True September Unemployment 14%: Our System Is Broken

I actually hate doing any form of analysis on the monthly unemployment figures because it is "junk in, junk out". Analyzing junk leads to useless conclusions... here are some of the basic facts

• worst than expected job losses - I won't reprint the number because (a) it's a lie and (b) it will be revised down in the future
• hours worked at all time lows
• wage growth at a measly 0.1%

First, the whole notion that a $14 trillion economy can be measured on any level 3-4-5 days after a month end is preposterous. Anyone who has worked for a public corporation who has to report to the SEC knows how hard that is for even 1 single company - not to mention an entire economy. Second, as we've outlined for over 2 years, many of our economic reports have been "juiced" to the sunny side because apparently the people cannot handle the truth - the monthly labor report is among the worst, with the "revisions" over the years.

If you are newer to the website please spend some time revealing to yourself what is behind the curtain. It is too annoying to go over each time, but I've summarized the countless ways these figures have been cajoled in this piece [Apr 3, 2009: Real March Unemployment Rate Reaches 12.5%] - one only wishes the mainstream media would do the same homework.

Know this, if the government still reported unemployment as it did pre early 1990s when politicians started deciding the old ways no longer are palpable to the public, our unemployment rate would be about 4% higher than "as reported". That goes for the "good times" in the middle of this decade as well - i.e. when we were told unemployment was 5%, it was really closer to 9%. So each time you hear the economy is only "as bad as early 1980s", realize it is far worse - the "adjusted" numbers of 2009 are as bad as the early 1980s... but the unadjusted numbers i.e. an apple to apple comparison (as close as I can get it) shows us somewhere near 14%.

All the 'explaining away' of reality provides a 4% variance, so whatever you hear on the national nightly news... add 4%. *That* figure can be compared to the late 70s/early 80s or whatever period of time people wish. We are in the worse labor slump since the Great Depression - by a long shot.

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Here is another reason these figures are absurd and wasting time analyzing them is useless... and it shows how even more absurd it is the lemmings of Wall Street react to these figures as if they are truth.

• The Labor Department today also published its preliminary estimate for the annual benchmark revisions to payrolls that will be issued in February. They showed the economy may have lost an additional 824,000 jobs in the 12 months ended March 2009.

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Let's sit back and think about that for a moment; with the caveat that the data is somehow close to being accurate. Remember all those "better than expected" employment figures we rallied on? Remember all that market capitalization we added to the stock market as economists forecast job losses of 400K in month ABC, and it came in at 375K instead? Do you see what a farce it all is? Now as we sit here in October 2009, way after the fact, the government comes in and says "oopsie" we were off by 824K jobs in aggregate on all that data we gave you. Divide that by 12 months and you get about a 70,000 jobs a month under statement. And you want me to buy or sell stocks based on this sort of accuracy? Well that's what Wall Street does each month.

So all those months we "beat" an estimate by 30, 40, 50K jobs and cried "recovery" and drove stocks up... you see in retrospect how it's all just a game. I assume many of these jobs they are now taking back are the fake jobs the government statisticans have been adding each month via the birth / death model (this is a complete guess by government as to how many small business jobs the US is spawning each month) Read about that hoax here ---> [Jan 27, 2008: Monthly Jobs Report & Birth Death Model]

The only surprise to me today was that people are surprised! Sure in a few months we'll have -100K job losses as reported by government (which in reality, ex government distortion, will be -250K months), and then after that in 2010 we'll have some months of positive growth (which probably will mean no growth in reality). But at this point, 1/3rd of our entire work force is in government or pseudo government sectors (education, healthcare) so there are only so many jobs left to lose in the private sector without emptying out every Starbucks bistro. We'll clap like seals next year, and say everything is fine. That's what ostriches do when they see a hole in the sand.

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Here is the reality - this is not something that just happened the past few years. We've hollowed out our economy as we transform into a sham wow service economy. Manufacturing has dropped from mid 30% of the economy a few decades ago to 12%. Replacement for those jobs? (good question - I guess new bars and restaurants) The main job growth the past decade in the private sector has been "building homes" (blue collar) and "financing homes" (white collar). Millions upon millions of jobs have been dependent on a Federal Reserve-driven bubble.

Until Ben Bernanke can replicate the magic of Alan Greenspan and reinflate housing, those jobs are not coming back. So we need new bubbles. Be patient, Ben is working each month on making that happen.

What America has become is basically parallel to any old school technology company which is losing its edge. As it stagnates, it still wants to please Wall Street and post "good numbers". So what does it do? It cuts expenses - generally they take a huge ax to Research & Development. What does that allow it to do? To provide a pretense of "stability" and by not investing in its future it allows said company to "beat the number" today. That can go on for a while... but it is a mirage. You are cutting off your nose to spite your face.

Then one day you wake up and there is little left to cut and the company is exposed for what it truly is. That is what has happened to the U.S. economy, but over a longer period of time. And with the caveat that unlike the company, the government can print money to hide reality for a much longer period. It is now being exposed, slowly but surely

We have not invested - we have not educated properly - we have done smoke and mirrors for a decade now, going through stock market bubbles and real estate bubbles to compensate for lack of job growth & wage growth in the middle class. And now the bill is coming due. But only the first installment of the bill. And we are still in denial. We have not created 1 (net) private sector job in a decade. [Aug 14, 2009: No New Normal Say Economists; Prosperity Without Jobs?]

What have we created instead? More and more unfunded liabilities for the future generations to deal with - job growth is surging in federal government and healthcare- effectively we are transferring our jobs from the private sector to the public. Why can this happen? Because in the private sector you have to pay your bills now. You cannot create jobs unless you can pay for them. (unless you are bailed out by government!) In the public sector, on the other hand, you can create jobs today and not worry about paying for them for decades... that is what our federal government and healthcare systems are. Many state and local government jobs are attempting to do the same thing.

I read in the past two weeks that in Michigan there are 18 job seekers for every 1 job. Nationally, that figure is 6 job seekers for each job. In Washington D.C.? 1 job seeker for every 1 job. Do I need to say anything more about what is happening? Our dynamic globally competitive system is creating a plethora of opportunity... in Washington D.C.

Industry	Change, May 1999-2009
	(thousands of jobs)*
Private healthcare	2898
Food and drinking places	1567
Gov educ	1390
Professional and business services	885
Gov except health and ed	843
Social assistance	796
Private education	772
Arts, entertainment, and recreation	188
Gov health	148
Mining	133
Financial activities	130
Utilities	-40
Transportation and warehousing	-43
Retail	-91
Accomodations	-119
Wholesale	-166
Construction	-238
Information	-525
Manufacturing	-5372
*Gov health and gov educ based on April 2009 estimates
Data: BLS

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But as a stock market speculator, I have to put that all aside - I cannot care about Main Street because Wall Street could care less. This country is about Wall Street - the Federal Reserve has let us know that with its actions the past 2 years. I could make a case this is a golden era for the multinational corporation. Why? Because "capitalists" do not need you anymore. [Sep 22, 2009: BusinessInsider - The Real Problem is the Economy Does Not Need you Anymore] The Fed is happy to provide cheap capital at any cost, and throw the savers of the nation under the bus. Devaluing their money is now a national past time. And it gets better from there.

Here is the game we are playing and why the stock market could still do fine (for a time) as the economy continues to stink (for a long time). America dominates the world in multinationals. Those multinationals do not need American workers - much of the work (except in the corporate suite of course) could be done anywhere. So even with flat lining revenue, costs can shrink big time.

Method 1: wage stagnation - that's been happening for a decade. As less jobs are out there in the private sector, and more workers compete for them - wages can stagnate. Or even drop. [Sep 4, 2009: Job Seekers Across America Willing to Take Substantial Pay Cuts]

Method 2: move the jobs offshore for the real savings. But you argue ... companies will just shoot themselves in the foot! Without us (us = the great American consumer machine) being able to buy things how can these companies thrive? Well we're not in 1920 Henry Ford time anymore where the thought was people on the line needed to be able to afford what they make. Again, if you drop your costs 30-40-50% as a corporation, your revenue can stagnate or even drop and you can do well. (you saw the last earnings report season right?) Asians can pick up some of the slack in revenue growth - that helps. But here is the biggest kicker: the US government will "fix things".

There is a big hole in revenue for these corporations as Americans cannot spend like they used to, since they are losing their jobs (14% real unemployment, and closer to 20% underemployed + unemployed) and the house ATM is no longer here. So who fills that hole? The government ATM [Jun 5, 2009: 1 in 6 Dollars of Income Now Via Government; Highest Since 1929] [Jul 30, 2009: Cash for Clunkers a Bit Hit, Government Asks "What Can we Buy You Next?"] Boo yah!

Do you see why it can be a golden age for the corporation? He can move his labor force anywhere on the planet. And politicians desperate to keep their own jobs can just layer more debt onto future generations to hand off monies to the voters of today! (employed and unemployed). That money stolen from the future can then go to boost the top line of corporations over and above where they would be in a real free market. Only 1 person loses in this - the future generation.

So we have to separate the stock market from the real economy - I can in fact make a case this might be the best 10 years ever coming for our largest, global companies. Unfortunately the vast amount of jobs in America are created by small companies which are being stomped on. Main Street. Wall Street. 2 worlds - unless Wall Street needs a bailout, then Main Street = Wall Street.

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So what we have here as we've transformed to this "service economy" is nothing more than a subsidized economy... it did not happen overnight. We've been highlighting this for many years [Dec 8, 2007: Do the Bottom 80% of Americans Stand a Chance?] - and in the coming 5-10-15-20 years we'll have our new asset spikes, cyclical peaks and the like. But we have not changed the underpinnings. We continue the course and have covered over reality with paper printing prosperity. [May 19, 2009: Paper Printing Prosperity Defined] It will get worse from here in the next few cycles (next 10-20 years) as politicians get even more desperate to hide reality. That's the only solution we know in America.

So until a wholesale change comes at the grass roots I simply do not see any of this changing - expect government to grow and grow and healthcare to bloat even further as that is our only real job growth. And more and more stealing from the future to fund the present. That blame can be placed on the U.S. citizen because he is happy to take take take without asking what the costs are. There is no will in our leadership to see reality and explain it... and no will in the citizens to hear it. In fact I doubt many in leadership see it my way. Because they live in a parallel universe, a cocoon of comfort - and everything "as is" is just fine for them.

It will all end terribly badly - but perhaps we can keep the mirage going for another decade. Unlike Japan, I expect when we truly implode our debt to GDP will be still growing at a 45% angle.

These issues are not about a recession, a recovery, green shoots, or Kool Aid. We have a structurally broken system that no one will acknowledge, that is now being intertwined with an evolution of globalization. So let us enjoy our rollicking stock market and drink Kool Aid. But if you are going be reading this, you are going to hear the ugly truth of what is happening in the background. At least my version of it.

Comments

[TradingHelp...:]

Another really strong article. Great work.

Oct 05 04:01 PM

[mc2406:]

Good analysis. I feel we're in the midst of the biggest, fastest transfer of wealth from the private to the public sector ever, and we all know that once the professional politicians get hold of that wealth, it will go to the people they think offer the best chance for their own reelection; not what's best for America. Term limits and real representatives of the people are what's needed.

Oct 05 04:18 PM

[437339:]

TraderMark,

Great article ! Please see website 24hgold , go to 1st middle section entitled 'Ideas , Analysis + Editorials ' Go to article " Truth wills Out " by Aubie Baltin CFA . Really ties in well with your perspective .

Oct 05 04:32 PM

[Sumit Batra:]

Free market great for America . Look what free market did for the world

To the world
1. Emerging market people living standard have doubled
2. China a major military power
3. Iran is becoming a major nuclear state. ( oil money)

To the United states and western Europe
1. Unemployment at depression level
2. Lower living standard, No real income growth and commodities are up big.
3. State and counties are broke
4. S&P at lowest level, may under 500 if you consider dollar depreciation
5. Middle class is vanishing at the alarming rate.


In other world

We are shipping our living standard to emerging countries. WOW, what a free market. Please Promote free market, it is good for USA .

Oct 05 05:16 PM

[SeekingTruth:]

Well impressed with your excellent work.
Few others have presented this subject with such thoroughness and impact.
Your work reinforces my belief that we are in an "offset" Depression", i.e., offset only by stimulus that will prove artificial in the intermediate and long term in helping to solve our deep fundamental employment and other problems.
During the 30's Depression, anyone 16 years or older seeking employment was counted in the statistics. What would the unemployment numbers be today if this same criteria was applied?
Also, during the Reagan admin., to "improve " the 10.9% unemployment rate, the entire military armed forces were suddenly counted as part of the overall employed, which would also adjust the numbers if they again were taken out of the calculations.
I was never in a union , and I am aware that they , like industry, have a checkered past , but many of the tactics and strategies devised by American industry was formulated to destroy collective bargaining, and in so doing they damaged the entire work force in the process, and devastated and destroyed our entire manufacturing base, and destroyed the livelihoods of millions of Americans and their dependent families.
And they couldn't care less, just business folks!
Then we have the virtual ( but non virtuous) "attorney- client " privilege between both houses of Congress, and the Corporations, whose millions of dollars in fees and patronage gain them limitless and ongoing advantages in pillaging the typical consumer and those seeking employment when they offshore their work at every opportunity, and allow the rigging of every insurance contract written in America, and disallow generic drug imports from Canada.
And now, we have the Financial crisis, scandal, debacle , fraud, fiasco, et.al., adding insult to injury.
I see no good coming from all this, and until the ordinary American senses the OUTRAGE that this situation calls for, and decides to do something about it, we are in store for a great deal more of the same, if not indeed, far worse.

Oct 05 05:43 PM

[ryanclarke:]

If you follow Jim Rogers and Marc Faber ... everyone really knows it's just a matter of time. The U.S. economy and the CNBC cheerleaders are dramatically bipolar ... only six months ago a depression was a foregone conclusion ... today a recover is at hand with new job growth and new industry !!!!! Question is, what new industry ???? Looks the same to me. GM dealerships were never closed a day and yet GM is bankrupt ???? To the layman on the street this is rather odd. Markets worldwide are up and yet the dollar has depreciated ???? To the layman on the street this is rather odd. Inflation is at hand, and the only reason the banks are open for business today is to give the state a "Hail Mary" chance to get the consumer to buy some more junk for a "Merry Christmas," and keep the retailer's open another year. Bernake should take the economic medicine that has been prescribed. He should have done it in 2005 when housing prices went up like hot air, just like Greenspan should have done in 1999 when the tech market blew a fuse. Truth is, the only way to prevent the depression, whether it be labeled hyper or deflated, is to prevent the mania. In this regard, Bernake failed at his job years ago .... and he knows it.

Oct 05 08:03 PM

[Homer II:]

Thanks Mark for your research.

We really are heading for a decade of depression. We could even see real (not BLS definition of "real") unemployment up over 30-35%. My best guess is somewhat near the SGS number of 22% at this time. Assuming a labor force of some 137 million with 22% out of full-time work, we have about 30 million displaced workers. That is going to take upwards of a decade to absorb back into the workforce. This country will be thoroughly tested as to whether the people continue to believe in the "American Way" of democracy, and capitalism where anyone can aspire to rise up and succeed. Or whether they begin to give up trying to reach the level of achievement that their parents had, and slump down into a sad life of government control over jobs, wages, medicine, education, and essential freedoms.

Oct 06 02:52 AM

[TeresaE:]

Your article really highlights the idiocy of importing nearly 10 million immigrants to compete with our jobs in the past decade.

The need for immigrants WAS real, in 1998 as the tech world experienced shortages due to TWO separate industries, dotcom and Y2K. Both of those exploded by 2001, yet we have UPPED the number of new tech grads from foreign lands.

At the same time we shed huge swaths of manufacturing and small businesses were being squashed by big box competition.

You are right that it will take a grassroots movement to enact change. Even with things this bad, I do not see the conviction in people to fix it. If they are individually ok, then they just ignore the reality pressing in. They WANT to believe that the powers-that-be are smart enough to fix this, and they ignore that the p-t-b are the ones that broke it!

Good luck to us all.

Oct 06 09:02 AM

[John Galt:]

Fantastic Fantastic Fantastic article. No editors pick? You laid it all out so eloquently.

The stats were off by 824K jobs? That's insane.

I don't think people are as fearful/angry/upset as they are. I think a strong stock market rally from March to now has given people some comfort.

Weak economy + weak stock market = fear, talk of canned food, guns, the end of civilization.

Weak economy + market rally = talk of recovery, stabilization etc.

What happens if the market takes a turn for the worse again? Will they try and fight the "crisis of confidence" with more of your dollars? Are we going to add more bartender and waiter jobs?

Part of it all goes back to Thomas Friedman's " The World is flat". We need more young hungry scientists, innovators, creaters...

The "best and brightest" go to ivy league schools to try and become lawyers or investment bankers. Is that really what we need more of? Do we need our "best and brightest" fighting over wealth in court rooms and on blinking computer screens?

Do we really need 20 to 33% percent of kids to go grab that psychology degree from over priced state U?

Oct 06 09:37 AM

[Munts:]

Throughout history, during times of hardship mankind has consistently achieved amazing the most amazing feats.

Looking back on the past 20 years little if any significant new innovations have emerged. Even this internet thing was invented back in the 70's. Lazy minds sucking on the metaphorical tit have stifled genuine innovation.

In trying find something positive in all this gloom, I hope the next decade sees the emergence of another fantastic invention like the jet engine, radar, gps, internet protocol or bittorrent!

Oct 06 12:32 PM