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3 Things: Strong Dollar, Oil, Missed Employment

Tyler Durden's picture




 

Submitted by Lance Roberts of STA Wealth Management,

In a recent Reuter's article, Dr. Richard Fisher of the Dallas Federal Reserve stated:

"Sharp gains in the U.S. dollar are good for the U.S. labor market."

This is not actually the case as I will discuss in all three parts of today's "3 Things."

A Strong Dollar Is Not Good For Exports

In today's globally interconnected world exports have become a critical component of both corporate profitability and economic growth. Increases in the labor market are a by-product of stronger economic growth and corporate profitability. 

The chart below shows the US Dollar as compared to the annual percentage change in exports on a quarterly basis. I have inverted the scale of exports to more clearly show the correlation between a rising dollar and weaker exports.

 USD-Exports-Recessions-031114

Importantly, a strongly rising dollar has also been witnessed just prior to the onset of an economic recession.

Companies tend NOT to aggressively hire employees when profitability is coming under pressure from weaker exports. 

 

Falling Oil Prices Are Not An Economic Boon

What is interesting about Dr. Fisher's statement is that he recently stated the collapsing oil prices are not good for the economy or the labor market. This is something I addressed recently in "Oil Prices, Rig Counts And The Economic Impact:"

"Oil and gas production make up a hefty chunk of the "mining and manufacturing" component of the employment rolls. Since 2000, when the oil price boom gained traction, Texas has comprised more than 40% of all jobs in the country according to first quarter data from the Dallas Federal Reserve."

Employment-Texas-DallasFed-111814

 (Read more here)

It is difficult to suggest that a surging dollar is good for the labor market when it is exactly the surging dollar that exacerbated the collapse in oil prices.

Furthermore, despite the fact that nearly 100% of all economists expected that falling oil and gasoline prices would be reflected in a boost of consumer spending, this has yet to be the case. 

I explained the fallacy of this premise previously:

"Graphically, we can show this by analyzing real (inflation adjusted) gasoline prices compared to total Personal Consumption Expenditures (PCE). I am using "PCE" as it is the broadest measure of consumer spending and comprises almost 70% of the entire GDP calculation."

Gasoline-Prices-PCE-111814

"The vertical orange line shows peaks in gasoline prices that should correspond(according to mainstream consensus) to a subsequent increase in retail sales.

The majority of the jobs 'created' since the financial crisis have been lower wage paying jobs in retail, healthcare and other service sectors of the economy.

 

Conversely, the jobs created within the energy space are some of the highest wage paying opportunities available in engineering, technology, accounting, legal, etc. In fact, each job created in energy related areas has had a 'ripple effect' of creating 2.8 jobs elsewhere in the economy from piping to coatings, trucking and transportation, restaurants and retail.

 

Simply put, lower oil and gasoline prices may have a bigger detraction on the economy that the 'savings' provided to consumers.

 

Newton's third law of motion states: "For every action there is an equal and opposite reaction."

 

The Case Of Missing "Oil & Gas" Jobs

I discussed previously that the Bureau Of Labor Statistics was overstating employment since the end of the financial crisis by more than 3 million jobs. To wit:

"However, that does not completely resolve the issue of the disparity between reported employment and the large number of individuals sitting outside the labor force. The answer likely resides in the BLS's employment calculation process and the subsequent adjustments that may potentially be overstating employment gains.

 

The most questionable of those adjustments is the birth/death model which is a monthly guess at the addition and subtraction of businesses to the economy.

This is an extremely important point as it suggests that employment, as presented by the BLS, has been significantly overstated over the past six years. If we take the differential as stated by Gallup and compare that to the annual birth/death adjustment used by the BLS, we find that jobs have been overstated by 3,678,000 or more than 613,000 annually."

Employment-BD-Adj-011515

"...this goes a long way in explaining the existing slack in the labor force and lack of wage growth."

Political Calculations has recently added to this analysis by supplying an answer to the missing "job losses" that have yet to be reflected in the monthly employment report.

"Casey Mulligan has worked up the numbers and wonders if the U.S. job market for adults has really been shrinking recently:"

The headline payroll employment was (seasonally adjusted) higher in February than in January. However, the headline does not include the self employed or agricultural workers. If we add those in (from the household survey), the number of jobs fell from Jan to Feb. If we also look at it per capita terms, jobs per capita fell two months in a row after being essentially constant Nov-Dec.

Jobs in Thousands through Feb 2015
Employment-Growth-031115
Jobs per Adult through Feb 2015
Employment-Growth-031115-2

To be clear, I am measuring the vast majority of jobs from the same establishment survey that makes headlines. All I'm doing is adding an estimate for the narrow category of workers known to be excluded (in terms of FRED series, my formula is PAYEMS + LNS12027714 + LNS12032184). Interestingly, self employment fell 340,000 in the past month and 238,000 over the past year.

"We think we can explain part of what Professor Mulligan is seeing in the data, and also solve the mystery that is perplexing ZeroHedge's Tyler Durden.

 

The key to resolving Tyler Durden's mystery and Casey Mulligan's jobs data is to recognize that 84% of workers in the U.S.' oil, gas and mining industries are employed as independent contractors, who are not counted as being actual employees of the firms that have announced they are laying off workers.

 

Instead, as workers who get 1099 forms as contractors instead of W-2 forms as employees from the firms that employ them for filing their federal income tax returns, they are considered to be self-employed.

 

As such, many job losses that might be resulting from the ongoing simultaneous declines of global oil prices and extraction-industry-related business revenues would not necessarily be captured in the nonfarm payroll data, because they're really being counted as self-employed, who aren't counted as part of the nonfarm payroll.

 

Unless one does exactly what Casey Mulligan has done - add the number of farm workers and self-employed individuals to the non-farm payroll numbers to get the bigger picture.

 

But that's not because the BLS isn't counting them - it's because their definition of the nonfarm payroll isn't sufficient to capture the particular dynamic playing out in the nation's oil, gas and mining industries. Or for that matter, any other industries with high percentages of self-employed independent contractors.

 

And that situation isn't just limited to the nonfarm payroll data. Many of these independent contractors being laid off from their jobs would not be eligible for unemployment insurance benefits either, so the data for first-time unemployment claims is also unlikely to register their displacement from the U.S. labor force until the numbers reach deep into the actual payrolls of these firms."


With all deference to Dr. Richard Fisher, the surging dollar is not good for either the economy or ultimately a stronger labor market. This is particularly the case when the dollar is only stronger because the rest of the world is on the brink of recession and or deflation.  

The negative impact of a surging dollar in a weak economic environment will more than likely outweigh any positive inputs for the U.S. consumer. Time will tell, but the evidence is mounting that the we are likely closer to the end of the current economic cycle than the beginning.

 

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Thu, 03/12/2015 - 15:19 | 5882605 Blythes Master
Blythes Master's picture

And the beat goes on....

Thu, 03/12/2015 - 15:20 | 5882606 Fogey
Fogey's picture

Helicopter Ben! The greatest man in modern history! He saved the world!

Thu, 03/12/2015 - 15:27 | 5882633 cossack55
cossack55's picture

Ya know ya gotta have some problems when you go thru life with a name like dick fisher.

Thu, 03/12/2015 - 15:20 | 5882608 Eahudimac
Eahudimac's picture

Why do people keep saying the dollar is strong. It's hardly budged against the pound or yen. Seems more like euro weakness.

Thu, 03/12/2015 - 15:30 | 5882648 Winston Churchill
Winston Churchill's picture

Oh it has. Nowhere near as much though.

I'm just glad I don't have any euros.Paris will be crowded this August.

Thu, 03/12/2015 - 15:37 | 5882670 Eahudimac
Eahudimac's picture

I'm visiting the UK at the moment. Exchange rate still bites.

Thu, 03/12/2015 - 16:31 | 5882885 Dick Buttkiss
Dick Buttkiss's picture

So the dollar is the finest horse in the glue factory.  Means nothing, as the whole global money and banking fraud is collapsing under its own weightlessness.

Thank goodness for Bitcoin, even if China is leading the charge:

https://www.cryptocoinsnews.com/china-now-controls-bitcoin-thats-just-be...

Which is to say that there's no putting this genie back in the bottle, and the sooner you figure it out, the better off you'll be.

Meanwhile, and as always, the state can kiss my ass.

Thu, 03/12/2015 - 18:11 | 5883287 Eahudimac
Eahudimac's picture

The future is China and SE Asia. Yes, China is drowning in debt, but he who has the gold wins. And they have it. Not only that, American society is going down the shitter. The Chinese are very slowly moving away from communism. They are hard working and very smart people. I like the Chinese people. I don't know how they would not come out on top.

Thu, 03/12/2015 - 16:19 | 5882839 dscott8186
dscott8186's picture

True, the Euro has fallen to the level of the Dollar, hence the Dollar measured against another "major" currency is stronger. This is a replay from the Great Depression where currency wars were used to "level the playing field on trade".  The Europeans are in recession, with the result their currency is falling against the Dollar.  

Contrary to the article's nuanced assertion, oil isn't cheaper because the Dollar got stronger, the price of oil fell because of recessionary economics in the rest of the world causing a glut on the oil market. The Dollar also got stronger because oil producers are willing to accept "less" Dollars for their barrel of oil.  If last year oil was worth $100 a barrel and this year it is worth $50 a barrel, but the quality of the oil hasn't changed, then the Dollar is now worth twice as much this year than last year.  

Otherwise the article is pretty much sadly on target, a strong Dollar at this point in time with other countries willing to devalue their currency to boost exports or discourage imports is bad for everyone including foreigners playing the currency game.  

Yes, for right now, those energy workers are going to take the beating until a new baseline has been achieved with more cost efficient fracking technologies.  Not all fracking is equal.  The fact that there is a $10 spread between WTI and Brent demonstrates that difference in fracking economics.  

Thu, 03/12/2015 - 18:03 | 5883254 Eahudimac
Eahudimac's picture

Dupe

Thu, 03/12/2015 - 18:03 | 5883255 Eahudimac
Eahudimac's picture

Totally agree with you. How long until Janet tries weaken the dollar even more? What can they do at this point other than another massive QE? Definitely think we are in the death throes.

Thu, 03/12/2015 - 15:28 | 5882640 SheepDog-One
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LOLlar just the least stinky pile of shit.

Thu, 03/12/2015 - 15:29 | 5882643 taketheredpill
taketheredpill's picture

 

 

If US minus Texas (job gains since 2000) is 5MM and Texas is 2MM then would the Texas % of all gains be 30% (2000 / 7000) and not 40%?

 

Minor.

 

Thu, 03/12/2015 - 15:47 | 5882713 disabledvet
disabledvet's picture

And they only had to destroy Detroit and a big chunk of California to get there!

 

Hooray! 

Thu, 03/12/2015 - 15:29 | 5882646 homebody
homebody's picture

Just show the labor participation rate without the F**king seasonally adjustments and illegal farm, construction, landscapers, and food processors.

 

That will tell the whole story.

Thu, 03/12/2015 - 15:29 | 5882647 KnuckleDragger-X
KnuckleDragger-X's picture

"But I don't want to go among mad people," Alice remarked.
"Oh, you can't help that," said the Cat: "we're all mad here. I'm mad. You're mad."
"How do you know I'm mad?" said Alice.
"You must be," said the Cat, "or you wouldn't have come here."

Thu, 03/12/2015 - 16:01 | 5882650 Chuck Knoblauch
Chuck Knoblauch's picture

A strong dollar corellated with large debt reductions would be favorable.

But debt continues to grow (stagnant wages and poor demand).

The value of the dollar is declining in real terms.

In the real world, the dollar is worth shit, and you know it.

Only by making other currencies look shittier does the dollar shine.

Manipulation doesn't create anything lasting.

Short term shit in a can peddled by Hymieville.

Thu, 03/12/2015 - 15:34 | 5882660 KansasCrude
KansasCrude's picture

I'm just waiting for next week when I have no doubt that inspite of raising interest rates and bullish interest forecasts the DOW will close up 300 points at least a couple of days to offset any downdraft.   Seriously these guys make all the ponzi schemes in the history of mankind look small time.  The machines are above the mere actions of mortals to maintain an objective marketplace.  Not saying the day of reckoning is not coming just saying its already years late....

As for Dick  H. Fischer does he really keep a straight face when he utters these lines of B.S. and when is his last day of official lying for the FED?  Besides not soon enough..... 

Thu, 03/12/2015 - 15:48 | 5882709 Chuck Knoblauch
Chuck Knoblauch's picture

They obviously have a tremendous faith in the ability of law enforcement and military contractors to maintain order in the US. Gamblers to the very end.

 

Thu, 03/12/2015 - 15:51 | 5882726 Goldilocks
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Reality-based community
https://en.wikipedia.org/wiki/Reality-based_community

Karl Rove
https://en.wikiquote.org/wiki/Karl_Rove

The aide said that guys like me were "in what we call the reality-based community," which he defined as people who "believe that solutions emerge from your judicious study of discernible reality." ... "That's not the way the world really works anymore," he continued. "We're an empire now, and when we act, we create our own reality. And while you're studying that reality—judiciously, as you will—we'll act again, creating other new realities, which you can study too, and that's how things will sort out. We're history's actors…and you, all of you, will be left to just study what we do." - Karl Rove

~//~

The Secret Cause of World War 3
http://www.youtube.com/watch?v=won1okeV6sM (14:51)

Thu, 03/12/2015 - 15:56 | 5882746 disabledvet
disabledvet's picture

Not saying it will work but as the Fed normalizes that should restore "balance in the system" as "the disturbance in the Force" (known as QE) is "waned."

 

We can have a strong jobs recovery with a strong dollar...IF the Fed et al start at least trying to pay a reasonable rate of return on savings.

 

Certainly (cough, cough) "investors" have been well rewarded here.

 

No, I don't have any sympathy for Whiney Whitney Tilson today either.  You come out in public to complain that your preferred price for an otherwise perfectly good company is zero and the market might call you on that.

 

I'm sure there's a concrete bunker he can live in...maybe in Afghanistan....if that's his view.

 

Coal stocks are getting hammered today I might add.  "While the USA freezes" I might add.

Thu, 03/12/2015 - 16:09 | 5882797 outofozeconomics
outofozeconomics's picture

These guys are usually good.  This article confuses correlation and causation.  Exports make up 14% of economy.  That means 86% of the economy benefit from a strong dollar.  Fisher is right.  The problem is that QE created the perception of a weak dollar and huge mal investment occurred in oil and gas due to this.   All of our growth has been due to this cheap money.  Now that the dollar is strong all these money chasing investments are at risk.  The strong dollar exposes the poor investment thesis; it not the cause.  The strong dollar pulls the rug out under a weak unsustainable economy that is fake.  It is not the cause.  Strong dollar bad for inflated investments and oversees profits.  Will this be the match to create a recession?  Probably.  But it's not the cause.  Put a match on steel and nothing happens.  Put a match on "paper" and it burns the whole thing.   Come on STA

 

CHeck out www.outofozeconomics.weebly.com

Thu, 03/12/2015 - 17:17 | 5883065 KansasCrude
KansasCrude's picture

While you make some good points about what should happen in a "Normal Economy"  we don't have a normal economy we have a train wreck where a strong dollar is synthesized by crashing and manipulating commodity markets and using the reserve currency as a club with a vritually unlimited  get out of jail free card.  The currencies are manipulated with financial warfare.  Why should we have a strong dollar?  Balance of Trade surplus,  GDP growth, low unemployment, high interest rates, Balanced Budget?  how about a O-fer on those!  We have a Financial Mirage a modern day Potemkin Village USA.

Thu, 03/12/2015 - 16:50 | 5882926 KansasCrude
KansasCrude's picture

The dollar strength is a mirage there is no recovery and growth.  Its all done with algo's and B.S.  we are the most indebted nation in the world.  The dolllar is  joke a mirage backed by nothing but a threat to blow up the world.

 

Check out what Kotlikoff told the Senate panel recently.....we are worse than freaking Greece

 

http://www.cnsnews.com/news/article/barbara-hollingsworth/economist-tells-congress-us-may-be-worse-fiscal-shape-greece

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