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Ominous Signs Of Peak Employment
Submitted by Lance Roberts via STA Wealth Management,
Last week, I touched on the Federal Reserve's Labor Market Conditions Index (LMCI) which has shown signs of weakness as of late. To wit:
"Unfortunately for the Federal Reserve, the index has not supported the Fed's claims that employment is growing at a rate strong enough to withstand a tightening of monetary policy. In fact, as shown in the chart below, the LMCI index (smoothed with a 12-month average) has been a leading indicator of future weakness in employment. The recent downturn in the LMCI suggests that employment gains may more muted in the months ahead."
Not surprisingly, I received a good bit of pushback from the "always optimistic crowd" stating that the surging levels of job openings and plunging jobless claims support continued job gains in the future. Therefore, with continued economic and employment improvement the Fed has a clear path to higher rates.
This is not exactly true.
Initial Jobless Claims
Let's start with jobless claims. To more clearly understand what the current level of jobless claims are telling us, we have to understand what jobless claims actually are.
Jobless claims are simply the number of people, by state, who are filing to receive unemployment insurance benefits for the first time.
However, in order to receive unemployment benefits an individual must have been laid off, terminated or discharged from service by their employers. Individuals who "quit" are not eligible to file claims.
The distinction of "termination" is very important at this juncture as jobless claims, as shown in the chart below, reaches very low levels.
There is a point in every economic/employment cycle where employers exhaust the ability to "cut costs" though the reduction of the labor force. When the labor forced has been reduced to its critical operational level, businesses begin to "hoard" what labor they have, maximize the existing labor force's productivity (increase output with minimal increases in labor costs) and hire additional labor, primarily temporary, only when demand forces expansion.
This issue of "labor hoarding" explains much of the sharp drop in initial weekly jobless claims. As companies literally "run out" of employees to layoff or discharge, the number of individuals filing for initial claims decline. This is shown in the chart below which shows the 4-month average of layoff and discharges versus the 4-week average of initial jobless claims.
However, the mistake is assuming that just because initial claims are declining, the economy, and specifically full-time employment, is markedly improving. As shown in the LMCI index above, it is more likely a sign of peak employment instead.
Job Openings
Another indicator that is likely being misconstrued is the surging levels of "job openings." Just because a business has a job opening, it does NOT mean that they are in any hurry to "fill it."
This disparity can be easily shown by the lack of "new hires" as it relates to current "openings."
What is missed in the euphoria of surging job openings has been the lack of a "surge" in new hires. Currently, the difference between those hired and the number of openings is not only at low levels but a record low for the data of nearly (-750,000).
Importantly, as shown in the chart above, historically low levels of "Hires Less Openings" have been more coincident with peaks in employment growth rather than a continuation of it. Furthermore, if the number of openings were actually indicative of a "tighter" labor market, wages would likewise be soaring. They are not.
What this data does suggest is that employers can be much more choosy about whom they hire and how much they are willing to pay. Currently, employers can post jobs for the "perfect Unicorn" - employees with the perfect set of skills, education and experience and willing to work for very little. Of course, Unicorns are very rarely actually found.
So, while there may indeed be a job opening available, there is no rush to fill or overpay for the position. Since Unicorns are mythical creatures, the reality is that many of these job openings will NEVER be filled and will eventually vanish as the next economic downturn takes hold.
Good News/Bad News
While massive binges in stock buybacks and accounting gimmicks have continued to blur the actual profitability of businesses, the decline in jobless claims suggests that there is little room for further reductions in body counts. However, that does not mean that businesses must begin rapidly increasing employment and wages.
The "good news" is that for those that are currently employed - job safety is high. Businesses are indeed hiring, but prefer to hire from the "currently employed" labor pool rather than the unemployed masses.
The "bad news" is that for those unemployed, full-time employment remains elusive, and wages remain suppressed due to the high competition for available work.
The current detachment between the financial markets and the real economy continues. The Federal Reserve's continued accommodative stance continues to support asset prices despite a decline in profit margins, an increase in deflationary pressures and a weak economic backdrop.
So, while jobless claims and job openings may be touted as signs of an improving job market, the data suggests that we have likely seen the peak for this current economic cycle.
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this guy can't be stupid enough to believe the fed cares about employment
Can you imagine the sheer amount of "Shadow Printing" that has gone on to keep this failure propped up for some 7 plus years and counting?
It cannot end until we are in global war; the issue is how will they get us there in a way that is convincing?
There won't be a global war. If you are waiting on it, you'll be waiting a long time.
Let's build on the unreal economy, like TPTB do. The real economy can work itself out. Suppy & Demand. Price solves everything. http://zhc0.com
The only way to improve the unemployment numbers is to get rid of employable people. Like share buy-backs, it improves the EPS.
But I just heard on the "news" that the Obama Recovery-Fall-Number-Seven is booming becasue Amazon (who has NEVER made a profit, by the way) is going to hire 100,000 (illegal aliens) for the Winter Holiday (Christmas is verboten) season.
do they get free obamacare and a phone with their EBT cards?
Come on Lance, peak employment in the US was ~15 fucking years ago.
15horses1donkey. I think if you keep pimping this idea on Zero Hedge as a cryptocurrency, I am gonna have to track you down, and bitch slap you into the middle of next week for being a pimp ass bankster schill bitcoin wannabe rat bastard motherfucker. IF ZERO HEDGE HAD A FUCKING CURRENCY OF IT'S OWN, IT WOULD BE MINTED IN INCORRUPTABLE NON HYPOTHECATED NON DERIVATIVE NON MARGIN ABLE SILVER OR GOLD. Get your shit together, and change your direction while you still have an ass to kick. Jesus, fucking kids these days. You all think technology is a miracle. All it is is electrons that can be made to go poof any fucking minute now. if i blew up your phone right now, you would look like a cow at the slaughterhouse just at the moment the bolt gun goes off - " How could you do this to me ? What'll I do now ? " Improvise. Adapt. Overcome. Triumph over adversity. And, transform your idea into minting a fucking coin out of noble metals, or I will make you look like a one legged man at a nut kicking contest.
Even worse: he does
Unfortunately, this might be a symptom of his training in the halls higher education. I recall my run through the gaunlet and, moreover, I do not recall there being a professor who seemed interested in their position insofar that they could (and sometimes are the last to) reach out to the soft-serve personalities (the general student) that see themselves as granite.
Maybe there are Prof.'s out there who are still in the closet about such matters?
Come on out, y'all! The weather still hasn't changed since your dissertation and you certainly did not help to change it either.
Unless you can flatulate more readily than a million-head herd of angus in Argentina.
He isn't, buzz. But his client base is none-the-wiser for their belief that modern portfolio theory will see them through the storm...
The numbers are ALL made up and have been since 2000; going on 15 years. None of this is reality.
With all the labor laws and the all to common problem employee you just cannot get rid of, employees have become an extreme danger to business owners. You will see more and more robots doing the work.
I got rid of my employees and downsized the business. One of the best decisions I ever made.
Just telling it like it is.
I can only imagine with the new mentality of "I deserve everything and if you deny me I will sue".
All it takes is one such lawsuit to bring a small business to its knees.
When I was an hourly engineer, it was officially "illegal" for me to put in extra hours outside of the 40-hr week, even though it was out of my own liking and dedication to my work.
Gubbamin and "law" don't understand such concepts, and because apparently some employers ill-treat their employees, all businesses are forced to comply with regulatory procedures. Any measure of reported or detected non-compliance can result in shutdown or worse.
It's a fucked up world out there for small biz.
The funny thing about being a salaried, not hourly, engineer ("professional") is that extra hours without pay to get the job done is normal and expected. Not a big deal to most engineers who love what they do. But... when he completes his job in a much shorter time than expected he can NOT simply head out to enjoy the rest of the week/month/year, paid, without taking vacation. It should go both ways - a salary to do the tasks assigned.
Being a Tech was much better.
Engineering Knowledge and support if needed with out the PE or PC politics.
Your Ideas when submitted became company property and at least half the time were implemented as is as someone's edict. There was a satisfaction in making some one else look good and under the radar credit was all that could be expected.
And being being given a napkin system drawing and some defined time later, operating the system, after having built it.
And an hourly wage.
(sigh) gone.
UE reports along with 200+ days of the treasury failing to update the national debt...all lies. Back to NFL now....
The 'peak for this economic cycle'? I rather think we have seen the peak for the rest of the days left for America.
"Unfortunately for the Federal Reserve, the index has not supported the Fed's claims that employment is growing at a rate strong enough to withstand a tightening of monetary policy.
They wouldnt lie to the American people, ... would they?
Fun to go shopping at a couple malls for their big Columbus Day sales. Lots of 40% off signs and no other customers to distract me!
I went shopping this weekend for the first time in a while. Got a pair of pants and 4 shirts for $14 at old navy. They are pretty much giving away their merchandise and still the store was empty and racks completely full.
Fuck work.
Wage slavery replaced chattel slavery and allowed the "platation" to go global.
We should be living in a leisure society!
And where will all the goods come from? Where will your food come from?
Dear Leader Obama, then Hillary(!)/Sanders, of course. Everything is "free!"
Thinking about who produces/delivers/creates is for the little people, not the enlightened. It just happens because we are special snowflakes who deserve it.
Channeling Idiocracy here...."Robots scrote!"
I was talking to my daughters about this issue this morning. It's like our political leadership is so out of touch with reality that it defies reasoning.
We have all seen the increasing rate that replacing workers with robots is taking. Any entry-level, menial job will be a future robotic job. And by future, I mean pending.
Does anyone, with any shred of intellectual integrity, honestly think that for one moment the 12-Million+ Illegal immigrants currently residing here will ever amount to anything more than a pet (and ever expanding) Democratic voting block (and perpetually subsiding on the government tit)?
We are. Just ask all the people who get checks that say "United States Treasury". Some of them theoretically are employed.
Bottom line is the labor participation rate. It's down and falling. Unemployment, jobless claims, etc mean nothing. You have to have HAD a job in order to LOSE a job. As far as "job openings", sure there's plenty of people willing to pay you minimum wage, part time with no benefits but you can't support a family on that. It makes more sense to stay on government assistance.
The biggest unsung problem that ZIRP creates is the perception of wealth increase without production. Production takes labor, and labor means jobs. Manufacturing is down 30% in just the past 14 years here in the US. How can we put people to work if we're not producing anything? And, why invest in a factory and all the pitfalls of this labor market when I can buy some equities and increase my wealth while essentially doing nothing?
I agree with a lot of what you've said, but your response also contains a key misunderstanding: the clear production-centric bias in your thinking. For every producer, there needs to be a consumer. We simplify economics into a morality tale where some people "produce" things (useful) and other people "consume" things (useless/parasitic). That paradigm has to go. Without your consumption, my production has no purpose. Without my consumption, your production has no purpose. There is nothing inherently valient or worthwhile in the fact that the Chinese have filled their country with factories: these are largely made without care to what the people of that country need or want. So they are "productive" but they have also "agreed to be the world's slaves" (Warren Mosler). They are crunching down wages further to remain competitive, because they also suffer from this production-centric viewpoint.
As automation allows us to produce much more with much less labor, we need to overcome this bias towards production over consumption. We need to create a value system that values consumption. It sounds like madness, but it just takes a paradigm shift to realize the necessity of what I'm talking about. We cannot allow human worth to hinge on the ability to produce a manufactured good.
We aren't all going to get to be farmers. We aren't all going to get to be manufacturers. Those days are gone. Very soon we won't even be able to do the kinds of excel-spreadsheet bullsh1t jobs that have been the refuge for white collar workers, because those will be automated. Value doesn't come from producing widgets anymore, because there is a robotic factory in Asia that spits out widgets 24/7, which nobody can compete with.
We have to move to a post-industrial, or back to a pre-industrial, understanding of what value is. That is tricky and difficult, and definitely not our "regularly scheduled programming".
"We simplify economics into a morality tale where some people "produce" things (useful) and other people "consume" things (useless/parasitic). That paradigm has to go. Without your consumption, my production has no purpose. Without my consumption, your production has no purpose."
Just wanted to take a moment to say "Hear, Hear" to your entire posting. We are in a new era, and we need new thinking. One of the things we need to start thinking on is how we are going to work the idea of human needs into the grand equation, and treating them as a primary objective instead of as a cost.
anyone with a computer can post a job online - or post 100,000 "jobs" in a day - all over the country and in every job category. doesnt take a license - doesnt take permission
those on 1099 cannot file for unemployment very easily nor those part time no matter what the number of hours they receive - the UE filings as a metric are bogus.
Gross Metrics: UE / Inflation / GNP Growth are all manipulated for the desired effect - tell me where you want to go and I'll create the selective facts, subjective interpretations of the facts and apply the rigged algorithym for the conclusion.
Nice.
I am sure glad that they threw off all those guys without jobs and don't count them as being unemployed, otherwise people might be concerned with 15% unemployment?
Glad that we can declare victory at 15% unemployment and then set the expectation of things getting worse from there.....