a debt hole so ridiculously large any conversation over whether the US will be able to ever pay this debt off is immediately moot, the Senate has just ended debate over the latest micro fiscal stimulus, specifically the legislation extending unemployment insurance benefits. It appears the latest iteration of the "you never have to work again as long as you vote for Obama" bill is about to pass. Next up: free government jobs for everyone as the census becomes a monthly affair. And when that fails, free Bernanke Bux for all who still remember how to breathe after all the daily Desperate Housewives of Liberty 33 drama. As for the cost of this latest freebie: $25, $50 billion.. who cares - at the eventual hyperinflationary discount rate, the NPV is about a penny or three. As for current funding, two Fed Assured 2 Year glitchless auctions at record low rates will take care of it.

In June, 20 states posted a (seasonally adjusted) unemployment rate greater than the US average. At 14.2% Nevada was once again the state with most idle hands (excluding Puerto Rico, which since the earthquake nobody cares about anyway). Michigan is second at 13.2% as those unemployed for 20 years or longer (the vast majority of the population) are now presumed to be dead, thus causing a downward inflection point and a major improvement in the state's economic perspectives. California, Rhode Island and Florida rounded out the top 5 states. Yet the gimmickry at the Federal level is making the state picture better as well: in reality the main reason for the improvement on a state by state level is the decline in the labor force, so even as the unemployed in California declined by 30k, the labor force contracted as well, by 23k, and, carry the four, the net result was a loss of 27.6k workers. In other words, more data that is gradually becoming completely irrelevant.

Broke US states are probing new lows with each passing day, as money continues to stubbornly refuse to grow on trees (unless you have discount window access of course). The latest funding fiasco comes from Texas, which Reuters reports is planning on selling $2 billion in debt just to refill its empty unemployment trust fund. We are confident that bondholders will be ecstatic to put their money into a extremely rapidly amortizing "asset" that will begin depleting from day one and will likely have no collateral recourse in under a year. But after all, it is other people's money, so we are confident this particular Citi/BofA led bond offering will close and price and sub Treasury rates.

The traditional hot bed of haute couture and fashion retail is experiencing an unprecedented plunge in end demand as Italy, absent trillions in fiscal and monetary stimulus boosts, has become a prime example of what US retail would look like absent the generosity of the government and the Fed. According to this Bloomberg TV report, "sales are worse than last year and business is getting worse and worse. The situation is not good." Summer sales revenues are expected to be down 5% across the board. Another factor blamed for poor sales: the weak performance by the Italian football team, and the resultant glut of jerseys. And when Prada and Gucci are seen offering extra discounts just to get shoppers into the stores, the whole concept of ultrapremium retail goes out of the window, putting the "aspirational shopper" paradigm on hold.