The Time To Hike Rates Is Now According To The Beveridge Curve

Tyler Durden's picture

In addition to being a sanity, and manipulation, check to the non-farm payrolls number where "drift" occasionally gets so profound even the BLS is forced to cower in shame for openly making up numbers, the monthly JOLTS survey also includes, as part of its graphs and highlights addendum, a very useful chart laying out the Beveridge Curve of the US labor force. It shows the relationship between unemployment and the job vacancy rate or the number of unfilled jobs expressed as a proportion of the labor force. Fewer openings imply a higher unemployment rate.

We have been tracking the Beveridge Curve for years: one of the first times which showed the peculiarity of the New Normal was in early 2011 when we observed that it had entered the "twilight zone." Back then few, and certainly not the Fed, had even considered the implications of the plunging labor force and the soaring number of Americans who have exited the labor pool entirely.

This is what we said...

Thanks to the Department of Central Planning, the Beveridge Curve has recently entered the twilight zone. According to the latest job opening rate, the unemployment rate should be around 6.5%. In reality, when accounting for the record 6.6 million persons not in the labor force who want a job now, not to mention the millions of others who are not even counted in the labor force, the true jobless rate (U-3) is somewhere around 12%! In fact, if one were to represent the data in a fashion that captures reality, the curve would start resembling that of a volatility smile, which is odd now that the only Put in the market is that of one Rudolf von Bernankestein. But such are the vagaries of data reporting in a regime whose only purpose is to represent the positive side effects of 1,000% RDA consumption of hopium.

... And showed this chart:

Today's update merely confirms that the rabbit has never been deeper in the New Normal unemployment Twilight Zone than now:

The assessment on the above chart is very simple: as Stone McCarrthy puts it "this is an indication of an increase in structural unemployment."

That statement is obvious to the millions of Americans who have been out of a job for years since the Lehman collapse, and have been unable to find a new job despite the plethora of "job openings."

However, that's not all.

That the New Normal labor market is broken beyond repair is obvious. But what the implied unemployment rate based on the current level of Job Openings is, is even worse - because it is precisely at the 5.5% level where the Fed would not only taper, not only end QE but begin tightening!

Which begs the question: courtesy of the record 91 million Americans out of the labor force, is the structural unemployment level now esentially curve shifted by some 2%? Because if indeed so, this is prima facie evidence that the Fed is now openly blowing the biggest bubble in pursuit of a futile cause since the effective unemployment rate target, which has now been lowered to 5.5% according to Yellen's "Optimal Control" goalseeking, will never be reached due to the now structural unemployment and the Fed will be stuck inflating the stock market, the only tangible it can now manipulate, in perpetuity.

Alternatively, if it is the vacancy rate component of the Beveridge curve that is accurate, and there is a structural excess slack in the economy, then the implied unemployment rate now is 5.5%. Which just happens to be the Fed's signal to begin tightening.

Incidentally it is a good bet that something that not even the Fed expects will happen shortly before perpetuity is hit.

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The Proletariat's picture

What and the hell is this fundamental analysis bullshit?  Respectfully, Mr. Yellen

uncle.bigs's picture

But Bill Gross says 0.25% Fed Funds is a certainty until 2016.  LMFAO.  I'd like to see Pimpco and that smug bitch blow up.

bunzbunzbunz's picture

I know, I'm worthless, but if you want to get some free bitcoins just in case the skyrocket:

Sofa King Confused's picture

I thought the beverage curve was for when I needed to stop drinking.

CaptainSpaulding's picture

Stocked up on gallon jugs of Paul Mason merlot. Gallon jugs are $16 pre interest rate hike.

FieldingMellish's picture

Its the point at which the woman at the end of the bar achieves optimum skankiness.

Stoploss's picture

Oh fuck, MATH just showed back up...

It appears he is not alone this time.

When the unemployment rate goes to zero, there will be no one left working..

GreatUncle's picture

What you are saying is that for a long time now the unemployment rate has actually been mixed up with the employment rate. It is only a mistakes, oh well can correct it now OOOPS!

Yay, 5.5% employed now I understand. It all makes perfect sense now, level of debt, economic disaster.

One day! Until now people can be bamboozled and the scapegoat are those without jobs while the polticians keep pilfering all they can.

TeamDepends's picture

My advice to you is to start drinking heavily.

fonzannoon's picture

The 10yr is heading to 3.5% by the end of the 1st quarter before it settles down around 3.10%. There will be a dip in the market probably in early February. Maybe around 10%. The dip will be bought. That is all.

Now please go back to listening to BofA tell you to short treasuries after the 10yr already sold off 20bps.

TeamDepends's picture

You think "the market" (ha) could survive the 10yr at 3.5%, even briefly?  (did not junk you)

fonzannoon's picture

Yes. I think it could cause a pullback. But if the S&P pulls back from 1900 to 1750, is that really a pullback, all things considered?

I think we have just begun to understand where this is going. Hugh Hendry did not capitulate because he wants to grab a month of gains before a tank.

disabledvet's picture

probably going to get killed again but I still remain long the entire yield curve. This asset class remains the only one not correlated to all the others. The yield hungry investors have been incinerated this summer and the Fed got clued in on what a monster they've created in QE. Having said that where is the inflation? Beveridge is one of the true economic/financial giants...if this math is correct then its time to abandon ship on the commodity trade en toto and the huge recovery off the summer lows is a dead cat bounce. that's a huge dead cat bounce if true i'm suppose to go all in on "non-correlated equities" as a result? I think people are being Dreamwoven at this point.

Racer's picture

The employment rate will be whatever they want it to be, there fixed that for you

ebworthen's picture

The spoken purpose of the FED is to improve employment and control inflation.

The unspoken purpose of the FED is to enrich banks/bankers/elites and to hell with responsible working citizens who want to earn interest on savings and have a stable currency and valuation of assets.

If the unspoken purpose weren't the true purpose of the FED they would have put rates at 5% and done zero QE in 2008 (and CONgress would not have bailed out one single Insurer, Bank, or Corporation).

"Of the Corporations, by the Corporations, for the Corporations" is the current meme of the U.S.S.A. STASI State.

TeamDepends's picture

What we need to do is vote out the Fed in November.

disabledvet's picture

See below and again..."IPO the Fed." As far "America Inc" that's Das Kapital which gives rise to common problem noted during that time: Engels actually "hit the nail on the head" so to speak: "how is one able sell dearer and dearer and still maintain dollar value?" In other words Germany really had no notion of "deflation" as the English speaking peoples always found themselves confronted with. Karl Marx answered the question with amazing simplicity: "you're forgetting labor as a component of capital." In other words "the hand held shovel" wasn't perfected until the 1800's which increased the value of labor tremendously. don't think a high end dirt digging device is a big deal?

PontifexMaximus's picture

There won't be any rate hiking, what for? On the contrary, ALL CB will pump up the volume, not to crash their currency. So all are in the same boat and everyone is more than happy.

no life's picture

Everyone except for the old person that needs to eat Alpo for dinner..

Papasmurf's picture

Yellen defined older savers as the go to source for funds to bail out the robber barrons.

no life's picture

Economics is just an extension of politics and always has been. If you use it at all, even trying to prove the bulls wrong, you are still going off the base assumptions which are embedded with political agendas. No one ever just sits and asks the question, how are the wealthy able to derive so much money out of such a shitty economy. That should be an obvious question. But if you use economic data and a little contrarian thinking to explain it, you still don't wind up really answering the question. You just wind up proving that there are a lot people unemployed and little consumption. So then, how are the rich still getting richer? You could say it is due to printing money, allowing those with access to the financial markets to reap profits. But at some point if you are simplyy printing money, it wouldn't work any longer. And it wouldn't take a huge amount of time. I think the answer is, that economics is totally wrong..  what people consider wealth, is not always really wealth. Sometimes it is just paper gains. That is not real money until cashed in. If the market tanks first, the wealth proves to be a mirage. Also, you do not necessarily need to have lots of people working in order to generate purchases and thus purchasing and wealth creation. Somehow, between financial market shenangins mixed with acquisition of valuabe real assets without being detected over time, most real wealth is simply 'taken'. Yes, tons of people work and that does need to happen for any kind of wealth to be generated, but if a bunch of them lose their jobs, then they either borrow from relatives/friends, or they simply starve to death. The fact that they are gone allows the companies to be more profitable, does it not? At this point we can turn materials into widgets so quickly that even if a lot of it has no one there to buy it, the company can still make a profit. If someone can 'take' the things that want from society, mansions/expensive cars/etc., without anyone really knowing it.. then they will keep doing that for as long as they can. That is the real way the economy works. Economics can't really account for any of this, and, being politicized, would never allow itself to.

no life's picture

Politics, meaning using legislation to support crony capatilism.

Derf Scratch's picture

Flash: In honor of Thanksgiving holiday reid and mcconnell have agreed to try to knock each other's giblets off in  a no-holds barred cage match... winner takes the shreds of the US Constitution... 


MFLTucson's picture

Raise rates and collapse the sham economy

Stuck on Zero's picture

The chart doesn't indicate the quality of those job openings.  The Author should not plot job openings vs. unemployment rate but should plot (job openings) x (offered wage & benefits).  Lets be fair.


GreatUncle's picture

My government is just as bad.When you manipulate a set of figure by say 2-3% not alot is it? It is if you put a target level out there because if you close to within the spread of the manipulation you get found out. All central banks are at it. If now is a foretaste of the future, that manipulation will get bigger and bigger going forward.

Think internationally now all goverments should only quote the INACTIVE LEVEL not the unemployment bullshit along the lines in an industrial world you cannot exist if you have NO INCOME and then either you are paid or have handouts.

This is no disrespect to a person in a wheelchair but how do you survive if you do not receive an income even though you may never work? So the inactive argument stands for all and then you can get to grip on the economic position and as an indicator South Africa has an estimated 50% unofficial unemployment a year or so back. The new normal bailout EZ countries is running around 25% and worsening. Funniest bit is China and India, the great outsourcing places are running around 4% BUT WTF THEY DO MOST OF OUR WORK ANYWAY!

Every day you shovel a spadeful of shit under the cover and hide it and expect the population not to notice

a) the pungent aroma!

b) the overflow around the edges!


d edwards's picture

Silly me! I thought the Beverage Curve was the ratio of beer sold vs wine and liquor!