Warning: Lengthy post ahead that contains truths that talking heads and government officials would prefer you gloss over. Continue at your own peril.
Unemployment continues to skyrocket to a number far higher than 6.5% ... although this is the official number the American people are told. That number simply does not jive with every anecdotal piece of evidence, sentiment gauge, and the like. Because it's a government manufactured myth, as we've pointed out many times in the past - keep feeding the sheep false figures and hope they don't figure it out. I've long since stopped dissecting a few of the major government reports because they all have been (ahem) "modified" since the early '90s to show favorable statistics. But since we get new readers, most of whom don't recognize the "Man" behind the curtain statistics, I pull out some old blog entries to showcase reality.
Let me preface this whole charade by saying "today's" number will be revised in the future, so the market infatuation with numbers that constantly get revised within 30-60 days is in and of itself, sort of silly - but it is what it is. To that end...
- Employers cut 127,000 positions in August, compared with 73,000 previously reported. A whopping 284,000 jobs were axed in September, compared with the 159,000 jobs first reported.
So when market participants reacted to "better than expected" August and September numbers and stock valuations changed those days - did it really make sense since it was based on a data set that meant essentially nothing? 30 days ago we told you 159,000 jobs were lost - oops, now it's 284,000. Etc. (We had to keep the real numbers a secret until the election, eh?) So aside from all the other problems with the data - that is one reason alone to basically ignore this data and just listen to the companies themselves - the companies chopping 5000 jobs here, 7000 jobs there, 8000 jobs out there.
As I've said the past year-plus, in moments of "hopeful ignorance" i.e. "2nd half 2008 recovery!" this recession is unlike what most of us under the age of 40 will have experienced as adults. It's going to be like the late '70s/early '80s ... this is not a corporate-led recession circa early '90s and early '00s. This is our first true consumer-led recession since the very dark days a quarter century ago. Most market participants moving around billions of dollars were kids or teenagers at best during that time, so their frame of reference is completely wrong. Their playbook is the template of more recent recessions - long-time readers will know I've said this almost every week in the winter and spring of2008; and it was a major outlier prediction (many at the time were even denying we were going into a recession because the "data" said we were not!) That's what happens when you rely on backwards looking numbers instead of doing crazy things like "thinking"... patience, grasshoppers....
Next, I point newer readers to another issue in America - the Underemployment rate; this has been a growing trend as the worker class loses power to the corporate class (this is not a political statement but an economic one). Jobs are less secure, temporary employment has been growing over time (easy to cut at a moment's notice by employers), and most importantly people are working in jobs "beneath" their education level increasingly as "good jobs" are shipped off elsewhere. Because higher paying jobs crimp profits and we can't have that - how would CEOs buy 12 houses and the best art in the world under that sort of thinking? I wrote in April [Apr 2: The Underemployment Rate is Rising]
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.
It is worth reading that whole entry if you are new; but the key thesis is that many are struggling with multiple part-time jobs or working in jobs they are over qualified 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. To that end
- The amount of people working part-time for economic reasons surged by 645,000 in October to 6.70 million, following an increase of 337,000 in September. The current level is 2.3 million higher than a year ago and is the highest since July 1993, when the tally was also 6.70 million. No higher figure has been seen since the 1982 recession, when a record 6.86 million people were working part-time for economic reasons.
Now before I show you (with Mish's help) the "reality" even if you do believe in the 6.5% rate, realize this is the same as the peak of the early 00s recession - again, let me repeat: We are theoretically just now entering a recession and already reached the previous cycle's peak unemployment. We are heading for 8-9% even using the government's useless data, which means in reality close to 1 in 5 Americans will be unemployed or working part time in jobs below what they used to have... by this time next year. This will coincide closely with dark periods in '70s and early '80s when government data was actually not a piece of fiction. But the pundits will say next summer "hey it's not even half as bad as the 70s! Why are people complaining!!?" - mark my words. Oh wait, Phil Gramm already has said this ... but I digress.
Next let's take a look at our favorite chart from Shadowstats.com showing you the trend - let me explain the data points. This chart 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 but 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 that 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. They are no longer "unemployed" - it's magic.
Note, this doesn't have today's data incorporated but I want to show the trend and what the "truth" is - low to mid 6% rate by official government statistics, 12%-ish for official government statistics plus those who want to work full time jobs but cannot find it, and 16% when you add in "discouraged" workers (gave up) that were "magically erased" in Clinton era statistics-keeping (and the Bush era was happy to keep that methodology, of course). And you can see we are already ahead of the worst of the recession in the early part of the decade in all areas.
Next, we have to show new readers the birth/death model which is bordering on lunacy nowadays - wait, it's not bordering - it's taken the full plunge. [Jan 27: Monthly Jobs Report & Birth/Death Model] You should read this whole post as well if new to "U.S. Government Statistics" but in summary this represents new business formation (or closing) in America - a 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 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. We have more on this later in the post.
Now to a part that really only I talk about in the blogosphere and that is: Even when we are creating jobs, the jobs we are creating are the wrong kind; which I discussed in the same April post [Apr 2: The Underemployment Rate is Rising] 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 2 huge bureaucracies - federal government and healthcare. To keep the government from going even more insolvent we should in theory be cutting jobs from these 2 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? Thats 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 the "kick the can down the road" theory will continue - keep growing these massive bureaucracies (create more jobs and costs now) and let another generation pay for it.
Even in Michigan, the one thing expanding is hospitals. And we've been in recession for half a decade now. The other kicker here is one of my big themes for 2009: state government budgets imploding. We're going to lose a lot of local government jobs - so even that is going to be go by the wayside and we'll be stuck with just federal government adding jobs day after day, week after week, month after month - killing us with costs.
From here I copy Mish's comments (a fellow blogger who actually takes the time to break down the piece of fiction) - again, the data is so manipulated I have stopped even bothering with it but for those interested you can read ahead for the gory details. My comments below are in italics - the rest are from Mish. Just keep in mind, this is all going to be revised DOWN in 30-60 days.
Here is a synopsis of the BLS report.
Nonfarm payroll employment fell by 240,000 in October, and the unemployment rate rose from 6.1 to 6.5 percent, the Bureau of Labor Statistics of the U.S. Department of Labor reported today.
49,000 construction jobs were lost
90,000 manufacturing jobs were lost (making stuff? that's for loser nations - we do low paying services here baby!)
38,000 retail trade jobs were lost (ok well maybe that services thing doesn't work all the time but ...)
108,000 service providing jobs were lost (err... ummm... well at least we have the high paying white collar - who needs low paying service jobs!)
45,000 professional and business services jobs were lost (err.... umm... about that high paying white collar work)
21,000 education and health services jobs were added (hello healthcare, good to see you growing - can't wait when healthcare spending takes 1 of every 5 US dollars of GDP)
16,000 leisure and hospitality jobs were lost
23,000 government jobs were added (hello federal government, glad to see you have never ending pockets)
A total of 132,000 goods producing jobs were lost (higher paying jobs), and for the fourth time this year service sector jobs were lost. Government, the last pace one wants to see jobs, added 23,000 jobs or the service sector would have contracted more. Note: some of the above categories overlap as shown in the preceding chart, so do not attempt to total them up.
Once again it was an extremely weak jobs report. And once again the Birth/Death Model assumptions are absurd. The birth/death adjustments have been in deep outer space every month this year except for January and July.
(Mark's comments: Seriously, I cannot even make a comment here anymore in between tears of laughter -- somehow the US government thinks in a historic slowdown in construction that new businesses too small to measure created 7K construction jobs. Even though their official statistics show 49,000 were lost in the companies that were large enough to measure. Even better, in a historic era of financial dislocation 13K financial jobs were created. Miracles never cease. The only "good" thing is, unlike earlier in the year when they were creating 150-250K new jobs out of thin air, they only created 70K jobs out of thin air this time - progress!)
Every month I say the same nearly the same thing. The only difference is the numbers change slightly. Here it is again: The BLS should be embarrassed to report this data.
Repeating what I have been saying for months now, virtually no one can possibly believe this data. The data is so bad, I doubt those at the BLS even believe it.
But that is what their model says so that is what they report.
There is simply no way in a real estate crash that net new construction businesses are added.
Note that are there net new professional and business services when mortgage and financial activity is collapsing. A quick check on the Mortgage Lender Implode-O-Meter shows that 300 Major US lending operations have imploded.
Table A-12 is where one can find a better approximation of what the unemployment rate really is. Let's take a look (click to enlarge)
The official unemployment rate is 6.5%. However, if you start counting all the people that want a job but gave up, all the people with part-time jobs that want a full-time job, all the people who dropped off the unemployment rolls because their unemployment benefits ran out, etc., you get a closer picture of what the unemployment rate is. That number is in the last row labeled U-6.
It reflects how unemployment feels to the average Joe on the street.
U-6 is 11.8%. Note that it was 8.4% a year ago. Both U-6 and U-3 (the so called "official" unemployment number) are poised to rise further. And as noted earlier, my 6% target by the end of the year for the official number was reached in August. (U-6 is the gray line we see above in the Shadowstats.com chart - this is as Mish says, what it feels like to normal folks and I'd argue the blue line is even more representative since it mirrors how statistics used to be shown to Americans pre early 90s - again U-6 uses such fiction as 100s of thousands of jobs created in birth/death model etc)
Again, the stock market is not the economy. This post is about the reality of what many Americans are facing, and I'd argue most blog readers are of income strata that have been "more" sheltered than what Average Joe in America is trying to live through. It is still relatively easier to get an accountant job than a construction job, etc. Combine this data with a decade now where median wages for many have not kept up with inflation and you see why this is a true threat to living standards for many. And why we are not going to be in any recovery mode anytime soon.
Now the stock market will continously try to anticipate an imminent turnaround but I'm finally starting to hear some sensible reality from some of the Kool Aid bulls in various media outlets. They still are far more bullish than I am; but at least they are not spouting the same level of nonsense they were even 6 months ago. If you are too young to have been aware of it, and choose not to read up on it - go ask your parents how the '70s to very early '80s were and then prepare for it. We're heading there; I believe a new round of panic will ensue as states face reality in their budgets for fiscal summer 09 to summer 10. I believe the federal government will be "bailing out" states - but we're going to see service cutbacks (i.e. jobs) of a very large scale in many states. We've outlined this many times over the past year and a quarter - I am only now seeing this seep into consciousness of some media. This along with the personal bankruptcy wave of 2009 will be next year's twin crisis. Yet another reason I have to look away when the Kool Aid folk scream that the U.S. got into trouble first so will rebound first. That's caledl first in, first out in accounting land. Unfortunately the U.S. economy is not a balance sheet.
So based on what I wrote about, one should just close up shop and not be in the market for at least 18 months. But again, the stock market is not the economy and there have to be some ways to make money - always. How? I'm working on that part ;) But first I need all these hedge funds to kill off each other with their computer models, and after that great cleansing is over with we might have a playing field that makes a little sense. Until then, we like a hefty portion of cash.