Job Numbers: Deteriorating, and Understated

It is hard to write a proper entry on the monthly jobs numbers because some readers have been here a long time, some for a while, and some just found the site yesterday. So I try to strike a balance - to be blunt, these numbers are so poorly reported I've basically chosen to ignore them in terms of "analysis," but since they move markets we need to be cognizant they are there. Simply stated, I believe they are far underreported.

For new(er) readers, I think if you care about the markets and these government reports you need to seek out the truth/reality. Here are some earlier posts before I "suspended" coverage. First, we have the underemployment effect in America. I wrote:

I've been struggling to think of a term for all these people who are struggling with part time work, working 2 jobs, or in contractor jobs where they get hired/fired on a daily whim ( I call them "nomad workers") This is a systematic and secular situation - nothing to do with 1 month's report or another. It is part and parcel with the erosion of living standards - and why so many in the middle and lower economic strata turn to home equity, credit cards, etc to just get by.

On the plus side, we can get to part of the unemployment number using the government statistics - I'll show you below. But whatever the "official" number is, understand many are struggling with multiple part time jobs or working in jobs they are overqualified for but need money to make ends meet as we move away from a "production" society to a "service economy" (you do my taxes, I'll cut your hair, she'll walk my dogs, he'll serve me a burger) as our multinationals move jobs away to cheaper labor pools.

Much like our inflation report, and our GDP report, our labor numbers have been "changed" over the years to reflect a "gentler, kinder economy". I always try to point newer reader to how statistics in our economy would look  if they were reported AS THEY WERE before the changes happen in the past 20 years by BOTH parties. Below is a chart from Shadowstats.com which shows our government figures (today) versus how they would show if we used methodologies we used to use when we actually told the truth to our people. So as you see below, the blue line is reality and shows a country struggling at elevated unemployment for a long time, but now it is spiking. The red line is what you are told and the mainstream media will talk about (U-3). The gray line is the broader measure of unemployment (U-6) which includes people with PART time jobs who WANT full time jobs. The blue line is reality - this is U-6 + "discouraged workers" aka people who have plain given up. Because the dirty secret about the American unemployment reports is, once people become discouraged and give up, after a short time frame they are no longer counted as unemployed. Period. They disappear into the ether.

Next, we have a nasty thing called the birth/death model which I wrote about extensively in the past - again, if you are new to the site or really care to understand the statistics, you should read that post. In summary form, this represents new business formation (or closing) in America - guesswork. It is "fine" when the economy is generally trending slowly in one direction, but terrible when we have changes in directions. And it has been manipulated like mad - over the past half year the government has been filling this data point with "new businesses/jobs" created in construction, financial services, manufacturing, etc. How is that possible? It's not - but that's what you can do when part of your official report is guesswork - you can put whatever number you want in it.

Now, those are the mechanical issues - even if you ignored all those, I have a major beef with the type of jobs we are creating. The major job creators in America, instead of, say, "making stuff other people want," are healthcare and government. Two things bankrupting the country; that's the dirty details behind the numbers.

We have two huge bureaucracies - federal government and healthcare. To keep the government from going even more insolvent we should in theory be cutting jobs from these two white elephants. Healthcare costs spiral out of control and we hire more people - I believe healthcare is now 16% of GDP. But how do you cut costs without cutting jobs? That's the other dark secret - most of our recent gains in jobs are either government or healthcare related. So how do you fix the long-term problems in either? Chicken or egg? They are sapping our national wealth away by their huge excesses/costs BUT they also provide the main job growth as well. As with everything, my expectation is that the "kick the can down the road" theory will continue - keep growing these massive beaurocracies (create more jobs and costs now) and let another generation pay for it.

So with all that said, I really get dispirited trying to even "report" this figure because it is so false - just know it is vastly understating conditions in America - in good times and bad. Many people are falling behind in this country; in the soft underbelly. And what jobs are being created are mostly in areas we should not be creating jobs - things that are bankrupting our country. But other than that - things are rosy.

For the past few months I simply point readers to Mish's (another blogger) website and copy his post about the Employment report whole hog since he does a good breakdown. But every so often I like to do what I do above and explain to new(er) readers what the version of reality you are hearing truly is, and why the figures from government are a complete hoax. It is pathetic that when the numbers get bad, government agency after government agency has systematically changed the reporting methodology to make the numbers more benign the past two decades. And both parties are guilty of this, so there is no "one bad guy" - they are all bad and trying to cover their behinds.

Further, numbers reported "now" are subject to revision "later" - for example June 2008 was reported "then" at 50K and the market was "happy". Today they say, oops we really meant 100K. So this is why the "strong" market reaction, positive or negative, is nonsense - not only are the numbers useless, they get revised within months. But that doesn't stop a lemming overreaction.

My last comment is, employment is a lagging indicator, meaning it will get worse from here. That doesn't mean in a straight line, and due to the issues I outlined above, it might look better next month or two months from now and people will scream the TURN IS HERE IN THE ECONOMY. Wrong. We have a service economy based on "shopping" and "homebuilding" during a credit contraction. Meaning people cannot spend like they used to. So we have a lot more bankruptcies in retailers and restaurants and places we used to spend money at. And those will create more job losses - it will be a spiral effect.

This is why I continue to mock these moves into "early cycle" stocks - it's going to get worse, and potentially far worse, before it gets better. I said this over a year ago when the blog started, and it has come to pass - even when the economic data (at the time) was completely rosy and I sounded like a nut case. I continue to repeat the same mantra. We are still early in our "readjustment" period in America, and again I am talking the "economy" not the "stock market" which has a mind of its own.

On to Mish's evaluation of this month's report (my comments in blue shade)
I agree wholly with Mish's comments as I have stated this for over a year - the only place we are creating jobs continues to be our bloated healthcare system which is economically killing us in our pocketbooks, and our federal government whichis killing us in our pocketbooks. Malls will continue to empty as people's wages do not keep up with cost of life and fewer people have jobs - it's a very sickening death spiral. We've spoken over and over how state budgets will be cut heavily NEXT summer - that's going to be another leg down).

Again folks, I can only speak to the US economy - not the stock market. The current thesis is "We're #1!" United States of Subprime will lead the world out of the darkness because well "We're #1!". The reality is it is going to be a lot more likely that a country coming off a 25 year binge of spending over our heads is going to be led out of our pain by our export economy by "backwards countries" that have high savings rates, and plenty of cash and expanding infrastructure. Sort of ironic.

But for now the thesis is reversed - we, the biggest debtor nation in the world, and getting worse by the day (wait for the next stimulus checks baby!) are going to the lead the world out of this mess? That we are the poster child for? Right. But that won't stop the stock market from having these interspersed rallies on "hope" since people continue to go off "company led" recession models of the early 90s or early 00s ...  this is our first consumer led recession since the late 70s/early 80s, and apparently 90% of people were either not around during that time, nor read their historic texts about how that worked out. So they will "buy buy buy" anticipating the "imminent recovery in 6 months" as they have done continuously the past year. I figure about a year to 18 months from now they will have lost most of their money and given up. Just about the time the market really bottoms. I love irony.

Anyhow, we won't speak of this useless report for another 30 days until I bring these comments back for any new readers who join us in the next month. But I'd recommend you check out the links I highlighted above over the coming weekend if you want to see what is really going on in this country behind the "benign" government reports. Frankly if you've believed these reports the last year and made your investing decisions off of them you'd be down 30%+. And wondering how the heck this all went so wrong when the "data" looks just dandy.

Comments

[buyitcheap:]

I liked the article - interesting that the two big areas of growth: government and the soon to be part of the government (healthcare) are the only able to do so because they simply take our money and use it to hire people who prevent us from receiving services.

The fact is government has made it so difficult to make things (product liabilty, federal trade commission, etc) and sell things, that it is simply easier to go elsewhere. It is also seen in healthcare which for now has been able to pass on its costs to the patients largely. Interesting that the "third leg" of the government, education, is the only other one that is able to grow and support itself by raising prices as well, like any other grotesquely large institution.

the reason we don't make things is because the hammock of government, healthcare jobs (in most cases) and education jobs are almost as well compensating and a lot more comfortable than most of those in the real private sector.

2008 Sep 05 03:41 PM

[whidbey:]

What is your point? That they lie, or that we believe it? The bath is drawn and all we must do in get in and drown. Yes, your premonitions are good or reasonable, but what you have not said is that it is not possible to fix the economy, especially with the two candidates in sight, and the idiots in Congress. What the is strategy? Hard to say, I think we have entered new ground since this employment report says things are truly going to hell, with no bailout possible short of a massive reissue of currency and abandonment of debt. Hello Argentina!!

2008 Sep 05 07:29 PM

[jstratt:]

Some people look down and are only able to see a dark hole. They become afraid and imagine monsters and outrageous calamity.

Others are able to look up, down and all around and see the bad, but also see the good. Over many years I have seen doomsayers with the best of credentials and they have always been wrong for 30 years.

You may be right! It is easy to see problems and we have many. At the same time when we are in the middle of a downturn it is extremely hard to see opportunities.

In the 1980 timeframe we had real unemployment near 17% and inflation in the area of 17%. During that time commodities spiked. Gold reached $850, Silver $50, and Oil was rising to the moon. Everyone was 100% convinced that Oil could only go up. People heard about an Oil glut and laughed uncontrolably at such a foolish thought.

Today is nowhere near as bad as 1980. Unemployment isnt even close and as an example the 8th largest metro area had a help wanted section of 1.5 pages. Inflation today is perhaps 30% of what it was then.

We have some economic pain to endure and it might end in 6 months or 3 years. When things look the darkest we will find the beginning of the next big multi year boom.

In the meantime perhaps you should try some yoga

2008 Sep 05 08:17 PM

[ChickenLips:]

Jstratt, I wish I could be as optimistic as you, but we can't just "spend" our way out of this recession like we've done with all previous recessions. We're overspent, all of the past booms were the byproduct of overspending, not investment. At this point, it really doesn't matter if the Feds lower the interest rate any further from 2%. We can't even afford to borrow at 0%! All other recessions were "repaired" by lowering interest rates with the expectation that Americans and businesses would borrow and spend themselves into prosperity once again.

Instead of encouraging useless spending (rebate checks!), the government really needs to take the initiative to develop tax incentives that proliferate R&D and high-tech production here in the US. Why do Europeans dominate the alternative energy industry? Because they have tax incentives to create high-paying jobs back home. We have tax incentives to export industry and high-paying jobs. No investment = no future. We might as well teach our kids in school, "You want fries with that?"

2008 Sep 06 07:42 AM

[notsosmart:]

can a society thrive & survive by printing monopoly money & pushing useless paper around? it wasnt long ago we were great.we produced cars,ships,shoes,glove... handbags etc.its almost all gone now.im not smart enough to know the ending. i fear for my children & grandchildren.if you cant produce a useful end product you may be in trouble.

2008 Sep 06 04:54 PM

[mouse:]

jstratt, your optimism is refreshing, but I fear that it is based on incomplete information about our current situation. The federal government has 10 times as much debt as it had then, and most American households also have far more debt......this spending binge, which has created unprecedented levels of public and private debt, is coming to and end, and there is no easy way to fix what is happening in the economy. The bromide that this has all happened before, and that things will straighten themselves out in a few months, is based on the premise that we can go on doing what we've been doing for the past two decades, and I don't think that's true. The deflationary side of the cycle has begun, and it's not going to be fun.

2008 Sep 06 05:42 PM

[henarl:]

Lets see, We've shipped most of our manufacturing industries overseas and when the government gets thru taking over healthcare, education, financial, and information industries. Then EVERYBODY will be either working for a government (local, state or federal) or receiving some form of support from one. Where will these governments get the money to pay everyone when there are no more PRODUCTIVE people or industries to pay taxes? Oh yeah, that's right, Paulson and Bernanke will just print it. Call it the Zimbabwe solution.

2008 Sep 06 07:34 PM

[Steven Hansen:]

no matter which employment rate statistic you use, they are all relative. there is always an underground economy - half my family is in it and completely invisible to the irs and bls. my point is you pick a sampling methodology and you do not change it as long as it properly points up or down at the correct times.

health care is growing because our population is getting older. we are unable to assist the elderly with robots yet so this segment will continue to grow. the good news is that this industry cannot be outsourced to another country.

employment actually is the first real concrete leading indicator we have on the economy. The second indicator is transport volumes. the BS the economists look at with money supply is smoke and mirrors.

job destruction is bad news. it has a multiplier effect within the economy.

2008 Sep 06 09:23 PM