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