David Rosenberg on 'The Mother of All Jobless Recoveries'

While I see the job numbers as pretty much what was expected, the data do make clear that we are seeing a major jobless recovery. David Rosenberg had a piece out Friday that goes right to the heart of the issue:

All we can say is that if the overwhelming consensus is correct that the recession is behind us, then what we have on our hands is the mother of all jobless recoveries and whatever economic growth is being squeezed into the system comes courtesy of the most dramatic intervention by the government in recorded history, including the New Deal 1930s era. President Obama is now running fiscal deficits that would have made FDR blush.

But while Uncle Sam can try and stimulate spending on autos and housing and even mortgage credit via the myriad of policy measures that have been undertaken, the return to job creation is as elusive as ever. It is hard to fathom that, according to the White House estimates earlier this year, the stimulus was supposed to help cap the unemployment rate at 8.5%. Here we are today with both an unemployment rate and a fiscal deficit-to-GDP ratio both north of 10%. While real GDP did manage to rebound at a 3.5% annual rate in Q3 — stagnant if not for the government incursion — those dual 10%-plus figures cited in the previous sentence highlight the fact that GDP is not the only barometer of a nation’s economic health.

TODAY’S HEADLINE PAYROLL PRINT CONTAINED TROUBLING SIGNPOSTS

While the -190,000 headline nonfarm payroll print was not that far off the consensus, and while there were upward revisions to the prior two months (of over 90,000), the major problem is that the Establishment Survey, at this time, is missing a very important part of the story, which is the strain that the small business sector continues to face. Small businesses have less cash on the balance sheet, less access to credit and less exposure to overseas growth dynamics compared to large companies. The Establishment Survey (nonfarm payrolls), has a “large company” bias that the companion Household Survey does not have. If you look at the historical record, you will find that at true turning points in the economic cycle, the Household Survey leads the Establishment Survey. This has always been the case heading into expansions and into recessions.

My interpretation of this is threefold:

• The headline data understate the severity of the problem because of “large company” bias and a low labor force participation rate. In reality the U-6 number of 17.5% is more reflective of the state of the economy – and that is a depressionary number.
• To the degree you expect the recovery to continue, labor force participation rates should be increasing, not decreasing. In my previous post, I failed to point this out, leading to the conclusion I saw the data as a net positive. I see the data as a net wash – as it was in line with expectations. However, when discouraged workers come back into the labor force, we are going to see a much higher headline unemployment rate.
• Given the fact that unemployment is pointing to depression but we are in a recovery, you should conclude that this recovery will fade once government stimulus is removed.

Lunch with Dave — U.S. Payrolls: 10-Plus (PDF, registration free but required) – David Rosenberg, Gluskin Sheff

Comments

[enigmaman:]

For any one to try and make sense of the convoluted reports the Fed Gov. makes available almost every week would take a team of forensic accounts, and this as they want it to be, keep you off balance, not being able to make sense of what is being reported so there is unending confusing debate. Though it can be quite simple to just " believe 1/2 of what you hear and 100% of what you see" think about what is being touted with a straight face " jobless recovery" an oxymoron statement that has yet to be taken to task by anyone of any stature, but IMO main street gets it but cant do anything about this without the support of WS &DC who have their own somewhat different agendas but close enough to become allies

Nov 08 09:42 AM

[j-dub:]

"To the degree you expect the recovery to continue, labor force participation rates should be increasing, not decreasing. In my previous post, I failed to point this out, leading to the conclusion I saw the data as a net positive."

I immediately noticed this misinterpretation in your other article as well. I was concerned as to how you could view a decrease as a positive. The fact that you pointed this out, immediately I might add, should sway any SA reader as to which authors they should continue to follow and which they should consistently question.
Thank you

Nov 08 10:33 AM

[davidbdc:]

Given the fact that unemployment is pointing to depression but we are in a recovery, you should conclude that this recovery will fade once government stimulus is removed
----------------------...

I draw a very different conclusion. We are developing a Western European economy with a permanent underclass. I think too much is made of the 17.5% that includes "everyone". We have always had folks that work on the "fringes" of the economy and while would agree that number has probably doubled over the past few years, the core 10.2% should be our primary concern.

The only way to turn this around is to cut social spending and increase infrastructure spending and personal savings (which also leads to investment). And that will take time and discipline.

We face much graver political risks. Our politicians are too cowardly to cut social security. They don't have the backbone to build 50 new nuclear power plant with a new elecricity grid. We need to raise taxes on gasoline to reduce demand. We need to balance the budget immediately, not "sometime after I'm out of office". No increase in health care spending until we develop a car battery that can run on all our new nuclear generated electricity. No more putting off to tomorrow what needs to be done today.

Americans need to be told the truth - you've lived way above your means. Everyone will have to sacrifice and it won't feel good for several years. And before you blame some political party - look in the mirror......you believed all the politicians lies when you had to know they couldn't possibly be true.

Nov 08 11:02 AM

[Nick36:]

Perhaps this is the kind of economic recovery Herbert Hoover had during the Great Depression.

He managed to get a temporary stock market surge. But the unemployment rate kept going up. And eventually the stock market responded to that.

President Obama is now trying the Hoover solution to get the economy going again. And if he doesn't change his tactics and start creating jobs directly by hiring people on government payroll. Then he'll probably end up being a one-term president.
www.washingtonpost.com...

Nov 08 09:07 PM

[MarkitWacha:]

U6 is terrible.

I would offer a different solution: Cut back on the standard of living and expectations for federal services. Lay off the teachers, decreasing the teacher : student ratio. Cut taxes, but convert the existing gas tax to a pigouvian tax instead of the 'progressive' federal income taxes.

Incentivize people to get educated in the medical professions, as we have baby boomers nearing the infirm stage. Incentivize the use of natural gas, as it's much less expensive than overseas oil from our philosophical enemies. Postpone the crippling of the coal electricity producers (cap-and-tax).

Taxes are a friction on the stumbling economy we are all part of.

Nov 09 09:27 AM