Adam Hayes

September Unemployment: Ouch!

Well, unemployment rate in line with expectations at 9.8%, up from last months 9.7%. BUT if you look at bls.gov and break down the #s a bit you get some bad news that will surely be overlooked by the mass media outlets
:
-Payrolls loss is accelerating not improving, meaning that the next few months unemployment rate % should keep creeping higher.

-Avg weekly work hours dropped to 33.0 the lowest ever (and tied with Jun'09) - this is BAD - those that are working are working less, making less weekly earnings, and means job creating will be slow to come. This could also play negatively to productivity.

-Avg (and also median) time in weeks for unemployed job seekers to look for jobs increased.. most people out of work now are waiting more than half a year to get a new job!

-The 9.8% represents the so-called U-3 measure of labor underutilization. (www.bls.gov/news.relea...)
This is the "official" seasonally adjusted unemployment rate BUT it discludes those unemployed who stopped looking for a job and gave up, those who are so-called UnderEmployed, people who are forced into temporary or part-time jobs but would like full employment due to economic reasons and so on. All those are lumped into the U-6 # which is now an astounding 17.0% and that represents a much clearer picture of the current jobs situation.

-The unemployment rate amongst teenagers and students has risen to a staggering 25.9% .. young job seekers must be VERY discouraged and probably will be the most affected going forward with a longer lasting impact on their psyches and thus the future of American productivity and innovation.

-Our job force and employment profile in the USA might be getting "dumber".. The unemployment rate for those without even a HS diploma fell from 15.6% to 15.0%, meanwhile those with diplomas, or college and higher degrees rose! This has been a trend over the past few months and not just a one-off.

-Unemployment insurance initial (and continuing) jobless claims continue to be large, but even more interestingly they seem to be constantly revised WORSE week to week.

So.. the unemployment and jobs market continues to be weak despite the constant assurances from the gov't and the mass media that things are improving or at least stabilizing. These data speak clearly and the fact is that this recession is NOT over and we will not see a recovery until people start working and producing and earning money again. Without steady income, consumers cannot and will not spend. Additionally, unemployed people tend to have little or no private health insurance coverage and this will put a huge damper on growth, the health care system and the gov't.

The markets in the past few days have recognized the data and reacted accordingly. Hopefully the future will improve but right now I am a bit scared still!

-AH

Sept. ISM Manufacturing Index: 52.6% vs. consensus of 54%, the fifth straight month of expansion (+50%). While the growth rate moderated slightly vs. August's 52.9%, the recovery broadened as the number of industries reporting growth increased from 11 to 13.

the ISM data was the green shoot many analysts and media outlets were talking about to show recovery and growth. So much for that!

Initial Jobless Claims: +17K to 551,000 vs. consensus of flat at 530K. Continuing claims -70K to 6,090,000.

jobless data REVISED WORSE YET AGAIN!!!.. come on !

FOMC Announcement: Watch That Thesis

Consumer spending has indeed been replaced by Gov't spending. This shift will lead to a strange dyanmic as personal debt is reduced and savings is increased and meanwhile the gov't debt & deficit skyrocket and the monetary supply increases.
This is the set up for inflation once the consumer does start to borrow and buy again but more pressing perhaps, will force the gov't to RAISE TAXES and tap all this new consumer savings.

Initial Jobless Claims: 530,000 vs. consensus of 550,000 and last week's 551,000 (revised from 545,000). Continuing claims fell to 6.138M from 6.261M.

Initial and Continuing claims AGAIN revised worse! Despite headline #s coming in better than expected.. expect these numbers to also be revised worse next week..

August Housing Starts (.pdf): 598,000, up 1.5% from July, and in line with consensus. Permits: 579,000, up 2.7% from July, vs. consensus of 583,000. Starts are down 29.6% from a year ago; permits are down 32.4%.

be careful about this # -- We don't want yet another glut of housing inventory! We need housing sales to rise and inventories to drop before new construction projects begin!

Initial Jobless Claims: 545K, down 12K from a week ago (revised) and better than the 575K consensus. Continuing claims rose 129K to 6.23M.

always revising worse.. seekingalpha.com/insta...

August Nonfarm Payrolls: -216,000 vs. consensus of -230K. July revised to -276K from -247K. Unemployment 9.7% vs. consensus of 9.5%. Bottom line: Aug. was better than expected, but most of that came from the July revision. Unemployment was 0.2 points worse than expected.

be wary all these negative revisions!!
seekingalpha.com/insta...

Scary Drop in Velocity of Money: Is Deflation Knocking?

a curious thought experiment about money supply vs velocity of money:
Imagine the Gov't makes known to the public that it has printed $5 Trillion BUT it will be hoarded in a vault that will never be opened. It will never be made available to the public or private sector and the gov't itself can only tap this resource in the most dire of emergencies.
What happens to the price of dollars? Does the mere knowledge of the existence of such a sum of dollars cause inflation even though it will almost never be touched and used?
Or does the fact that it is indeed inaccessible negate the fact that it exists in terms of its effect on money supply and inflation?

I really have no idea, but I tend to think that the mere knowledge of its existance will offer some downward pressure on the dollar..

Money Supply: The Myth of Hyperinflation

There is certainly a deflationary pressure on wages which has filtered down to consumers who now are spending less and saving more (if they can) or paying off debt. When consumers don't spend, retailers need to cut prices in order to move inventory. When inventory is not being moved, manufacturing slows and more jobs are lost. All of this will lower both income and the cost of goods. BUT IF YOU NOTICE NONE OF THIS HAS TO DO WITH MONEY OR MONEY SUPPLY!!

So while the above is happening on a fundamental basis, there is Monetary Inflation- increase in money supply, increase in gov't debt and defecit and a devaluation of the dollar as such. This technical inflation is being offset by the above fundamental deflation.

This bomb will explode when the inflation makes it such that commodities and raw materials sold on the world market become too "expensive" in US dollars to purchase. Manufacturing will grind to a halt.. inventories will disappear because producers won't be able to afford to buy the raw goods needed to make stuff. We won't be able to import finished goods from abroad because our dollars will be worthless....

Economic News Is Good, So Where Are the Gains?

what good news? The news ive seen is either flat or negative.. especially when it comes to jobs/employment and consumer spending/retail sales etc..

Jobless Report: Flat and Bad

dont forget the bad revisions also continue.. on a weekly basis

Analyzing Strange Volume on the NYSE

so who's trading a billion shares of Citi a day? People or Algorithms (computers)? People vs. computers or .. computer vs computer? The exchanges LOVE the volume as that is their bread & butter, but I agree it does skew the overall volume.. Is there anyway to view a daily Median Volume? Or at least a historic Median volume for some time period. This would eliminate these outliers and show a more accurate picture of liquidity and volume.

Why Do Equity Markets Disagree with the Data?

So what happens whenever the paradigm shifts back to profit growth, 5% unemployment and steady housing data? To the moon?!

> However, no matter which 3 reasons it is, I guess it's fair to say
> that the market's rise doesn't seem to be betting on a traditional
> recovery in any sense of the word and doesn't care or even expect
> housing or employment to improve. Sorry to ruin readers day with
> such a dour assessment to a otherwise happy equity run-up.

Why Do Equity Markets Disagree with the Data?

I like this idea.. it is certainly a novel twist, however I find it strange to have such a focused inflation when the overall deflationary environment will fundamentally kill earnings by forcing lower consumer and producer prices... and if the overall economy is seeing price reductions, well then the dollar should be getting stronger fundamentally by extrapolation (i.e. the same number of dollars can now buy more and more stuff) -- maybe that stuff they choose to buy is equities and commodities? seems like a merry-go-round and a catch-22... but may be a very interesting feedback loop.. we shall have to see if this continues... Thanks for the idea!
-Adam


On Aug 21 12:34 AM Lawrence J. Kramer wrote:


> We have inflation in financial instruments - too much money chasing
> too little paper. So everything "goes up," and stays up until supply
> catches up. But supply won't catch up; no one wants to issue paper
> when no one will buy the goods the issuer would use the proceeds
> to produce. (When else has a bull market produced so little IPO activity?)