Yesterday we were told the nation’s employers “unexpectedly” shed more jobs last month than forecast. Today we’re told that despite that, the unemployment rate “surprisingly” decreased to 9.7%.
Unsurprisingly I don’t believe a word of it. Call me a cynic, call me a skeptic, but I just don’t believe much of anything coming out of the government these days (I know, let’s call it a “deficit of trust”). Don’t forget that 9.7% number comes on the heels of a report saying the government forgot to count over 800,000 lost jobs last year.
When the government releases Friday’s unemployment report, nearly a million jobs could be erased. The change won’t show up in the monthly report. Rather, the expected job will show up in the government’s revised job losses from April 2008 to March 2009, showing the labor market was in much worse shape than we knew at the time.
So here we are, rampant and exceedingly high unemployment, no relief in sight and the unicorns and rainbows crowd are spinning the numbers and telling us all is well and getting better.
Well, economic well-being, like is said of politics, is all local. And for the most part, the locals aren’t buying the spin. Here’s the brutal truth:
An unemployment rate that’s projected to average 10 percent this year will likely weigh on consumer spending, preventing the biggest part of the economy from accelerating. Without additional gains in sales, companies will be forced to keep cutting costs, limiting staff in order to boost profits.
“Businesses are simply postponing their hiring for as long as possible,” Richard DeKaser, chief economist at Woodley Park Research in Washington, said before the report. “The willingness to hire is not there.”
Fewer customers, less spending. Less spending, less of a need to make things. Less demand for products means less demand for more employees.
Key line: “Without additional gains in sales, companies will be forced to keep cutting costs, limiting staff in order to boost profits.”
And that’s precisely what they’re doing. The Labor Department reports:
Nonfarm business sector labor productivity increased at a 6.2 percent annual rate during the fourth quarter of 2009, the U.S. Bureau of Labor Statistics reported today. This gain in productivity reflects increases of 7.2 percent in output and 1.0 percent in hours worked. (All quarterly percent changes in this release are seasonally adjusted annual rates.) This was the first quarterly increase in hours worked since the second quarter of 2007 (0.9 percent). Productivity increased 5.1 percent over the last four quarters –more than during any similar period since output per hour rose 6.1 percent from the first quarter of 2001 to the first quarter of 2002.
Even the Riddler could puzzle this one out. Worker productivity has increased 5.1% over the last four quarters. But unemployment has continued to grow. What does that mean? Well it means companies and businesses have found a way to increase production with fewer employees. And that, as the key line above suggests, boosts profits.
Now that productivity increase can come in many ways. Simply distributing the same (or even increased) work load to fewer employees. That’s happening all over the place now. Then, in certain industries, automation replaces employees (it doesn’t require health insurance, vacation days, a 401k and isn’t represented by a union). And in some places it’s a combination of both plus modified business models.
The bottom line is there’s not likely to be that much hiring if and when the economy actually turns around unless a huge increase in demand is realized. And even then, employers are likely to try to hold out as long as possible, given their productivity gains, until those productivity gains are neutralized. I’m sure there’s a tremendous gap between now and that point. Then add in the market instability brought on by pending legislation like health care reform and cap-and-trade, and you can see high unemployment in the future for quite some time.
But the unicorn and rainbow crowd are going to tell you everything, relatively speaking, is getting better. The fact that your relatives are all unemployed and your job isn’t looking so hot at the moment either will cause you to doubt their assertions. Do. Doubt them I mean. They’re as full of crap as a Christmas goose. And that’s becoming more and more obvious each day as we watch this dance of the dodgers continue. Because, you know, you can’t handle the truth. No, that’s not true. If they tell you the truth, they too will be unemployed.
“Deficit of trust?”
A true understatement.
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In this podcast, Bruce, Michael and Dale discuss the special election in Massachussetts, the dangers of hyperinflation, and Haiti. The direct link to the podcast can be found here.
The intro and outro music is Vena Cava by 50 Foot Wave, and is available for free download here.
As a reminder, if you are an iTunes user, don’t forget to subscribe to the QandO podcast, Observations, through iTunes. For those of you who don’t have iTunes, you can subscribe at Podcast Alley. And, of course, for you newsreader subscriber types, our podcast RSS Feed is here. For podcasts from 2005 to 2009, they can be accessed through the RSS Archive Feed.
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Don’t you just love non-falsifiable government claims?
The Obama administration, in its latest progress report on the $787 billion stimulus program, said both the overall economy and employment continued to be in better shape at the end of 2009 than they would have been without the government’s help.
Better shape, hmmm? Wasn’t this the same stimulus which promised it would keep unemployment below 8% if passed? Yet here we are at 10% with no real relief in sight. Wasn’t this the stimulus which was promised to create or save millions of jobs? Even the administration has finally given up making such claims, instead quietly changing the way it makes such determinations and including pay raises and anything even remotely job related on which the money was spent. So when further claims, such as this, are made, they should be taken with a large and skeptical grain of salt:
Though unemployment reached 10 percent at year’s end—two percentage points higher than the peak that the council forecast when the administration proposed the stimulus package to Congress nearly a year ago—the number of jobs was between 1.5 million to 2 million greater in the fourth quarter than it would have been without the recovery plan, the council said.
This is the same council that made the 8% claim and changed the rules for counting “saved and created” jobs. If anything, their claims should be completely disregarded.
This is the stimulus which was claimed to be so necessary to the recovery, yet of the $787 billion signed into law, only $263 billion has been spent. How is that a stimulus? The theory is the government pumps money into the economy as quickly as possible to “stimulate” growth and hiring. Yet this particular bill is structured so that less than half the funds are spent within what most would consider the critical first year? That alone tells you two things about this particular bill:
It had little to do with stimulus and a lot to do with pork. In fact, it appears to be a 100% pork bill despite the President’s claims to the contrary. Just because individual earmarks weren’t in the bill doesn’t mean this bill isn’t a compilation of wasteful spending and pet projects. They were simply written up differently than they normally are. There was never any intention of spending this money to jump start the economy as witnessed by the amount spent in the first year and its lack of effect. It can be credibly claimed, in contravention of the administration’s claim, that it hasn’t done anything to stimulate economic growth. Don’t get me wrong, I’m not in favor of the spending that has been done or its continuation, but any objective analysis would make the point that $263 billion in a contracting 14 trillion dollar economy is likely to have little effect if any at all. So far the numbers seem to verify that.
Any claims made about the bill’s effect should be viewed very skeptically. In reality, this bill was a spending bill, not a stimulus bill. It was the bill which allowed Democratic legislators (and a good number of Republicans) to spend money on things they’d been unable to get through the body in the past. Again, its structure and the items upon which the money were spent make the argument pretty handily. Its failure to “stimulate” as advertised is precisely why there is talk of a second stimulus. There never was a first.
Whatever recovery has gone on in the economy has been largely a result of factors other than this bill. That includes the positive 3rd quarter GDP numbers they try to trot out as “proof” of the stimulus’s efficacy. Those numbers were driven by the cash for clunkers program, a program outside the stimulus bill, and were largely illusory. They were illusory because it was “growth” driven strictly by government spending, it was temporary growth because it was simply stealing from future sales, and when all the dust settled, that was quite apparent to those who analyzed the results.
What this present claim is all about is message preparation. These claims, which really don’t stand up to scrutiny at all, are being made now for a reason. The president has a State of the Union address coming up soon and needs some “good news” very badly. That’s why these non-falsifiable claims are being tossed out there now. Establishing these claims and repeating them often enough is done in the hope of having them become “conventional wisdom” by the time the SOTU address rolls around. Then when the President makes these claims, an uncritical press will parrot them, establishing them as “fact” for the administration and a part of the narrative that will be repeated in 2012.
That is how the game is played, folks.
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Most likely it is much more than what is officially acknowledged.
That’s because it’s all about how you count them. Right now, for instance, the official unemployment number is 10%. If you add the underemployed, though – people working part time who want full time jobs – that number jumps to 17.3%
But is the 10% number right? Most likely not. Don Surber points to one reason:
Crudele explained: “When the Labor Department puts out the January employment figures on Feb. 4, they will include an assumption that a lot of companies went out of business.
“This is something called the birth/death model that is used by the department. Last year it caused 356,000 jobs to be subtracted from the January job count… Nobody in the media will pick up on this, but the Labor Department will also do something called a benchmark revision on Feb. 4 that will subtract around 840,000 jobs that the government thought existed, but really don’t.”
356,000 jobs here, 840,000 jobs there and pretty soon you have 1,196,000 more unemployed than advertised.
That would change that 10.0% to 10.8%.
“Oops” indeed. I have an inherent distrust of estimates based on models. Maybe it’s the AGW nonsense that has turned me so against them. But still, how many “benchmark revisions” have been done in this recession and how many jobs have been shuffled off to the “do not exist anymore” bin without being added to the unemployment rate? In reality, we could easily be in the 13 or 14% area.
The Atlanta Business Chronicle had a short blurb today that gives you insight into the real size of the unemployment problem:
There are 6.4 job seekers for every job opening in the U.S., according to data released Tuesday by the U.S. Bureau of Labor Statistics. That’s the highest rate since BLS began tracking such data in December 2000.
The ratio in December 2007? 1.7 to 1.
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How did I know that would be the inevitable outcome?
President Obama will propose using $200 billion from the Troubled Asset Relief Program (TARP) to support creating jobs, White House officials confirmed Monday.
The president, in an economic speech before the Brookings Institution on Tuesday, will argue that the money would be well spent by funding projects to build bridges and roads, weatherize homes, and provide other assistance for small businesses as well as the unemployed.
Fund projects to build bridges and roads? I thought that was the purpose of the 787 billion “stimulus”. Shovel ready projects correct? The great and wonderful stimulus, if passed, was guaranteed to keep unemployment at 8% or below, remember? How’s that worked out for us?
And, the funds will come from TARP which was borrowed to begin with. Instead of not spending (and paying back the lenders), we’re now going to create jobs weatherizing homes, oh, and giving “other assistance for small business as well as the unemployed”? It may come as a surprise to the people in Washington DC, but extending unemployment and giving the unemployed other benefits does not create jobs. Nor does some complicated bureaucratic adventure in “weatherizing”.
Initiatives which make the decision to hire and expand easy will do that, and there are none on the horizon. Instead we’ll see another 200 billion added to the 787 billion (yes, friends, a few billion shy of a trillion) on this spending boondoggle that’s worked so well in dampening unemployment.
In case you’ve forgotten (via Patterico), here’s the adjusted projected 10 year Obama budget:
The dark red CBO shows the actual cost, not the sanitized cost from the White House. This is our future in terms of spending. We’ve certainly seen all the excuses for spending at that level due to the financial crisis (reasons I am still not convinced are necessarily valid), but what are the excuses for the years beyond 2010? And where is that money going to come from?
It is hard to deny this isn’t planned deficit spending on a level we’ve never even contemplated before. You have to wonder how any politician of any stripe could see those budget numbers as doing anything other than worsening a bad situation. The question some are beginning to ask is whether or not this future is based on the naive assumption that government can spend its way out of financial crisis or another thing altogether.
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I see that Megan McCardle thinks the unemployment numbers released today are enough to make her make her “cautiously optimistic” about the jobs picture. I’ll meet her halfway. I see room for caution, but not yet for optimism.
Ms. McArdle writes:
It’s very solidly good news: the labor force participation rate was basically unchanged, which means we’re seeing an actual decline in the unemployment rate, not a spike in the number of people leaving the labor force because they can’t find a job.
My reading of the numbers is precisely the opposite. It appears to me that teenagers, high school dropouts, and those with only a high school diploma, all of whom have high unemployment rates, did, in fact, drop out of the labor force, which led to the decrease in the employment rate.
I also think the numbers are skewed by the seasonal adjustments. The BLS adjusts the figures for seasonal changes, with extra weighting given to more recent years. Last November, the Lehman collapse led to the loss of 610,000 jobs–the largest ever recorded by the BLS–so I suspect the weighting for seasonal factors is skewed to the point where the jobs situation may look better than it actually is.
We do see an increase in hours worked of 0.6 hours, but that doesn’t really create new jobs, it just provides more hours for current part-timers.
However, temporary employment rose significantly for the 4th straight month, and it appears that the mass layoffs have petered out.
So, as far as I can tell, there may have been a bottom, but there are still some anomalies that need to be explained before I jump into the optimist camp.
And, of course, none of this even touches on the 800-pound gorilla in the room, which is monetary policy. The Fed’s policy of quantitative easing, i.e. massive increases in the money supply, still present us with hundreds of billions of dollars in low-velocity money floating around, all of which will have to be absorbed through higher interest rates, or through significant inflation. The possibility still remains that necessary credit tightening will strangle any nascent recovery over the next 12-18 months, and send the economy on a another downward leg.
A very cool animated Graphic showing the change in unemployment over the last two years.
Click Image for Animation
Cross Posted at The View From The Bluff
Apparently the Obama administration had discovered, 10 months into the presidency, that perhaps jobs are the highest priority for most Americans.
So? So they’re going to have a “jobs summit”. Yes sir, they’re going to get together and talk about it! Because, you know, talking about something always is better than not talking about it, I suppose.
Uh, but not till next month. You know – it’s not that important.
And sure while doing something about a problem is much better than talking about it, talking is what this administration does best.
Look at Afghanistan. They’ve been talking about that for almost 3 months since the commander has made his request. And he’s still talking about it.
But back to jobs:
“Hiring often takes time to catch up to economic growth,” Mr. Obama said. “Given the magnitude of the economic turmoil we’ve experienced, employers are reluctant to hire.”
Of course they’re reluctant to hire – health care is up in the air, cap-and-trade is on the horizon, the government is spending like a drunken sailor on shore leave in Shanghai, it has inserted itself into the business and financial markets to an unprecedented degree and there is no question that taxes are going up – some think dramatically. Why would any business worth their salt be considering taking on new employees or expanding at a time with the future as unsettled as it is?
“We all know there are limits to what government can and should do, even during such difficult times,” Mr. Obama said, “but we have an obligation to consider every additional and responsible step that we can to encourage and accelerate job creation in this country.”
This said by the same guy who assured us that his “stimulus” package would absolutely cap unemployment at 8%. We’re at 10.2% and rising and he’s reduced to pretending a smaller number of unemployed submitting applications for unemployment benefits than did last week is “progress”. Oh, and using fake “saved and created” numbers.
Of course there are things the government can do to “encourage and accelerate job creation” that have absolutely nothing to do with more spending or extending unemployment benefits. But my guess is those won’t even be brought up much less considered. In fact my guess is the cry, led by Paul Krugman and others, is going to be “mo money”.
But hey, jobless folks, take heart. They’re going to talk about it. Next month. Right before Christmas I assume. Which will naturally delay anything being done till about the anniversary of his 1st year in office [if then]. And frankly, I wouldn’t be surprised if we were still waiting on an Afghanistan decision then as well.
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As President Barack Obama said on Feb. 9 when touting the “stimulus”: “The biggest measure of success is whether we stop contracting and shedding jobs, and we start growing again.”
Well, guess what? Despite all the happy talk about the end of the recession, unemployment hit 10.2% today. And, as Dale and others have said constantly, if we were computing it like we did in the ’70s, it would be at 17+%.
So taking the President at his own word, something it seems this administration would prefer everyone not do, it would appears the “stimulus” is still chasing success.
That’s because despite his protestations to the contrary, the the “stimulus” was one, giant earmark. And it is not having the desired effect despite the bogus “jobs created and saved” numbers.
In fact, the reality of the situation is not at all good as the BLS noted in their press release today:
The number of unemployed persons increased by 558,000 to 15.7 million. The unemployment rate rose by 0.4 percentage point to 10.2 percent, the highest rate since April 1983. Since the start of the recession in December 2007, the number of unemployed persons has risen by 8.2 million, and the unemployment rate has grown by 5.3 percentage points.
And as for those “shovel ready projects” the “stimulus” was supposed to target?
The unemployment rate for the construction field keeps mocking those “shovel-ready” promises: Another 62,000 jobs in construction lost last month, with the average at 67,000 jobs lost per month for the last six months.
The solution? Watch for it – a second “stimulus”, something Paul Krugman has been whining about for months. Any guess what it would look like if it happened? Well the fact that this “stimulus” was used to track radioactive rabbit feces and subsidize golf cart purchases should give you a hint.
By the way, where is “Sheriff Joe” with his policing of the “stimulus” money and calling out those who are wasting it? Overwhelmed by the job, I guess.
Finally there is the economy killing legislation – health care which is front loaded with taxes and cap-and-trade which will raise the cost and price of everything – which the Democrats are determined to pass. Yup – they’ve got a real handle on this, don’t they?
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For the most part, both the Fed and the Obama Administration have been publicly confident of a number of things. They’ve assured us that the bailouts and stimulus spending, along with the great monetary expansion we’ve had since last October, were necessary to stave off economic collapse. They’ve also assured us that they have an end game for unwinding these policies when necessary.
But, Federal Reserve Bank of St. Louis President James Bullard is now warning that the negative results of the monetary expansion imposes more risk of inflation than generally believed.
I am concerned about a popular narrative in use today … that the output gap must be large since the recession is so severe … [and] any medium-term inflation threat is negligible, even in the face of extraordinarily accommodative monetary policy. I think this narrative overplays the output-gap story.
Take away Pres. Bullard’s Fed-speak, and what you have is a Federal Reserve bank president warning that the Fed’s accomodative policy runs a very real risk inflation when the economy picks up. Naturally, to fight this ionflation, the Fed will need to raise interest rates. With a doubling of the monetary base in the past year, that implies the possibility for raising rates quite substantially, which could strangle any nascent economic recovery in the cradle.
So, while Pres. Bullard also says that moderate economic growth for the end of the year is possible, we probably shouldn’t get our hopes up for a while.
Meanwhile, all of the extra dollars floating out there, combined with extremely large federal budget deficits for the next several years, is having an effect on the dollar. Not only has the number of dollars vastly expanded, the deficits require greatly increased bond sales, which encumber the federal government with a long-term debt obligation that will be harder and harder to meet. This is making the dollar…unattractive to heathen foreigners. Not only in terms of dollar-denominated investments, but also in making the dollar fundamentally unattractive as the world’s reserve currency. The rumblings about dumping dollar continue.
[T]he United Nations itself last week called for a new global reserve currency to end dollar supremacy, which had allowed the United States the “privilege” of building up a huge trade deficit.
UN undersecretary-general for economic and social affairs, Sha Zukang, said “important progress in managing imbalances can be made by reducing the (dollar) reserve currency country’s ‘privilege’ to run external deficits in order to provide international liquidity.”
Zukang was speaking at the annual meetings of the International Monetary Fund and World Bank, whose President Robert Zoellick recently warned that the United States should not “take for granted” the dollar’s role as preeminent global reserve currency.
You cannot simultaneously have your currency act as the global reserve currency while deflating the currency to uselessness by using foreign investment in dollars to maintain huge current account deficits. The foreigners may talk funny, and have quaint ways, but they’re not big enough hayseeds to recognize who ultimately gets the short end of that deal if it continues.
Still, our government’s response has been heartening.
Following the summit, US Treasury Secretary Timothy Geithner repeated Washington’s commitment to a strong dollar.
At this point, I suspect that the international financial community takes this commitment as seriously as the attendees of the local junior college take my commitment to have sex with barely legal teen girls. Actually, my commitment probably has a better chance of coming to fruition, since the international financial community doesn’t have “daddy issues”.
Meanwhile, all of the teachers, cops, firemen, DMV workers, etc., who thought taking a relatively low-paying government job now in return for really good retirement benefits, may need to rethink that strategy.
The upheaval on Wall Street has deluged public pension systems with losses that government officials and consultants increasingly say are insurmountable unless pension managers fundamentally rethink how they pay out benefits or make money or both.
Within 15 years, public systems on average will have less half the money they need to pay pension benefits, according to an analysis by Pricewaterhouse Coopers. Other analysts say funding levels could hit that low within a decade.
After losing about $1 trillion in the markets, state and local governments are facing a devil’s choice: Either slash retirement benefits or pursue high-return investments that come with high risk.
In other words, start stocking up on Alpo for those hearty retirement meals, or hope that the pension fund’s investment in fur-bearing trout farms come through big-time.
But it’s not just government workers who may be looking at a bleak future. The government’s actions since last October are also having unintended consequences on the domestic economy that affects all of us–although I should point out that these unintended consequences were entirely predictable.
The Fed’s policy of essentially free money means that household savers get no return at all on CD’s, T-bills, Money Markets, etc., while speculators can borrow money at no cost, and toss them at any speculative investment that promises any return at all. So traditional savings are being gutted.
Excessive government borrowing is sucking the air out of the private credit markets. While goverment borrowing is proceeding at a $1.9 trillion annual rate, private credit is collapsing.
Last year, banks provided new credit at the annual pace of $472.4 billion in the first quarter and $86.7 billion in the second. This year, on a net basis, they’re not providing any credit whatsoever. In fact, they’re actually liquidating loans at the rate of $857.2 billion in the first quarter and $931.3 billion in the second.
Ditto for mortgages. Last year, mortgages were being created at the annual clip of $522.5 billion and $124 billion in the first and second quarters, respectively. This year, they’ve been liquidated at an annual pace of $39.3 billion in the first quarter and $239.5 billion in the second.
This lack of credit means that businesses have been unable to expand or hire–or even maintain their workforce. As a result, 7.2 million jobs have been lost in the last 21 months, compared to the 2.7 million jobs lost in the 30 months of the last recession. The official unemployment rate of 9.8% hides the effect of discouraged job seekers, or the under-employed, which means the actual unemployment rate, as it was calculated prior to 1973 is 17%. Shadow Government Statistics places the actual unemployment rate at an even worse 21%.
And now, after all the unintended consequences of our past actions, some in Congress are now calling for Stimulus II. Apparently, Stimulus I did such a bang-up job, that they want to double down on two sixes.
Hop. Hop. Hop.