"If you torture the data long enough, it will confess to anything." —Ronald Coase
On the first Friday of every month, we are inundated with commentary from the financial media after the BLS Employment report is released. Despite many protests from the conspiracy theorists out there, I think the BLS does their best. It's just that the employment landscape has undergone enormous changes the past five or so years. A plunging labor force participation rate is making the headline unemployment rate look much better than the "official" 8.1%. The fact is that we have fewer people working today than in 2000 despite a population that is tens of millions of people higher.
In fact, despite the headline unemployment rate dropping rapidly, adjusted for the labor market drop the "real" unemployment rate of roughly 11% has barely budged for years (red line):
And one thing I've pointed out over the years is while all the focus from the pundits is on the quantity of jobs, it's the quality of jobs that is also very important. In addition, John Hussman made a note in his commentary a few weeks back noting who that is getting those newly created jobs (and importantly, who is not):
If you dig into the payroll data, the picture that emerges is breathtaking. Since the recession "ended" in June 2009, total non-farm payrolls in the U.S. have grown by 1.84 million jobs. However, if we look at workers 55 years of age and over, we find that employment in that group has increased by 2.96 million jobs. In contrast, employment among workers under age 55 has actually contracted by 1.12 million jobs. Even over the past year, the vast majority of job creation has been in the 55-and-over group, while employment has been sluggish for all other workers, and has already turned down…Beginning first with Alan Greenspan, and then with Ben Bernanke, the Fed has increasingly pursued policies of suppressing interest rates, even driving real interest rates to negative levels after inflation. Combine this with the bursting of two Fed-enabled (if not Fed-induced) bubbles - one in stocks and one in housing, and the over-55 cohort has suffered an assault on its financial security: a difficult trifecta that includes the loss of interest income, the loss of portfolio value, and the loss of home equity. All of these have combined to provoke a delay in retirement plans and a need for these individuals to re-enter the labor force.
In short, what we've observed in the employment figures is not recovery, but desperation. Having starved savers of interest income, and having repeatedly subjected investors to Fed-induced financial bubbles that create volatility without durable returns, the Fed has successfully provoked job growth of the obligatory, low-wage variety. Over the past year, the majority of this growth has been in the 55-and-over cohort, while growth has turned down among other workers. Meanwhile, overall labor force participation continues to fall as discouraged workers leave the labor force entirely, which is the primary reason the unemployment rate has declined. All of this reflects not health, but despair, and explains why real disposable income has grown by only 0.3% over the past year.
Since mid-2010, precisely the time millions of US citizens used up all of their 99 week of unemployment insurance, disability claims have risen by 2.2 million. Those on disability are not counted in the workforce and are not considered unemployed.
Unemployment rate would spike to 9.9% from today’s “official” rate of 8.1% if we eliminated fraud from Social Security Disability Insurance program.
QE or Not QE. Is That the Question?
Scene: Princeton University economics class taught by Ben Bernanke. After a late night of studying, a student falls asleep in class. This sent Bernanke into a tizzy and he came over and pounded on the desk, demanding an answer to a question he had just posed. The student, shaken but now awake says "I'm sorry Professor, I missed the question -- but the answer is increase the money supply..."
Despite all the models, the white papers, the academic credentials, and the sophisticated talk, all the Federal Reserve really does is print money. That is the sum total of "quantitative easing", or QE. Lots of people think that alone can create economic wealth, but I think that defies logic and common sense. Didn't the Soviet Union prove that economic top-down control by a handful of elites doesn't work? We do like our illusions.
As economic figures recently have been coming in generally weaker than expected, the calls from Wall Street for more manna from heaven have been heating up. But does money printing work? Can it be our economic salvation? John Hussman writes one of the most worthwhile reads in his weekly missive, and a couple weeks ago he had this to say about QE:
That same speculation that has been driving the financial markets higher is also influencing the commodities market, including driving oil prices higher. But don't expect any Presidential news conferences decrying stock speculators.
April 23, 2012 in Current News Commentary, Economy, Personal Finance & Investments | Permalink | Comments (0) | TrackBack (0)