A Look at the 'Real Economy'

A couple of items from the "real economy" - we have not had much time to focus on that lately as we lather ourselves in the Kool Aid of federal government/central bank fiat money and all the good it does for us chosen folk in the speculator class.

First, Thursday we spoke about the nonsense that is government reporting; it appears the "You can't handle the truth" mantra has taken over the past 20 years in data presentations. Long time readers will know of countless stories we wrote on the subject of these mirage economic reports throughout 2007, 2008 and occasionally in 2009. At some point it becomes self-defeating so we just sort of smirk most of the time now, instead of wasting any breath explaining why this or that data point had been fudged. [Oct 2, 2009: True September Unemployment in America Reaches 14%]

But as we celebrate the sub 14% 10% unemployment rate that is "not as bad" as the late 70s/early 80s, I thought this story was an excellent example of how our new paradigm of economic reporting does a great job of sweeping reality under the rug. The headline was promising ... well at least the first half of the sentence: Metro Jobless Rates Fall ... as More Workers Drop Out"

Gosh darnit, I had a barrel of green shoots to toss in the air until I read the entire headline. For newer readers, this headline might be confusing, but anyone who has been around FMMF blog for a while knows how diabolically broken our employment calculations are in the country... yet the mainstream media dutifully reports them from rote. Of course the mainstream media is owned by major corporations, whose lobbyists dollars are well in place to make sure the "status quo" remains... don't want to rile up those peasants with reality-based information.

Specific to the U.S. labor reports, one of a myriad of flaws is the small fact that if a person is not actively looking for work for 4 weeks, a magical thing happens. They no longer are unemployed. Apologists will mention they went back to school (despite a lack of evidence of surging rolls in our universities) or perhaps were birthing a child (difficult for men to do, at last check; nor verified by a surge in baby births).

The reality is there is a massive underclass of (at best) undercounted or (at worst) tossed to the side. [Apr 2, 2008: The Underemployment Rate is Rising] When the frustration of countless closed / slammed doors cause people to drop out of an active job search... boo yah, our unemployment rate falls! Or of course, some of these people get hidden away in other nooks and crannies. Our welfare rolls are surging [Jun 22, 2009: WSJ - Numbers on Welfare See Sharp Increase], and I've read at least three pieces the past month (never had time to post on blog) about how disability insurance claims are shooting through the roof. What this means is otherwise (relatively) able-bodied people who cannot find work, simply have given up the ghost and filed for long term disability insurance. Of course that costs the taxpayers, but on the plus side... our unemployment figures improve from that trend as well. Green shoots!

Let's take a closer look at the AP story I cited above - just remember this data when you hear the headlines blaring about "unemployment rates falling" - the devil is in the details. We long ago predicted another jobless recovery due to structural issues in the U.S, and so far so good... this is nothing but a paper (printing) "recovery".

• The September unemployment rate fell in 223 of 380 metro areas, or about 59 percent. The jobless rate rose in 123 metro areas, and was unchanged in 34. (sounds great!)
  
• The unemployment rate fell in September in most metro areas for the second straight month, although that's largely because more people gave up on job searches than found new work. (must you ruin this story with details when I'm trying to celebrate?) Once jobless workers stop looking for work, they are no longer counted in the unemployment rate.
• "The job market is not recovering at all yet," said Jim Diffley, regional economist for IHS Global Insight. "We're looking at another jobless recovery."
• Nationwide in September, 600,000 people looking for work threw in the towel, the Labor Department said earlier this month.

So you can extrapolate that data in September for months earlier this year, and months in the future. Please feel free to add ALL those people back into the "under 10%" unemployment rate for a dash of reality.

One example at the state level

• Several metro areas in Wisconsin illustrate the trend: the state's unemployment rate dropped to 7.7 percent from 8.4 percent in August. (green shoots for those of us who only read headlines!) Three of its cities saw significant improvement in their unemployment rates: Wausau, Eau Claire and Fond du Lac. But the work force shrunk in all three cities, while the state lost about 21,000 jobs. (however, brown shoots for readers of FMMF - I'm sorry for you leading you outside of the Matrix)

Two more example with large metro areas:

• In Denver, the unemployment rate fell to 7.1 percent from 7.4 percent in August. Yet the metro area of Denver-Aurora-Broomfield lost more than 6,000 jobs, the Labor Department report said. A drop in its work force of 14,600 people, or about 1 percent, reduced the unemployment rate.
• Portland, Ore., also reported what appeared to be a large improvement in its unemployment rate, which fell to 10.9 percent from 11.6 percent in August. While the metro area of Portland-Vancouver-Beaverton did gain a small number of jobs, its work force also shrank by about 1 percent.

So you get the point. Now everything above is reality - that is to discuss with your friends. On Wall Street we will choose to only look at the headline and scream "green shoots" as the CNBC pom pom girls cheer us on. K.I.S.S.: "Unemployment rate dropping = economy improving = buy stocks!"

**************************

Let's turn to another subject... when I began this blog in summer 2007 I was already speaking of the food stamp issue, and not much thereafter. As we were celebrating a "thriving" economy (based on daytrading homes and a stock market at all time highs), we noted 1 in 11 Americans were on food stamps. Quite shabby for the "richest country on Earth"... but not to worry, we've addressed that issue and.... uhh... oh nevermind. We've since shot up in 2.5 years to 1 in 9 Americans. [Jun 8, 2009: 1 in 9 Americans on Food Stamps] Shhhh... keep it a secret, we don't want the "socialists" in Europe to know about these things - keep showing them Hollywood movies so they think we all live like Bradgelina. ("Oh those Americans have a lovely time... what a lifestyle!")

While all the talk (then) was how this economy was a barnbuster and was creating great wealth, we quietly noted that if you googled "food bank" the story was not quite so pristine. As we wrote nearly 2 years ago (again, as the Wall Street punditry and politicians were in denial) [Jan 18: One Lonely Voice Agrees with Me on Food Inflation]

my friend, try to look at the big picture... its scary. Call your local food bank if you don't believe me, we are already seeing anecdotal stories of large drops in food donations - after all canned beans hold their value more than our disastrous dollar.

1. Food Bank Shortage in TX
2. Food Bank Shortage in MI
3. Food Bank Shortage in NYC
4. Food Bank Shortage in Washington DC
5. Food Bank Shortage in Pittsburgh
6. Food Bank Shortage in New Hampshire
7. Food Bank Shortage in Minnestota

Folks, I could do every state if I wanted... you get the picture - go run a check via Google. And it's going to only get worst as the economy worsens.

We also have noted over the past year, Walmart saying they see a huge rush of grocery purchases around "pay periods" (whether that comes from actual work, unemployment checks, food stamp card debited, etc). In English this means people are literally living paycheck to paycheck, and cannot buy minor items... such as food, in part of that space between pay periods. [Dec 26 2007: Target Shoppers Turning into Walmart Shoppers]

• Food retailing consultant Bill Bishop, of Willard Bishop Consulting, said Costco's decision shows how pervasive the pressure on consumers has become. He said more and more grocers are seeing their sales peak and fall based on when assistance benefits are distributed.

But as we know in America, the system has been hijacked to serve the people who run the banks, not those who stand in the lines at the banks; food or otherwise. So don't worry - we're taking care of the "banks" - at least the ones that are served by Ben Bernanke [Feb 20, 2009: NYT - Newly Poor Swell Lines @ Food Banks Nationwide] [Nov 14, 2008: Wall Street Journal - A Run on (Food) Banks] And if you dare raise your voice you (a) are a socialist and (b) do not understand American corporate socialism free market capitalism.

Anyhow, as our "recovery" rolls on, the situation on Main Street continues to .... evolve. I am always looking for canaries in coal mines for nuggets of truth. We like truth, although others call truth "pessimism".

This story on Costco (COST) - they who cater to the "upper middle class" or above - now rolling out food stamps nationwide certainly looked like a little birdie to us. Certainly we must expect a "Cash for Whole Foods Market Shopping" stimulus coming out of Congress by early 2010, no? Even Costco executives were shocked by the response....

• Costco Wholesale Corp. said Wednesday that it will start accepting food stamps at its warehouse clubs nationwide after testing them at stores in New York. It's a big about-face for a retailer that has catered to bargain-hunting but affluent shoppers, and it's a sign of the grim reality facing retailers and their customers.
• The number of Americans relying on government food subsidies to eat recently hit a record 36 million.
• Company officials said they had doubted many customers would use food stamps but it turned out new members said they were joining precisely because the company accepted the assistance program.
• Because about half of Costco's customers are small businesses and the rest tend to be more affluent than shoppers at traditional grocery chains, Galanti said, executives had assumed there wouldn't be much response to it accepting food stamps but realized that assumption may have been wrong.
• "Certainly this economy was a wake-up call," Galanti recently told investors. "It is not just very low-end economic strata that are using these (who) typically don't have purchasing power."
• Most users no longer receive stamps, but instead carry the value on a card that can be swiped at checkout much like a bank debit card. That makes it easier and more discrete for shoppers and speeds the checkout and reimbursement processes for retailers.

Now isn't is wonderful that our leaders are trying to do everything in their power to "reflate" the U.S. economy, causing even higher prices for us all, as wages stagnate? Clearly a sensible policy - rather than letting prices fall to a point where actual demand meets supply and "relatively affluent" shoppers at Costco are not forced into the food stamp program. I know - I have some hair brained ideas.

In summary, I apologize bringing you these news items, after all it's a recovery [Dec 15, 2008: The Economic "Recovery"] as deemed by the stock market (which knows all) and our newly minted positive GDP figure! So after you read this entry, I'd ask you take the blue pill, quickly forget it ever happened, and collect $200 as you pass GO. Of course that $200 shall come from government... [Jun 5, 2009: 1 in 6 Dollars of Income Now Via Government; Highest Since 1929]

Remember, all I am offering is the truth - nothing more.
-Morpheus

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[Sep 11, 2009: US Poverty Rises to 11 Year High - But Still Vastly Understated]

Comments

[User 353732:]

In USA 2009 Govt statistics are only truth and facts are subversive, Middle Class, reactionary and unworthy of debate.
The truth is that there is a splendid "V"recovery; falling middle class income, net worth, real after tax purchasing capacity, access to affordable credit and rising small business and household bankruptcies are mere, unworthy ,facts that must never be allowed to pollute the thinking of The People, for whom The Regime so selflessly toils

The truth is that the unemployment rate is really not high at all; people giving up job searches in despair, working fewer hours and for less money, finding replacement jobs at a third or half below the extinguished job, are mere, unworthy facts and must be allowed to divert the focus of The People from Govt bribes to consume, spend money they don't have and to wallow in entitlements and victimhood

The truth is that the dollar is safe, strong and in no danger at all of losing its reserve currency status; rising prices of real assets, increasingly visible and potent ways of routing round the dollar as store of value and medium of international exchange, emergence of multiple proto-currencies are mere, unworthy, facts that must never be allowed to trouble The People or dispel their glorious money illusion or abiding belief that Govt is external to the economy

The truth is that the Regime can expand national debt and issue fiat dollars with untrammeled ease because the dollar is powerful, Govt debt is riskless and the economy is already recovering with majestic power and speed; the manifest inability of the US economy to generate the wealth that can support the debt or the income that can reasonably service the debt are mere, unworthy, facts that must never be allowed to deter The People from consuming without producing, taking without deserving , importing without exporting and borrowing without repaying.

Truth comes The US Regime. Facts come from America. Whom are you going to believe? The Regime or America?

Nov 02 06:53 AM

[Dave Wrixon:]

The trouble is you will have to starve most of them half to death before the brain washing wears off.

Nov 02 08:28 AM

[Moon Kil Woong:]

Sadly no one cares about the underclass in Washington until they become the majority and start voting or rioting. Of course the same goes with the middle class who are easily divisible and is shrinking. If the population is easily split 40% poor and 40% middle class then those in Washington don't even have to divide the middle class anymore. Just pit the two against each other and siphon away their money.

What we really need is a populist. Obama for all his flair has so far proven himself as an insider pandering to wealthy corporations. In the end the public need not be classist, for the only ones that increasingly count are the ones who can afford lobbyists. Even wealthy people can't usually afford one for themselves.

Nov 02 08:37 AM

[John Galt:]

I wonder who those 600,000 people dropping out of the labor pool are. I mean what do you do without a job ( and an income coming in)? Or is that the thing, do some of these people NOT need jobs?

Are you 62, retired, you COULD get by, but you still work to live better... or are you some 22 year old that would rather go back to school, or are you living off your savings, or living off of your spouses income?

Does anybody have any stats at all on who is dropping out of the labor force? I read an article about nurse recruitment going up, because as husbands get laid off, nurses who aren't employed and would normally be raising the kids are going back to work.

Nov 02 09:07 AM

[Graham and ...:]

George Orwell would have been proud of you. Thumbs up.


On Nov 02 06:53 AM User 353732 wrote:

> In USA 2009 Govt statistics are only truth and facts are subversive,
> Middle Class, reactionary and unworthy of debate.
> The truth is that there is a splendid "V"recovery; falling middle
> class income, net worth, real after tax purchasing capacity, access
> to affordable credit and rising small business and household bankruptcies
> are mere, unworthy ,facts that must never be allowed to pollute the
> thinking of The People, for whom The Regime so selflessly toils<br/>
>
> The truth is that the unemployment rate is really not high at all;
> people giving up job searches in despair, working fewer hours and
> for less money, finding replacement jobs at a third or half below
> the extinguished job, are mere, unworthy facts and must be allowed
> to divert the focus of The People from Govt bribes to consume, spend
> money they don't have and to wallow in entitlements and victimhood
>
>
> The truth is that the dollar is safe, strong and in no danger at
> all of losing its reserve currency status; rising prices of real
> assets, increasingly visible and potent ways of routing round the
> dollar as store of value and medium of international exchange, emergence
> of multiple proto-currencies are mere, unworthy, facts that must
> never be allowed to trouble The People or dispel their glorious money
> illusion or abiding belief that Govt is external to the economy<br/>
>
> The truth is that the Regime can expand national debt and issue fiat
> dollars with untrammeled ease because the dollar is powerful, Govt
> debt is riskless and the economy is already recovering with majestic
> power and speed; the manifest inability of the US economy to
> generate the wealth that can support the debt or the income that
> can reasonably service the debt are mere, unworthy, facts that must
> never be allowed to deter The People from consuming without producing,
> taking without deserving , importing without exporting and borrowing
> without repaying.
>
> Truth comes The US Regime. Facts come from America. Whom are you
> going to believe? The Regime or America?

Nov 02 10:03 AM

[Tom E.:]

The only reason unemployment was low during the middle Bush years was because people were dropping off the employment roles. New jobs were hardly created at all due to off shoring and outsourcing.

Most people lived off debt or home equity or retired. Or, they were not eligible for unemployment and were not counted (eligibility was tightened during this time).

Nov 02 11:49 AM

[Tony Petroski:]

Mr. Mark wrote: "Long time readers will know of countless stories we wrote on the subject..."

I'm an English speaker, so the "we" suggests more than one. Can you identify he or she?

"Kool aid." It's used a lot, but is that a reference to Jim Jones?

This was also from the article:

"Of course the mainstream media is owned by major corporations, whose lobbyists dollars are well in place to make sure the "status quo" remains... don't want to rile up those peasants with reality-based information."

Mr. Man. Fire the sophomore who wrote the sentence above (although give him or her a good reference).

Nov 02 03:24 PM

[bob adamson:]

The debate about sticky costs and the money illusion, particularly in the context of wages, has been carries on now for almost 100 years. The main problem for those who argue today that, if wage and other production cost items were only allowed to drop quickly, recessions would self correct and full employment would return rapidly with relatively little suffering or damage to the real economy, is that contractual debt obligations do not adjust in tandem with salary and wage reductions and the economy today depends on a large proportion of the population holding mortgages and consumer debt for a significant periods of their lives. In other words, whatever the merits of the ‘money illusion’ argument 100 years ago (a doubtful proposition even then arguably), it simply doesn’t apply now unless one assumes that the bulk of mortgages and other contractual loans must be liquidated with each recession.

Nov 02 09:22 PM