US Employment Hopium Smoking Idealists?

Reggie Middleton's picture



All over the MSM today, we here Jobless Claims in U.S. Fall More Than Forecast, presented as good news. Of course, a little digging finds that not only was the jobless rate from last month adjusted upward retroactively (as it nearly always is), but "Too-Sick-to-Work Americans Shrink U.S. Labor Force". In other words “With a rising number of disability beneficiaries, there are both lower unemployment rates and lower participation rates.” As reported by Bloomberg, and to wit:

The number of workers receiving SSDI jumped 22 percent to 8.7 million in April from 7.1 million in December 2007, Social Security data show. That helps explain as much as one quarter of the decline in the U.S. labor-force participation rate during the period, according to economists at JPMorgan Chase & Co. and Morgan Stanley.

Expiring Benefits

The participation rate -- the share of working-age people holding a job or seeking one -- was 63.8 percent in March after falling to a three-decade low of 63.7 percent in January. Disability recipients may account for as much as 0.5 percentage point of the more than 2 point drop since the end of 2007, the economists calculate, and that contribution couldgrow when some extended unemployment benefits expire at the end of this year.

“How we measure and understand what’s going on in the economy can be influenced by the degree to which various public- support programs are available and being used,” said Michael Feroli, chief U.S. economist at JPMorgan in New York. “With a rising number of disability beneficiaries, there are both lower unemployment rates and lower participation rates.”

Bloomberg also reports U.S. Productivity Falls, but I must say non-sequitur... It simply does not follow...

The productivity of U.S. workers fell in the first quarter, indicating businesses are reaching the limit of how much efficiency they can wring from the workforce.

The measure of employee output per hour declined at a 0.5 percent annual rate after a 1.2 percent gain in the prior three months, figures from the Labor Department showed today in Washington. Expenses per worker increased at a 2 percent rate, less than estimated.

Employers had to take on more staff at the start of the year even as growth slowed, signaling they can no longer count on existing staff to meet demand. A government report tomorrow may show payrolls increased again in April, according to the median forecast of economists surveyed by Bloomberg News.

Okay, so growth slowed after 4 years of the deepest, widest, most global fiscal stimulation exercise in the history of... well... The globe! One would assume this slowing growth trend will accelerate as the stimulus is unwound due to a variety of common sense reasons, starting with...

  1. It just didn't work, and following up with...
  2. the potential to incite the inflationary fires, and ending up with...
  3. many countries simply can't afford the Ponzi scheme, trashy asset merry-go-round game thingy anyomore.

Even if stimulus is not lessened, we still can't ignore the plain and simple fact - it ain't working. Growth has slowed any way and quite a few developed nations who shepherded the global stimular cartel are now stating they're back in recession - depsite the fact that I made clear to my subscribers that they never left recession in the first place. Now, as growth continues to slow, what exactly does the astute pontificator think will happen to employment demand???????????????????????????????? Well, it's a positive omen as long as you only live your life a fiscal quarter at a time. Just don't look past 2 or 3 months or so, and you're straight, right????????????????

“This slowdown in productivity is a positive omen for the labor market,” Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York, said in a research note. He correctly projected the drop in productivity. “It suggests that additional increases in output will necessitate a faster pace of hiring than what has occurred thus far.”

Now reference my comments from exactly this time last year, in "On Employment and Real Estate Recovery":

A regular commentator on BoomBustBlog has been attempting to make the case for a housing recovery based upon rising employment metrics. He has, particularly, pointed out rising hourly earnings. I thought I would take this time to point out that average hourly earnings can rise due to the fact that less people are working. The aggregate employment in the US has literally fell off of a cliff. Since you know that I love pictures, let's do this graphically...

Below you have a chart of total hours worked in the US with the average hourly earnings superimposed on top. As you can see, two and a half years and trillions of dollars of stimulus and QE later, we have barely budged. There was no multiplier effect. In essence, what you had was a divisor effect, and the money would have shown up more on a dollar for dollar basis if it was simply given to the populace! Of course, that wouldn't have kicked the inevitably deflation of the banking system down the road, now would it have?

Notice that despite the severe drop in total hours worked, average hourly earnings have increased. This can easily mislead someone who is not paying attention. Read more on this topic here:  

It's all HOPIUM, which is a tad bit stronger than that typical sticky sesimilia many are used to...

Reggie Middleton ON CNBC's Fast Money Discussing Hopium in Real Estate


Now that I have (quite honestly) issued my most sincerest thanks, let's attempt to remedy the shortcoming of the limited amounted of time that I had. You see, after the 3 minute hit ended there was a brief discussion of commercial real estate in which I didn't get to participate, thus I will take the liberty of doing so through this medium.


Yes, commercial real estate has shown some marginal increases in the last quarter, and REITs have been on fire. The issue is, many publicly traded equities have detached from their underlying fundamentals. Let's reference “A Granular Look Into a $6 Billion REIT: Is This the Next GGP?” The following are excerpts from it:

Read More


You have to factor in non-market factors that have gone into supporting CRE prices. We have government bubble blowing where you can see where property prices were in a massive bubble, they rose and that bubble popped, and they were artificially supported and that bubble was partially reblown. Yes, the bubble was purposefully reblown, reference Buried Deep Within The Files That The Federal Reserve Released On Thier MBS Purchase Program, We Found TARP 2.0!!! More Taxpayer Money To The Banks!:

We have conducted analysis on all MBS sale and purchase transactions conducted by the Fed whose data was recently released. Of the total 10,058 MBS transactions, 72% were done at a yield of less than 5% (5% below yield of 4.0%, 32% between 4.0%-4.5%, 35% between 4.5-5.0%) with an average yield of 4.75% on all MBS transaction. The table below presents the number of transactions under their respective yield category.

We have also analyzed the yield on MBS purchased and MBS sold, looking for price discrepancies between MBS purchased and MBS sold. The data points out that the average yield on MBS purchased was 4.71%, 29bps lower than average yield for MBS sold, thus implying MBS purchased were at a higher price than MBS sold. You know that old government adage, buy high and sell low!

Yield on sale: 5.00%
Yield on purchase: 4.71%
Difference in bps: 29.1

Now, imagine this artificial suppression, both in the form of MBS purchases (which are supposed to be over) and QE in the form of Treasury Ponzi purchases, are overpowered by the market driven rate storm brewing ahead. You also have the government looking the other way at depreciating asset values, see FASB Appears to Have Bent Over For The Final Time & Accuracy In Financial Reporting Dies An Ignominious Death!!!:

The Fed, Barney Frank, et. al., and the Treasury colluded to lift the prices of equities, real assets. government bonds, and the derivatives based upon them to considerably above their fundamental values in an attempt to reflate the bubble and pull the country out of recession the “stanky” way.
A natural result of this is that banks can easily hide the true condition of their holdings from most investors. Reference The Financial Times Vindicates BoomBustBlog’sStance On Goldman Sachs – Once Again! wherein I detailed this occurrence:


I declared insolvency throughout the banking system, and it looked as if I was wrong for some time, then the truth’s ugly head started peaking out. See The Financial Times Vindicates BoomBustBlog’s Stance On Goldman Sachs – Once Again!

Goldman Sachs has revealed details of about $5bn in investment losses suffered during the crisis for the first time this week, in a move that will deepen the debate over companies’ financial disclosures. The figures, issued as part of internal reforms aimed at silencing Goldman’s critics, show that the bank suffered $13.5bn in losses from “investing and lending” with its own funds in 2008. But Goldman’s regulatory filings and its executives’ comments to investors at the time pointed to about $8.5bn of losses arising from its investments in debt and equity, as markets were rocked by the turmoil.

Hmmmm! I walked through this in explicit detail in “When the Patina Fades… The Rise and Fall of Goldman Sachs??? and I did it without being privvy to Goldman’s financial innards. Long story short, practically all of the major banks are lying about the value of some of the largest assets on their books.

How many institutional and/or retail investors will be able to ferret out such? Or more importantly, why should they have to? It is the reporting company’s responsibility to report, not to obfuscate. The big problem with this “hide the market marks” thing is that markets tend to revert to mean.Unless said market values fundamentally catch up with said market prices, you will get a snapback. That is what is happening in residential real estate now. That is what happened in Japan over the last 21 years!!! That’s right, it wasn’t a lost decade in Japan, it was a lost 2.1 decades!

This has been the first balance sheet recession that the US has ever had, but there is precedence to follow. Japan had a balance sheet recession following their gigantic real asset bust. They made a slew of fiscal and policy errors, which essentially prolonged their real asset recession (now officially a depression) for T-W-E-N-T-Y  O-N-E long years! For those that may have  a problem reading that, it is 21 long years. What did the Japanese do wrong?
  • They refused to mark assets to market
  • They attempted to prop up zombie banks
  • They failed to promptly clean up NPAs in the banking system
  • They looked the other way in regards to real estate value shenanigans

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Nukular Freedum's picture

Just think, Mises never knew about "balance sheet recessions" and yet here they are.
This is a liquidity/debt fuelled malinvestment recession, the only type there ever is. All that varies and gives the Richard Koos of the world their 15 minutes of fame, is the magnitude of the recession/deflation and this one is a doozy.
Obviously the swift solution is to let the debt fail and the bankruptcys flow (as in Iceland recently) whereas what we know is happening is that the tax payer is underwriting the losses thus catapulting the system into a prolonged zombified Japanese scenario. Not that Robert Brusca has noticed. Good macro article Reggie, nice change of focus.

disabledvet's picture

Again "actuarial issues." whatever one thinks of the future the actual benefits being paid "come in tablet form." in other words CURRENT benefits are modeled on "future rewards"...the biggest of which is an "expected rate of return." the "modeled rate" is STILL 7 percent even though theACTUAL rate has been one to two percent going on a decade now! As a consequence "hiring is non existent" while government programs "grow to the moon." Reggie talks implications...STICK TO THE MATH!

q99x2's picture

Derivatives employ algos not people.

Zero Govt's picture

..and Govt employs economy sucking zombies, not productive workers

Money 4 Nothing's picture

Stop it.. Coperations are people too. 

nmewn's picture

Two million less jobs to be applied for...gone...poof.

Hopium never fed a starving child.

StychoKiller's picture

"Brother's heading that way, now I guess

He just read something, made his face turn blue

Well, I got nothing against the press

They wouldn't print it if it wasn't true!

If you want to know about the man gone bonkers

If you want to know how to play guitar

If you want to know about the other suckers

You can read it in the Sunday papers, Sunday papers..."

-- Joe Jackson, "Sunday Papers"

Mr. Noatak's picture

My opinions only:

The US crossed the tipping point around 1975. Everything since then has been an illusion, the illusion of a giant overloaded freight train steaming down the track on momentum alone, having run out of fuel long ago. Big countries, just like big companies, take a long time to exhibit the consequences of past mistakes. In my view, the U.S. Wabash Cannonball is now stationary and rusting, while tickets are still being bought and sold in the Depot further down the line.

EFNuttin's picture

USA - TBHATF - Too Big and Heavily Armed To Fail  "Mr. President, the Chinese Premier is on the line telling us they are going to need another 200 bps for the next trillion bond float."  President of TBHATF - "Tell the Chinese Premier that the USS Nimitz, USS Stennis, and USS Reagan have just launched a bond rate discount party that is 15 minutes from Beijing and closing fast.  Now warm up Marine One, I'm ready for some golf.  Tell the White House chef I feel like General Tso's chicken tonight."

ebworthen's picture

In my community there are are 500 jobs available, and each one pays $7.25-$10.00 an hour with no overtime and zero benefits.

How are housing, "health"care, and the economy going to survive on that?

Problem Is's picture

"One would assume this slowing growth trend will accelerate as the stimulus is unwound due to a variety of common sense reasons..."

Who says The Bernank 'n Krugman et al were endowed with common sense???

john in cheshire's picture

Reducing the unemployment figures by reclassifying people as unfit to work is a standard socialist ploy; we've had that done to us for at least 15 years, and probably for much longer. I suggest that you guys in the US recognise this very quickly and act against it. If not, by default it will both increase the burden on tax-payers and allow the deceits of your socialist government to portray their efforts as beneficial. Kick them between the legs hard and often.

Zero Govt's picture

Good read Reggie

Question is we have yet more Govt intervention in RE atop of their already, with WS, disasterous past decade of bubble blowing into the sector

what is to stop them continuing to fake/feign a market, as banks are doing by hiding millions of homes (inc. 1 million x $1m plus houses) under the rug?

Judgement Day cometh, it always does, but it may be years away yet so long as the counterfeit wealth printing continues unabated 

dizzyfingers's picture


The number of workers receiving SSDI jumped 22 percent to 8.7 million in April from 7.1 million in December 2007, Social Security data show. That helps explain as much as one quarter of the decline in the U.S. labor-force participation rate during the period, according to economists at JPMorgan Chase & Co. and Morgan Stanley


...or maybe the 22% has discovered how hard it is to find work and how easy it is to get on SSDI. Eventually everyone will be on "benefits" and then who's going to be fool enough to pay taxes?


marathonman's picture

To paraphrase Richard Milhouse Nixon, "We're all [Japanese] now."

Popo's picture

  • They refused to mark assets to market   ---->  ie:  The oligarchs obliterated the economy out of self-interest.
  • They attempted to prop up zombie banks ---->  ie:  The oligarchs obliterated the economy out of self-interest.
  • They failed to promptly clean up NPAs in the banking system ---->  ie:  The oligarchs obliterated the economy out of self-interest.
  • They looked the other way in regards to real estate value shenanigans ---->  ie:  The oligarchs obliterated the economy out of self-interest.

  • Any questions about who obliterated the economy?