Why Incomes Are So Much More Important Than Jobs

After today's NFP number, even the most rosy-eyed optimists know that the jobs situation in the US is if not openly reverting into a double dip yet, then certainly scraping the bottom. What many are confused about is just why Obama and Biden were touting today's NFP so aggressively: the massive disappointment in the market post the announcement leaves only two possible explanations: 1) the president's advisors are all truly incompetent and have no idea what the market perceives as good or bad news, or 2) this was a calculated move to send markets lower, which in turn would hit the euro. If the latter is indeed the case, the question remains whether this is a benevolent (assist European exporters) or malevolent (throw Europe into unfixable turmoil) move. The response should be made clear long before the mid-term elections. Yet even with all these open items, the bottom line is that today's BLS report was very much irrelevant. As David Rosenberg highlights, it is not the actual employment, it's the income that this employment generates, that is important. And as he observes: "real organic income is still not growing and down nearly $500 billion from pre-recession levels."

More from Rosie on the topic:


It was fascinating to see that in April, we supposedly created 290k net new jobs and yet consumer spending stagnated in the U.S. And, in May, apparently the government numbers show a further 431k in net new job creation, and the retailers missed their sales target. According to the ADP, this is an extremely weak recovery in private payroll growth, especially in the context of the savage declines during the recession. In addition, real organic income is still not growing and down nearly $500 billion from pre-recession levels.

Let’s even assume for a moment that the government statistics on employment are accurate — wage and salary growth is slowing down nonetheless. Half of U.S. employers froze pay for at least part of their workforce in the past year and 13% made actual salary cuts (as per a WorldatWork survey cited in the Baltimore Sun). What a recovery! And, 1 in 3 of the companies that did freeze pay have no intention of departing from that strategy in the coming year.

In any event, it is really disconcerting to be seeing the flow of weekly jobless claims continue to come in north of 450,000 — as was the case yet again for the May 29th week. The four-week moving average of 459k is actually consistent with net job declines 75% of the time in the past. If we don’t see an improvement really

Rosie follows up with two anecdotes on the actual labor situation which provide a far more precise glimpse of what is happening in the country than the administration's daily show:

We got this very short email yesterday that just about sums it up.

“The Census taker that stopped by our house had a Mercedes SLK convertible.”

And this one was from James from Atlanta — also a gem

“Dave, Great insights in your letter as always...a comment on the elimination of minimum wages — this has in a way already effectively been done for manual labor. Drive by any Home Depot/Lowes in cities where there is an immigrant population and you will find an assortment of carpenters, drywallers, lawn care and "honey do-list" specialists, and movers willing to work "off the books". I have used these folks for a variety of small labor intensive projects around the house as do other colleagues of mine. Know of many licensed contractors that will use a laborer for a day or two of work on a job thus avoiding the payroll taxes and insurance that would normally be paid to the state/fed gov't. Just thought you should know what’s going on.”

Lastly, and off topic, here is some interesting insight from David on gold supply:

Bill, a reader of our research, sent us this thoughtful response yesterday on the supply outlook:

“Dear Dave:

Thanks so much for your daily commentary, which I follow with devotion.
Regarding gold supply from mines, here is a frequently overlooked point: because the ore deposits at any given mine are typically a limited quantity, prudent mine managers typically seek to mine the lowest grade ore available in their mine that will pay their costs at the current price, in order to extend the life of the mine as much as possible. In other words, as prices rise, they mine lower grade ore, which at a given level of throughput, results in lower total gold output.

Of course the situation varies at every mine. Some mines have a lot of low grade ore; others little flexibility to adjust. But the point holds.

Thus rising prices can result in an extended period of reduced production, until new mines come on line. However, new mine development is a process that takes years, and remember, investors need to be quite confident as to the permanence of a price level sufficient to make the mine economic over time.”


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