FedUpUSA

Archive for the ‘Unemployment’ Category

John Hussman’s newsletter continues to be a source of insight into the phony economic recovery in the United States. The April version is called Is The Fed Promoting Recovery or Desperation? It seems that there is indeed a strong link between Fed policy and jobs growth, but you may be surprised (and appalled) to learn what it is and how it works. I certainly was. Hussman took his cue from David Rosenberg, chief economist at Gluskin Sheff and another insightful observer I like to quote on DOTE.

Last week, we observed “Real income declined   month-over-month in the latest report, which is very much at odds with  the job  creation figures unless that job creation reflects  extraordinarily low-paying  jobs. Real disposable income growth has now  dropped to just 0.3%  year-over-year, which is lower than the rate that  is typically observed even in  recessions.”

It wasn’t quite clear what  was going on until I read a  comment by David Rosenberg, who noted that  much of the recent growth in  payrolls has been in “55 years and over”  cohort. Suddenly, 2 and 2  became 4.

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 2.32  million jobs (establishment survey, or 2.03 million using  Household survey figures).

However, if we look at workers 55  years of age and over, we  find that employment in that group has  increased by 3.04 million jobs.

In contrast, employment among workers under age  55 has actually contracted by nearly one million jobs, regardless of which survey you use. 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.

Employment among workers under age  55 has actually contracted by nearly one million jobs. Hussman is right—this is nothing short of astonishing. So the older folks are getting most of the jobs. But what is the connection with Fed policy on interest rates? Hussman lays it out for us.

For most of history prior to the late-1990′s,  employment  growth in the 55-and-over cohort was a fairly small and  stable segment of total  employment growth. Undoubtedly, part of the  recent increase has simply been a  change in the classification of  existing workers as they’ve aged (1945 + 55 =  2000, so the we would  have expected to see some gradual bulge in this bracket since  2000 due  to aging baby boomers).

But the shift is too large to be explained   simply by reclassification. Indeed, while the civilian labor force  participation rate has declined significantly for virtually every class  of worker since mid-2009, the participation rate for workers over the age of 65 has hit new highs.

The over-55 and over-65 cohorts have a reservoir of  skills and experience, but real income is growing much slower than  employment, which means that they are not being fully compensated for  it. And despite the much-vaunted uptick in hourly wages, real  after-inflation wages have been falling. Something more troubling has  been underway.

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, broad 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 helps to  explain why real disposable income has grown by only 0.3% over  the past  year.

After reading this, I wanted to give myself the proverbial head slap and say why I didn’t I see that? It makes perfect sense, but I was unaware of the astonishing growth in jobs for those 55 and older. It’s not the case that Boomers are retiring in droves, which has driven down the participation rate as so many optimists assume. What’s really happening is that Boomers can’t afford to stop working as they desperately try to make up for lost equity in stocks and homes, and negative real interest rates on their retirement savings. And it looks like they will take any job, no matter how menial and low-paying, to make up this shortfall in their retirement funds.

Well! That shines an entirely new and different light on the jobs situation, doesn’t it? Hussman is right to say that the situation reflects desperation on the part of those 55 and older, not any kind of real recovery in jobs in the general population. The jobs “recovery” is simply another bullshit story promulgated by self-serving politicians, clueless economists and the unabashed cheerleaders in the media who quote them.

But there is some “good news” in this jobs fiasco. Surely you must be wondering what it could possibly be. Well, the upside of this disaster is that a bullshit story will always be revealed for the nonsense that it is through the efforts of honest observers like John Hussman and David Rosenberg. They will be mostly ignored because people generally (and Americans especially) do not want to deal with Reality, but the real story is out there somewhere, and due to their efforts we know what it is.

My thanks to people like Hussman and Rosenberg for telling us what’s really going on.

Decline of the Empire

The mainstream media is not telling you the truth about unemployment in the United States.  The percentage of working age Americans that are employed is not increasing.  In March 2010, 58.5 percent of all working age Americans had a job.  In March 2012, 58.5 percent of all working age Americans had a job.  So if the employment rate is exactly the same as it was two years ago, then how in the world can the Obama administration claim that things have gotten significantly better since then?  According to the Bureau of Labor Statistics, the official unemployment rate in the United States was 9.8 percent in March 2010 and it declined to 8.2 percent in March 2012.  So how is this possible if the percentage of working age Americans that have jobs hasn’t moved?  Well, what they do is they claim that there are millions upon millions of Americans that have “left the labor force”.  In other words, they claim that there are millions upon millions of unemployed Americans that don’t want jobs anymore.  Of course that is a total farce, but the mainstream media and most Americans are buying it.  They actually believe that the unemployment rate is going down.  But the truth is that the unemployment crisis in America has not subsided.  In fact, we are pretty much exactly where we were two years ago, and things are about to get a whole lot worse.

If you want to know the shocking truth about unemployment in America, all you need to do is to look at one chart.  The chart posted below shows the change in the employment-population ratio over the past few years.  What the employment-population ratio measures is the percentage of working age Americans that actually have jobs.  As you can see, it fell dramatically during 2008 and 2009, and since then it has been hovering between 58 and 59 percent….

So there has been no employment recovery, and this is very odd because the employment-population ratio always bounces back after a recession.

The chart posted below shows how the employment-population ratio has changed since the late 1940s.  The shaded areas represent recessions.  Please take note that after every single recession (other than the current one) the employment-population ratio has always bounced back substantially.

During the most recent recession, the employment-population ratio fell farther than it had during any other recession in the post-World War II era.

If these were normal economic times, it would have been reasonable to expect a huge surge in hiring by now.

But we have not seen that.

Instead, the employment rate in the United States has been remarkably flat for more than two years.

So Barack Obama should not even begin to say anything at all about a “recovery” until the employment rate at least breaks the 59 percent barrier.

In the past I have written about how fraudulent the employment statistics put out by the federal government are.

Well, fortunately there are some folks up on Capitol Hill that are starting to take notice of this phenomenon as well.  There is a new bill in Congress that would change the way that the unemployment rate is calculated….

A Republican lawmaker is intensifying his push for legislation that would change how the government measures the unemployment rate.

Rep. Duncan Hunter (R-Calif.) intends to press GOP leaders to move his bill to include the number of individuals who gave up looking for work in the percentage of jobless claims.

Of course there is probably not a chance that such a bill would ever get through the Senate, but at least some lawmakers are trying to get people to notice what is going on.

The sad truth of the matter is that the employment crisis in America is still about as bad as it was a couple of years ago.

Do you remember a couple of months ago when Barack Obama spoke with the wife of an unemployed engineer and asked her to send his resume to the White House?

Well, it turns out that the unemployed engineer still doesn’t have a job….

More than two months after President Barack Obama asked for Darin Wedel’s résumé, the phone is quiet, e-mails are no longer flooding in and the long-sought-after job interviews — which had begun to be scheduled — have petered out.

“Not even recruiting companies are calling anymore,” said Jennifer Wedel, the Fort Worth mother of two who chatted online this year with Obama about her out-of-work husband.

She says his job search has been hurt by a program to hire skilled foreign workers.

But Barack Obama is doing the same thing on a national level.

He is promising all of us that things are improving and that there will be lots of jobs for everyone soon, but it is all a lie.

The truth is that this period of relative stability that has been purchased by unprecedented levels of government debt will soon give way to even more economic trouble.

One of my readers recently brought to my attention a list of some of the major companies that are currently getting rid of workers….

Ford will be laying off 1,200 assembly line workers later on this month.

Pittsburgh-based paint and coating manufacturer PPG has announced that it will be laying off 2,000 workers.

J.C. Penney recently laid off 600 workers and has plans to lay off another 300 workers in July.

Lockheed Martin has announced that it will be laying off hundreds of workers.

Dow Chemical has announced that hundreds of workers are going to be laid off.

Yahoo has formally announced that it will be getting rid of about 2,000 workers.

Sony has announced plans to eliminate 10,000 jobs globally.

Even Oprah Winfrey is laying off workers.  Oprah is reducing the size of the staff at the OWN network by 20 percent.

Meanwhile, our economy continues to bleed jobs at an astounding pace.  At a time when American workers desperately need jobs, millions of them continue to be sent overseas.

In fact, even some jobs that you would think would be impossible to outsource are being given to foreigners.  Just recently, ABC News did a major report on all of the roads and bridges all over the United States that are being built by Chinese companies.  If you have not seen that report yet, you can view it online right here.

If you go into a Wal-Mart or a dollar store and you start turning over products you will find that huge numbers of them are made in China and that very few of them are made in the United States.  China is absolutely dominating us on the global economic stage.  Last year our trade deficit with China was the largest trade deficit that one nation has had with another nation in the history of the world.  Yet we continue to pursue the exact same trade policies year after year.

So how is the American economy ever supposed to recover if we continue to play to lose?

As a nation we spend far more than we make, we consume far more than we produce and our federal government implements thousands of new business-crippling regulations every single year.

If you still have a good job, you should treasure it and you should try to hold on to it for as long as you can.  Soon the next major economic downturn will be upon us and millions more Americans will lose their jobs and their homes.

Things did not have to turn out this way, but we made horribly bad decisions for decades and now the consequences are catching up with us.

You better get ready.

The Economic Collapse

PPI (Producer Price Index): Hotter Than It Looks

I don’t like this at all.

The Producer Price Index for finished goods was unchanged in March, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Finished goods prices rose 0.4 percent in February and 0.1 percent in January.

That sounds good, right?  No change?

Uh, wait.  Looking at the table you see a problem — core was up 0.3%, which continues a trend that since December has been in the range of 0.2-0.4%, with an average of 0.27% (in other words, above the four-month average.)  The negative adjustment was all for energy, which is due to strong seasonal adjustments usually applied to gasoline (but those moves happened earlier than expected — specifically, they happened last month.)

So removing that we’ve still got a problem.  The only good news is that crude goods fell in price, but crude goods have been quite volatile over the last year.

I’ll call this consistent with the trend at this point, which is flattening in general, but the “it’s all good” meme you may hear is misplaced, and fuel cost push-through remains a problem unless we start to see a strong and sustained decline in oil prices.

Jobless Claims 4/12: Not Good

Egan-Jones Rings The Bell (Again)

And here we go again…

Egan-Jones Ratings Co. cut the U.S. credit rating one step to AA, the second downgrade in nine months and two levels below its highest grade, with a negative outlook citing the nation’s increasing debt burden.

U.S. debt has increased to 100 percent of gross domestic product, while debt climbed 23.6 percent from 2008 to 2010, the credit-rating firm said in a statement today. Egan-Jones lowered the U.S. grade to AA+ in a July. Treasuries have gained 4.6 percent since the company first lowered the U.S. rating, according to Bank of America Merrill Lynch index data.

The downgrade was based on “the increasing debt load coupled with the fact that there has been no tangible progress in addressing the country’s growing debt to GDP” ratio, Sean Egan, president of Egan-Jones in Haverford, Pennsylvania, said today in a telephone interview. “Unfortunately, the debt is growing fairly rapidly while the GDP is not.”

The market ignored it.

The reason there has been no tangible progress on the nation’s debt-to-GDP ratio is found in the fact that about one out of every 10 dollars spent in the economy (that is, GDP) is money borrowed by the federal government and then spent.  This creates an artificial level of demand in the economy and allows the government to claim that “we’re growing!”

But we in fact are not.  In point of fact all we’re doing is inflating the debt bubble, just as we have for 30 years.

This chart is, very simply, the change in total systemic debt (from the Fed Z1) compared against the change in GDP.  We get both numbers quarterly; one from the Fed and the other from the BEA.

Since all money is debt in modern monetary systems each new dollar spent into the economy must come with a debit somewhere (that is, it is someone’s obligation.)  This means that we can very easily measure the total amount of monetary inflation — or deflation — by simply comparing those two figures.

The “fear factor” for Bernanke and Congress is that the deceptive practices of the last 30 years will be discovered for what they are.  The so-called “prosperity” since 1980 has mostly been a scam — it has been nothing more than monetary inflation coupled with frauds that allowed people to borrow money they couldn’t pay.  Under this cover all manner of sin was committed; two bubbles (Internet and Housing) along with the theft of every single dime paid into Social Security and Medicare.

It is not “deflation” to take that monstrous bubble from 1981 forward and let the air out of it.  That would be nothing more than restoring balance, but it would not come “nicely.”

So instead we have pretended.  To be blunt, we all lied.  To ourselves, to each other, and the government lied to all of us.  We see articles telling us that we “can’t” make “irresponsible cuts” to government spending but what was irresponsible was promising to spend money we didn’t have in the first place.

There is no cheap, easy or clean way out of this box.  We will have to, at some point, accept the monetary, fiscal and economic contraction that must come to restore balance.

There are only two ways to do so:

• Tell the truth.  Some political party, whether the two major ones out there now or a third party, must get in front of this and start hammering the above graph until people “get it.”  It’s not hard to figure out really — gasoline prices anyone?  Medical care?  College education?  Stocks?  Just look — there it is.  This means cutting the size of government to what we are willing to fund in the present tense with taxes.  Everything else goes away.  And yes, this means both material tax increases (e.g. recission of all of the Bush tax cuts) and really large spending cuts (like in half — across the board.)
• Continue to lie.  We won’t get away with it for much longer.  Neither will anyone else.  Spain is in real trouble on this account as is Portugal.  The lies are politically expedient but that’s all they are.  They’re not fundable; if The Fed continues to play its QE and “twist” games all that will happen is that the monetary debasement will show up in essential commodities.  When a material percentage of the population can no longer afford to eat and the government is unable to continue to ratchet up the entitlements the game ends in violence and destruction.

The second choice is a bad one, but it’s the choice we make every single day we refuse to confront these realities and hold the politicians’ feet to the fire.  Those who are currently in office should be held to account for their lies, their thivery and their willful blindness.  All three have been equal components of the mess we’re in today.

Not only did politicians steal through the making of promises they couldn’t keep and monetary debasement but they willfully looked the other way while banking interests effectively counterfeited the currency and by doing so blew enormous bubbles in stock, commodity and housing markets.  They all lied too about the quality of the debt instruments they were issuing to back this monetary expansion and they knew it.

I know there are plenty of people who think this game can go on for many more years or even decades.  I disagree.  So did all of the Simpson-Bowles conferees.  Their expectations for the”wall” ranged from 2-4 years out — a year ago.  Mathematically I don’t see how we get out of the 201x years; from a realistic market perspective you’ll never get close to the corner.

The fault is ours folks — not just the politicians.  We get the government we deserve, as it’s the government we vote for.

For every day we refuse to rise and act the damage we must accept to restore balance grows worse.  In 2000 I estimated we had to accept a 10% contraction in the size of the government and that GDP would likely have to fall around 5-10%.  In 2007 I said it was 20% on the size of government.

Today it is nearly 50%.

Soon, it simply won’t matter as the choice will be made for us.

If you choose not to decide you still have made a choice!

The Market-Ticker

Discussion (registration required to post)

The creeping cost of consumer inflation brought to you by a lower US dollar – Americans squeezed as inflation filters into the cost of daily life.  The uncertain employment market of low wage work.

There are unintended consequences when policy aims at depreciating a currency in favor of bolstering an ailing banking system.  The Federal Reserve has been on a multi-decade mission to lower the value of the US dollar.  The primary purpose of this mission is to inflate banks into solvency as they try to work their way out of the massive financial crisis.  The amount of troubled real estate loans is still impressive when we look at the temporary sanctuary being provided by the Federal Reserve on their overloaded balance sheet.  This luxury is not afforded to your common household and consequently many Americans are now facing higher and higher costs in items like energy even though demand is slightly lower.  This occurs for a variety of reasons but a main driver is the declining purchasing power of the US dollar.  This permeates over into the employment market that is largely being driven by lower wage positions.  Inflation is creeping back into the economy.

Consumer inflation now edging back up

Since our economy is fantastically debt based and debt is the medium of exchange, more debt is likely to produce higher prices given the same amount of goods.  Typically this equation is leveled at the money supply but our system is one in which debt rules supreme.  While households are in the painful process of deleveraging, debt has increased overall because of banking bailouts but also government spending.  For this, we are seeing consumer inflation pickup:

The inflation rate has been moving up since the crisis hit a trough in 2009.  Americans are facing higher prices in a variety of sectors including healthcare, energy, food, and higher education. Ironically inflation is hitting in many of the cornerstones of what was once thought to be part of a middle class lifestyle.  The recent push in prices has largely come from the higher prices in energy:

Total energy costs are up 7 percent over the last 12 months while wages have gone stagnant.  Gasoline has seen the largest push up in the last year moving up by 12.6 percent.  Looking at food, the total cost of food has gone up by 3.9 percent over the last 12 months.  Of course much of this is synergistic with the rise in energy given that food is transported and also produced with high levels of energy usage.  The interesting point here is that energy usage overall has not necessarily surged in the US to justify this movement.  This is largely being driven by an overall depreciation in the US dollar:

The US dollar has lost over 50 percent of its purchasing power since the 1980s.  It is no coincidence that global goods like food and energy are now more expensive.  This is problematic since Americans are seeing little growth in their wages.  The stagnant wage dilemma has been in effect for well over a decade now.

Impact of low wage employment

Just take a look at some of the top employment sectors in our economy:

The top three employment fields in our country are:

1.  Office and administrative support work

2.  Sales & Related

3.  Food preparation and serving related

Read the rest at My Budget 360

Here we go down the toilet as there’s no promise of more morphine:

The information reviewed at the March 13 meeting suggested that economic activity was expanding moderately. Labor market conditions continued to improve and the unemployment rate declined further, although it remained elevated. Overall consumer price inflation was relatively subdued in recent months. More recently, prices of crude oil and gasoline increased substantially. Measures of long-run inflation expectations remained stable.  

Yeah, right.  $5 gasoline is doing great as an expectation and $4 realized prices are too.  Trust me on this one.

Housing market activity improved somewhat in recent months but continued to be restrained by the substantial inventory of foreclosed and distressed properties, tight credit conditions for mortgage loans, and uncertainty about the economic outlook and future home prices. After increasing in December, starts of new single-family homes remained at that higher level in January, likely boosted in part by unseasonably warm weather; in both months, starts ran above permit issuance. Sales of new and existing homes stepped up further in recent months, though they still remained at quite low levels. Home prices were flat, on balance, in December and January.

  Yeah, ok.  Don’t look at Bloomberg this afternoon which said:

The best measure of the influence foreclosures have on the broader market is the 20-city S&P/Case-Shiller home-price index that tracks deeds, including homes sold directly by banks and deals that don’t use mortgages, said Patrick Newport, an economist at IHS Global Insight in Lexington, Massachusetts. The index probably will fall 5 percent to 10 percent this year, a range that depends on the condition of the mothballed homes, he said.

Uh huh.

Overall U.S. consumer prices, as measured by the PCE price index, increased at a modest rate in December and January. Consumer energy prices rose in January after decreasing markedly in December, and survey data indicated that gasoline prices moved up considerably in February and early March. Meanwhile, increases in consumer food prices slowed in recent months. Consumer prices excluding food and energy also rose modestly in December and January. Near-term inflation expectations from the Thomson Reuters/University of Michigan Surveys of Consumers were unchanged in February, and longer-term inflation expectations in the survey remained in their recent range.

How about asset prices?

That’s inflation too, you know…

Nevertheless, the staff continued to forecast that real GDP growth would pick up only gradually in 2012 and 2013, supported by accommodative monetary policy, easing credit conditions, and improvements in consumer and business sentiment. The wide margin of slack in product and labor markets was expected to decrease gradually over the projection period, but the unemployment rate was expected to remain elevated at the end of 2013.

The staff also revised up its forecast for inflation a bit compared with the projection prepared for the January FOMC meeting, reflecting recent data indicating higher paths for the prices of oil, other commodities, and imports, along with a somewhat narrower margin of economic slack in the March forecast. However, with energy prices expected to level out in the second half of this year, substantial resource slack persisting over the forecast period, and stable long-run inflation expectations, the staff continued to project that inflation would be subdued in 2012 and 2013.

No really?  You pump your own gas now Ben?

In their discussion of monetary policy for the period ahead, members agreed that it would be appropriate to maintain the existing highly accommodative stance of monetary policy. In particular, they agreed to keep the target range for the federal funds rate at 0 to 1/4 percent, to continue the program of extending the average maturity of the Federal Reserve’s holdings of securities as announced in September, and to retain the existing policies regarding the reinvestment of principal payments from Federal Reserve holdings of securities.

“Wave hands, shout and scream, tell everyone it’s all ok ’cause Bernanke has their back”

Uh huh.

The market says

Gold Futures                                        10-Year Treasury Note