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Economy Shocker! Jobless Claims Fall To 7 Year Low... HOORAY!

The mainstream media came out with article after article last week (April 17, 2014) about how jobless claims have fallen to a 7 year low. Jobless claims have not been this low since before the Great Recession.

I challenge that jobless claims falling is actually the opposite of good news. It's bad news. Real bad news.

Think about the mathematics behind the economy and jobless claims. We know that ObamaCare caused many employers to eliminate full-time jobs and to replace them with part-time jobs. How can anyone seriously think that one full-time job lost, and two part-time jobs gained is equal to a net +1 job gain? Let's breakdown the absurdity of this logic.

Let's say that one 40 hour full-time job that pays $30 per hour is replaced with two 20 hour part-time jobs that each pay $15 per hour. The employer now has two employees working at the same time (hence he's paying each one $15 per hour so his labor cost does not go up). The one 40 hour full-time job that paid $30 per hour was enough to pay for healthcare, food, a car payment, student loan, and monthly mortgage payment. The two part-time jobs that are created do not pay enough for the two employees to pay for all their living expenses and so, they need ObamaCare, Food Stamps, defer of college loan payment, etc. These two part-time employees need government assistance because 20 hours a week at $15 per hour is not enough money to live on. How then, can the loss of a full-time job replaced by two part-time jobs, result in a +1 net job gain for the economy? It's not a gain for the economy, it's a net loss when you consider that tax payers need to pick up the cost to subsidize the low paying part-time jobs that are being created.

To prove that this is exactly what has been happening over the last 4 years, one needs only to look at average hourly earnings and wage growth.

Wage growth has dropped -46% since 2007, so while jobless claims are where they were at in 2007, hourly wages are not.

This explains why the 5 year drop in jobless claims are not leading to an improved economy.

Until full-time jobs are created with meaningful hourly wage and income growth, the consumer will not have the purchasing power available to lift the economy.

In this week's show, I talk a little more about this:

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.