Free Markets, Free People

Economy

Unemployment: the numbers game

Just as we’ve seen “good news” about the economy claimed in quarters when government spending (“cash for clunkers”) and inventory restocking drove the positive numbers, now we’re being told that a raft of temporary jobs might be a positive sign for the unemployment numbers:

The U.S. Census Bureau expects to add up to 750,000 workers to its payroll by May, a hiring binge that could knock the unemployment rate down by as much as a half-point.

The once-a-decade census is coming at the best possible time for President Barack Obama and congressional Democrats, who have taken political lumps for more than a year over a jobless rate that stands at 9.7 percent.

Some think the administration will get good news as soon as the next monthly labor report, which will be released the first Friday in April.

Yeah – counting people for the government is not exactly that of which economic powerhouses are made. While it’s temporary good news for those with the short-term jobs, it is not a solution to the overall rate of unemployment, regardless of what it might do to the U-3 percentage of 9.7%.

“This is the best-timed census you could ever dream of,” said Heidi Shierholz, who tracks the labor market at the left-leaning Economic Policy Institute. She believes the March unemployment report will show the economy added jobs instead of subtracting them.

If it happens, it will be only the second positive-numbers jobs report in more than a year. But in this case, it could lead to further positive job numbers in the months ahead.

Really? How’s that? These are temporary jobs (6 weeks) and part-time to boot (19 hours a week). In other words, in about a month an a half, these jobs go away and the 750,000 that were added to the workforce and will take the unemployment numbers down, will have to be subtracted. But it is clear by Ms. Shierholz’s words that the spin about the dropping unemployment rate driven by these temporary jobs will be fierce and you can expect broad claims to be made concerning future employment that will most likely have no basis in fact.

Right now it is all about the numbers. But their substance will be masked as the “experts” laud these 6 week part-time government jobs which produce better unemployment numbers as indicators that the employment picture is “improving”.  Don’t be fooled.  Do a little subtraction in your head each time the claim is made and you’ll probably be much closer to the real percentage than will the delusional “experts” (they’ll begin terminating the jobs near the end of June).  And remember – until the business climate improves, hiring is not likely to happen.  750,000 temporary government jobs does nothing to improve that climate.

~McQ

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Even Bob Herbert has figured out Obama’s problem

You know a problem is obvious when even Bob Herbert figures it out:

Instead of focusing with unwavering intensity on this increasingly tragic situation, making it their top domestic priority, President Obama and the Democrats on Capitol Hill have spent astonishing amounts of time and energy, and most of their political capital, on an obsessive quest to pass a health care bill.

Health care reform is important. But what the public has wanted and still badly needs above all else from Mr. Obama and the Democrats are bold efforts to put people back to work. A major employment rebound is the only real way to alleviate the deep economic anxiety that has gripped so many Americans. Unaddressed, that anxiety inevitably evolves into dread and then anger.

But while the nation is desperate for jobs, jobs, jobs, the Democrats have spent most of the Obama era chanting health care, health care, health care.

That obsessive quest, as Herbert calls it, to the detriment of what should be the real priority of this administration and Congress removes completely the label of “pragmatic politician” from behind Barack Obama’s name. He’s an ideologue, pure and simple, and is engaged in an purely ideological attempt to pass a far-left fantasy while he has the opportunity. Jobs and the economy be damned, his focus is on increasing the government’s role in health care by any means necessary.

Now of course, Herbert doesn’t go that far in his piece. However he does trash one of the favorite beliefs of the Democrats as we at QandO have done for quite some time:

The talk inside the Beltway, that super-incestuous, egomaniacal, reality-free zone, is that President Obama and the Democrats have a messaging or public relations problem. We’re being told — and even worse, Mr. Obama and the Democrats are being told — that their narrative is not getting through. In other words, the wonderfulness of all that they’ve done is somehow not being recognized by the slow-to-catch-on masses.

Herbert calls such belief “silly”. It is silly, although not for the same reasons Herbert chooses. In fact, the narrative has been both understood and rejected. It is through maintaining their unsubstantiated belief that it is the public that is the problem, and not their policies, that lawmakers continue the “obsessive quest”.

After the usual, expected and mostly unsubstantiated “Republicans have no solutions” jab (because anything else might lend aid and comfort to the enemy), Herbert concludes:

The many millions of new jobs needed to make a real dent in the employment crisis are not going to materialize by themselves. Mr. Obama and the Democrats don’t seem to understand that.

Actually they will materialize by themselves – unless government gets in the way, imposes new taxes (health care reform and cap-and-trade, etc.), more onerous regulation and otherwise keeps the business climate roiled and uncertain.  Thus far, that’s precisely what the administration and Congress have managed to this point.

The quest for more government control of health care has exhausted the political capital of the Obama administration and the Democratic Congress.  In the end, regardless of what happens with its passage, this ideological obsession is going to hurt those engaged in it pretty badly.  The only question is the extent.  But when even Bob Herbert is able to remove the blinders and for once see the real problem from which the Democrats and Obama suffer, you know it has to be just as obvious to the vast majority of the public.  It’s not the “narrative” stupid, it’s the focus.  And having the wrong focus is detrimental to your political health.

~McQ

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Scary Employment Chart of the Day

When it comes to employment, we have dug ourselves a tremendous hole. I will be surprised if unemployment is back to where it was four years from now. This chart gives us all an idea why:

Of particular interest is the path of the last two recessions which had anemic job growth despite relatively shallow initial dips. The recovery period for each far exceeded previous recessions. If we see a repeat this time the V shaped recovery in employment we keep hearing about is not going to happen. So why the difference?

The earlier recessions exhibited a similar pattern of sharp drops in employment followed by sharp recoveries as the economy snapped back. The change that we began to see in the 1990 recession is partly structural. The layoffs associated with the much larger manufacturing sector in recessions of the past were associated with a rundown in inventories which then snapped back once the inventories were depleted.

Something else is going on here as well in my own opinion. As the eighties gave way to the nineties the US was in the early stages of an experiment in monetary and economic policy. Monetary policy was explicitly geared to reduce economic volatility. This led to attempts to reduce the severity of recessions, and also led to a reduction in upside volatility as well. This was (at least for a while) somewhat successful, resulting in what became known as “The Great Moderation.” The recession of 1990 was the first crack in that system. Attempts to limit volatility not only reduced the violence of the recession, but the explosive growth typical after recessions previously. It also was a recession which was a result of a financial crisis (the S&L’s) and the real estate boom of the late eighties. The deleveraging of the finance and debt recession (what we are going through now, only in miniature) was sluggish. It took a good while for the adjustment to occur.

We followed a familiar script of lowering interest rates and encouraging credit expansion. Constant expansions of credit whenever things slowed kept the engine running until a bigger crisis hit with the bursting of the tech and telecom bubble. Once again we applied even more credit easing to soften the blow, and the attempt to avoid wringing the excesses of credit from the system led to another sluggish recovery with anemic job growth. Profits however were large and the return for the steadily growing financial sector was immense. If the economy was going to be stabilized by constant applications of credit expansion, then the financial sector was the main beneficiary. Finally we have the latest crisis, one where the financial system itself was the most important bubble.

What we can now see is that the types of recessions we have been experiencing are successive deleveraging cycles, each “solved” by releveraging the economy and leading to a bigger crisis down the road. Sadly deleveraging processes, especially if drawn out by keeping them from running their course, result in tepid job growth. We are now in a massive deleveraging cycle which we are once again trying to solve by adding massive debt to the system. Once again job growth and recovery is slower. Unless we break this cycle (which would be very painful) we should expect nothing different in the outcome, except that the problem is bigger and will last longer.

Cross Posted at: The View from the Bluff

CBO: Obama budget deficit 9.8 Trillion over next 10 years

How can you tell when claims of budget hawkishness and fiscal responsibility are all talk and no walk?  When you put deficit commissions together with no power and propose trillion dollar a year deficits for the next 10 years as the Obama administration has:

A new congressional report released Friday says the United States’ long-term fiscal woes are even worse than predicted by President Barack Obama’s grim budget submission last month.

The nonpartisan Congressional Budget Office predicts that Obama’s budget plans would generate deficits over the upcoming decade that would total $9.8 trillion. That’s $1.2 trillion more than predicted by the administration.

Any idea of where we’d get the money? We certainly don’t have it. And if you guessed China, et. al., yes, you’re right – for all intents and purposes we’d become a wholly owned subsidiary of the PRC.

The new report predicts that debt held by investors, including China, would spike from $7.5 trillion at the end of last year to $20.3 trillion in 2020. That means interest payments would more than quadruple — from $209 billion this year, to $916 billion by the end of the decade.

So, we’d be paying almost a trillion a year in interest (with even more money we don’t have). You can imagine what a debt like that would do to us, not only the economy but in terms of national security.

The deficit picture has turned alarmingly worse since the recession that started at the end of 2007, never dipping below 4 percent of the size of the economy over the next decade. Economists say that deficits of that size are unsustainable and could put upward pressure on interest rates, crowd out private investment in the economy and ultimately erode the nation’s standard of living.

And is the White House concerned? Well, other than lip service, it has moved decisively to address the problem /sarc.

“While the president is intent on ramming through Congress a new trillion-dollar health-care entitlement, he appears far less concerned with addressing the looming crisis of entitlement spending already on the books,” said Rep. Paul Ryan of Wisconsin, the top Republican on the Budget Committee. “Instead, he delegates this task to a ‘Fiscal Commission’ — which would not even report until after the next election.”

Other than make recommendations, the “Fiscal Commission” has absolutely no power. And the White House has shown no real interest, other than the usual lip service, in addressing the huge deficits projected for the next 10 years. I’ll be interested to see if the White House continues to treat the CBO’s reports as the gold standard after this one saying the administration has proposed an even higher debt than it claimed.

And, of course, one of the rather large points is the effect of having countries like China holding 20 trillion in US debt instruments and the amount of control that grants such countries over what we can or can’t really do – economically, in foreign policy, militarily, etc. That much debt becomes a weapon, whether the administration or others want to admit it or not. It’s an economic bomb and detonating it would have a profound negative effect on us and our economy and our enemies know it. It reminds me of the saying about how a capitalist will sell you the rope by which you hang him. That’s precisely what we’re doing with this debt problem and our desire to spend what we don’t have.

The time for a sane fiscal policy which cuts spending and the size and scope of government is long past due. And even if the politicians don’t recognize it yet, it is the public’s understanding that the time has come that is driving this discontent manifested in the Tea Parties and the overwhelming “wrong track” majorities to be found in polls which track whether or not people believe the country is on the right track or the wrong track. Democrats thought the public believed the country was on the wrong track during the last administration because of Bush. But after a year of Obama, those same numbers are even higher.

The people may not really like the fact that such measures must be taken, but they are prepared for them. They understand that this spending addiction, if continued, has no acceptable outcome and that the longer it continues the worse the outcome will be.

Step one is getting sanity back into the federal budget. And adding 9.8 trillion to an already huge debt while pretending to be concerned about deficit spending isn’t how that is done.

~McQ

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Unemployment: Let’s get real

Poor Harry Reid.  You can understand why Rush Limbaugh calls him “Dingy Harry”.  For a public servant of many decades who is supposedly practiced in the art of public speaking, he sure can mess it up.  Today I assume he was trying to tell us that the 9.7% unemployment rate that the government claims and the number of unemployed reported this week didn’t go up as high as expected.  This is how it came out:

“Today is a big day in America. Only 36,000 people lost their jobs today, which is really good,” Reid said Friday on the Senate floor.

I’m sure those 36,000 are just happy as can be about that, Mr. Reid.

But as most informed folks know, that 9.7% figure doesn’t really reflect the full extent of unemployment.  The government’s “U-6″ number is much closer, but isn’t used because – well, take a look and you’ll figure it out for yourself:

The U.S. jobless rate was unchanged at 9.7% in February, following a decline the previous month, but the government’s broader measure of unemployment ticked up 0.3 percentage point to 16.8%.

Despite the Obama administration claim today that those measures they’ve put into place appear to be working, the U-6 says otherwise:

The comprehensive gauge of labor underutilization, known as the “U-6″ for its data classification by the Labor Department, accounts for people who have stopped looking for work or who can’t find full-time jobs. Though the rate is still 0.6 percentage point below its high of 17.4% in October, its continuing divergence from the official number (the “U-3″ unemployment measure) indicates the job market has a long way to go before growth in the economy translates into relief for workers.

Here’s the key and a reason you should take all this happy talk with a grain of salt:

A U-6 figure that converges toward the official rate could indicate improving confidence in the labor market and the overall economy. This month pushes convergence even further away.

And it “pushes convergence … away” by a significant amount.

One of the things to be wary of is the administration will start believing its own press and at the first sign the U-3 begins to dip, figure it can begin to further its tax and spend agenda. Until you see the U-6 headed in the same direction as the U-3 and showing significant drops, nothing is getting better on the employment front. And until that happens, the recovery is not going to “take off”.

~McQ

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“Unexpectedly” Bad Employment Statistics

The Employment Situation statistics are due out later this week.  They will be bad.  I know this, because Larry Summers is already spinning them.

White House economic adviser Larry Summers said on Monday winter blizzards were likely to distort U.S. February jobless figures, which are due to be released on Friday.

“The blizzards that affected much of the country during the last month are likely to distort the statistics. So it’s going to be very important … to look past whatever the next figures are to gauge the underlying trends,” Summers said in an interview with CNBC, according to a transcript.

So, please, when you see the numbers of Friday, be sure you don’t assume that they have any policy implications.  It’s all about the weather, you see.

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The Economy: Most likely lower GDP growth, higher unemployment, flat spending in 1st quarter

Take all of the forecasts with a grain of salt given the “unexpectedness” of most economic numbers, but this gives a hint as to what to expect and it also explains why the last quarter’s GDP numbers were an illusion of growth, not the beginning of a growth trend:

The US economy continues on a bumpy road to recovery. Weaker data this week on consumer confidence, jobless claims, housing, and durable goods orders have introduced downside risks to our near-term economic outlook. We have made some minor adjustments to our GDP forecast. Fourth quarter GDP was revised up to 5.9%, with the inventory swing now accounting for 3.9 pp of growth, up from 3.4 pp. We think this “steals” some growth from 1Q. In addition, core capital goods orders and shipments were weaker than expected in January, so we are lowering our forecast for 1Q GDP to 1.5% from 2.0% previously.

1.5% growth isn’t a particularly auspicious number for those claiming we’ve “turned the corner” and are out of the recession and on a positive growth trend. It should be remembered that the last positive growth quarter before December was driven mostly by “cash for clunkers” or government spending. The 4th quarter of last year was driven by restocking inventories. Without it, the GDP is at 2%.  Unless there are consumption increases which will work to decrease those inventories, the growth for that quarter is an anomoly much like the GDP increase driven by cash for clunkers.

With consumer confidence down, housing and durable goods orders down and jobless numbers up, it doesn’t speak for an auspicious start to the year.

This next week will see some other numbers come in. If the forecasters are right (big if), then its going to be more bad news on the employment front:

The consensus is for a net loss of 50 to 80 thousand payroll jobs, and the unemployment rate to increase slightly to 9.8% (from 9.7%).

Today’s Personal Income and Outlays report (PCE) is mixed:

Personal income rose $11.4 billion, or 0.1%, less than the 0.4% expected, while personal consumption expenditures rose 0.5%, ahead of the 0.4% increase expected: So income’s rising slowly, but Americans are still spending more than expected.

The PCE index for the month posted a 0.2% increase, most of that because of energy and food; absent those items, the PCE index rose less than 0.1%, the report showed.

So the PCE index saw a slight increase above expectation but that was driven by necessities (food, energy) not the consumption of goods.

The ISM Manufacturing index released today also disappoints:

Activity in the manufacturing sector expanded for the seventh consecutive month in February, according to a report released by the Institute for Supply Management on Monday, although the pace of growth slowed by more than economists had been anticipating.

The ISM said its index of activity in the manufacturing sector fell to 56.5 in February from 58.4 in January, with a reading above 50 still indicating growth in the sector. Economists had been expecting the index to show a more modest decrease to a reading of 58.0.
Activity in the manufacturing sector expanded for the seventh consecutive month in February, according to a report released by the Institute for Supply Management on Monday, although the pace of growth slowed by more than economists had been anticipating.

The ISM said its index of activity in the manufacturing sector fell to 56.5 in February from 58.4 in January, with a reading above 50 still indicating growth in the sector. Economists had been expecting the index to show a more modest decrease to a reading of 58.0.

While snow is being blamed for some of the decline, but only in its depth, not the fact that there was a decline.

And the final Monday report is the Construction Spending Report for January was released:

Spending on U.S. construction projects fell at a seasonally adjusted rate of 0.6% in January, the third consecutive month of declines, the Commerce Department estimated Monday.

The decline in January was wider than the 0.5% drop that economists surveyed by MarketWatch had been expecting. December’s outlays fell an unrevised 1.2%.

In January, private residential outlays rose 1.3%, while private nonresidential outlays fell 2.1%. Public outlays also fell, off 0.7%.

During the rest of the week, you’ll see the following:

On Tuesday, the various manufacturers will release light vehicle sales for February. The consensus is for a decline to about 10.4 million on a Seasonally Adjusted Annual Rate (SAAR) basis from 10.8 million in January. Sales for Toyota will be closely watched. Also on Tuesday, the Personal Bankruptcy Filings estimate for February will be released.

On Wednesday, the ADP Employment report and ISM Non-Manufacturing index (consensus is for a slight increase to 51% from 50.5%), and the Fed’s beige book will all be released.

On Thursday, the closely watched initial weekly unemployment claims, productivity report, factory orders, and pending home sales will all be released.

And on Friday, the BLS employment report, Consumer Credit (more contraction), and another round of bank failures (I’m thinking Puerto Rico will make an appearance).

The good news, if there is any, is that inflation expectations haven’t really reared their ugly head to this point, meaning right now inflation is under a modicum of control and not rising appreciably. Of course that could literally change in a heartbeat, so other than to note it and be glad for the fact, I have no idea how long those expectations will remain dormant.

Bottom line – we’re bumping along the bottom and hopefully we’ll see a meaningful turnaround sometime this fall. But right now, anyone saying things are going well and we’re fully into recovery doesn’t realize how fragile the economy is right now and certainly doesn’t know what they’re talking about.

~McQ

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At what point does the media drop “unexpectedly” from its unemployment stories?

I mean, for heaven sake, it seems that weekly the “experts” are surprised by an “unexpected rise” in unemployment statistics.  This week was no different than the “unexpected rise” last week:

Unemployment claims filed last week rose unexpectedly, coming in at 496,000, up 22,000 from the previous week.

Taken with other discouraging news released this week — record-low January new home sales and a slide in consumer confidence — the new jobless claims number describes a slow and uncertain recovery.

Forecasters had expected 460,000 new jobless claims to be filed last week

The four-week moving average of new jobless claims — which smooths out volatility in the week-to-week numbers — rose 6,000 to 473,750.

Key phrase – “slow and uncertain recovery”. So a continued “rise” in unemployment, even to this weeks actual numbers, shouldn’t be “unexpected” in such a recovery. Why it is so important to predict what the next week’s unemployment stats will be anyway? As often as they’ve been wrong and seen “unexpected” numbers you have to wonder why they even bother. More significantly, given the track record, you have to wonder why the media even bothers with their numbers. The numbers are what they are. From those numbers we should be able to understand the condition of the economy. But I’m tired of seeing “unexpected” numbers every week treated as some sort of surprise by a group whose credibility was shot a long time ago.

~McQ

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It’s Bush’s Fault. And Paulson’s. And Bernanke’s. And ….

John McCain, under attack for his part in approving TARP, is now claiming he was “misled”:

In response to criticism from opponents seeking to defeat him in the Aug. 24 Republican primary, the four-term senator says he was misled by then-Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke. McCain said the pair assured him that the $700 billion Troubled Asset Relief Program would focus on what was seen as the cause of the financial crisis
, the housing meltdown.

“Obviously, that didn’t happen,” McCain said in a meeting Thursday with The Republic’s Editorial Board, recounting his decision-making during the critical initial days of the fiscal crisis. “They decided to stabilize the Wall Street institutions, bail out (insurance giant) AIG, bail out Chrysler, bail out General Motors. . . . What they figured was that if they stabilized Wall Street – I guess it was trickle-down economics – that therefore Main Street would be fine.

Well one reason it wasn’t used only for the “housing meltdown” is because the law apparently didn’t specify it must be. Consequently one has to conclude it was McCain and those who wrote the law and voted for it who are responsible for what happened.  They a wrote bad law.  They fell for the drama.  They threw almost a trillion dollars out there and are now complaining that it wasn’t used as they “thought” it would be used.  Really?

If they were going to pass this travesty anyway, why wasn’t it limited to what the people who brought the problem to them (Paulson and Bernanke) said constituted the problem?  How did it end up bailing out auto companies and AIG?

Bad law.  And the ones responsible for writing th law include this guy trying to pass of the blame to others.

Secondly, there’s this:

McCain said Bush called him in off the campaign trail, saying a worldwide economic catastrophe was imminent and that he needed his help. “I don’t know of any American, when the president of the United States calls you and tells you something like that, who wouldn’t respond,” McCain said. “And I came back and tried to sit down and work with Republicans and say, ‘What can we do?’

Responding is one thing. But when your constituents are dead set against it, to whom should he really be responding? Well, who does he supposedly represent?  What McCain is really saying is “when the president tells you he wants you to pass a bad law, you salute and do what he says”.  Really?  “Response” apparently means saying ok to unconstitutional spending.  Not that Mr. McCain/Feingold has much use for the Constitution.

So, bad law, ignoring his constituents and now blaming others.

Sounds like a pretty typical politician who has spent way too much time inside the beltway to me – a politician well past his “incumbent expiration” date.

~McQ

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Greece? Just Like The US

You have to wonder how far we’ve slipped when the financial wreck that is Greece is assured that its situation isn’t so unique – look at the US.  And the example is made by none other than America’s best friend – Vladimir Putin:

Russian Prime Minister Vladimir Putin played down Greece’s economic woes on Tuesday, telling his visiting Greek counterpart that the United States were no better than Greece in handling its debt and fiscal deficit.

“As we all know, the global economic crisis started neither in Greece, nor in Russia, nor in Europe,” Mr. Putin told a news conference after talks with George Papandreou. “It came to us from across the ocean,” he said in a clear reference to the United States.

“There (in the U.S.) we can see similar problems – massive external debt, budget deficit,” Mr. Putin added, suggesting Russia and Greece should concentrate on the “real economy” to weather the economic crisis.

It’s not clear what the “real economy” means. However it is clear that for Greece and the US, what they are doing isn’t sustainable and at some point the “real economy” or at least the laws of economics are not going to be denied – for both countries.

~McQ

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