Mish on the Job Report

Mish does a great job breaking down the economic reports, but not such a good job with his deflation views. He is correct on deflationary pressures but is out to lunch regarding government and central bank response and the ending result. Consequently he rejects the idea of a hyperinflationary outcome and Freegold. This isn’t a flaw exclusive to Mish, but one shared by many deflationists.

Review Exter’s Pyramid and notice that power money (currency) is just below government debt and will receive safe haven flow when Mish’s deflation really takes hold and debt collapses. Just as Mish and the deflationist camp predicts, the dollar will appreciate on accerating demand. Another way of saying it will appreciate is that it will go into a state of scarcity and it is here the deflationists come to the end of the trail, where cash is king and very precious. Unfortunately for them a last level of the inverted pyramid remains, gold.

The reason that last level, the apex of the pyramid, exists is because capital fleeing debt cannot fit into the available supply of currency and government/central bank response is to always create supply to facilitate flow. The alternative is a complete collapse of capital. Therefore currency supply goes ballistic when faith is lost by it’s users, in itself a reaction to printing by the monetary authority. Capital must flow through the dollar to get to gold. When it passes through it will leave a charred and hollowed shell that used to be the reserve currency of the world.

Only gold has the capability to hold the capital cascading down the pyramid. In fact there is no limit to the amount of capital gold can hold, quite unlike all other asset classes above it in the pyramid. This reality is why it is a death sentence to seek cash as a safe haven. The deflationists that understand this, yet fail to alter their thesis, must rely on exquisite timing to jump from cash to gold at the last second, hoping all the while there will be a liquid gold market to flee to. I say it is much easier and far less risky to get gold when you know it can be had.

So understand that Mish is on the money and will be right until he is wrong. Use his analysis while he is still right and take his endgame with a big grain of salt.

Jobs Report at a Glance

Here is an overview of September Jobs Report, today’s release.

  • US Payrolls +103,000
  • 45,000 Striking Workers Return
  • Net effect is +58,000 jobs
  • Of the 103,000 jobs added, 444,000 of them were part-time jobs
  • Thus, 341,000 full-time jobs vanished this past month, replaced by part-time workers
  • US Unemployment Rate Flat at 9.1%
  • Participation Rate +.2 to 64.2%
  • Actual number of Employed (by Household Survey) rose by 398,000
  • Unemployment rose by 25,000
  • Those not in the labor force dropped by 224,000
  • Civilian population rose by 200,000,
  • Civilian Labor Force rose by 423,000
  • Average Weekly Workweek rose .1 hours to 34.3 hours
  • Average Private Hourly Earnings rose 3 Cents 10 $19.52
  • Government employment decreased by 34,000

Recall that the unemployment rate varies in accordance with the Household Survey not the reported headline jobs number, and not in accordance with the weekly claims data.

For a change, the labor force actually rose today. This is a welcome sign. However, were it not for people dropping out of the labor force for the past two years, the unemployment rate would be well over 11%.

September 2011 Jobs Report

Please consider the Bureau of Labor Statistics (BLS) September 2011 Employment Report.

Nonfarm payroll employment edged up by 103,000 in September, and the unemployment rate held at 9.1 percent, the U.S. Bureau of Labor Statistics reported today. The increase in employment partially reflected the return to payrolls of about 45,000 telecommunications workers who had been on strike in August. In September, job gains occurred in professional and business services, health care, and construction. Government employment continued to trend down.

Unemployment Rate – Seasonally Adjusted

Nonfarm Employment – Payroll Survey – Annual Look – Seasonally Adjusted

Notice that employment is lower than it was 10 years ago.

Nonfarm Employment – Payroll Survey – Monthly Look – Seasonally Adjusted

click on chart for sharper image

Between January 2008 and February 2010, the U.S. economy lost 8.8 million jobs.

In the last year of the weakest recovery on record, 2+ years old, the economy averaged about 116,000 jobs a month.

Since April, the economy has averaged 72,000 jobs a month, a downright pathetic number.

Statistically, 127,000 jobs a month is enough to keep the unemployment rate flat.

Nonfarm Employment – Payroll Survey Details – Seasonally Adjusted

Average Weekly Hours

Index of Aggregate Weekly Hours

Average Hourly Earnings vs. CPI

“Success” of QE2

Over the past 12 months, average hourly earnings have increased by 1.9 percent. The consumer price index for all urban consumers (CPI-U) was up 3.8 percent over the year ending in August.

Not only are wages rising slower than the CPI, there is also a concern as to how those wage gains are distributed.

BLS Birth-Death Model Black Box

The BLS Birth/Death Model is an estimation by the BLS as to how many jobs the economy created that were not picked up in the payroll survey.

The BLS has moved to quarterly rather than annual adjustments to smooth out the numbers.

For more details please see Introduction of Quarterly Birth/Death Model Updates in the Establishment Survey

In recent years Birth/Death methodology has been so screwed up and there have been so many revisions that it has been painful to watch.

The Birth-Death numbers are not seasonally adjusted while the reported headline number is. In the black box the BLS combines the two coming out with a total.

The Birth Death number influences the overall totals, but the math is not as simple as it appears. Moreover, the effect is nowhere near as big as it might logically appear at first glance.

Do not add or subtract the Birth-Death numbers from the reported headline totals. It does not work that way.

Birth/Death assumptions are supposedly made according to estimates of where the BLS thinks we are in the economic cycle. Theory is one thing. Practice is clearly another as noted by numerous recent revisions.

Birth Death Model Adjustments For 2011

BLS Back in Outer-Space

Do NOT subtract the Birth-Death number from the reported headline number. That is statistically invalid.

I am nearly in shock over the negative BLS adjustment this month. The two revision months historically have been January and July. We have not see a negative number other than January or July for as long as I can remember.

Household Data

click on chart for sharper image

In the last year, the civilian population rose by 1,749,000. Yet the labor force dropped by 107,000. Those not in the labor force rose by 1,856,000.

Were it not for people dropping out of the labor force, the unemployment rate would be well over 11%.

Table A-8 Part Time Status

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A year ago there were 8.6 million people who wanted a full-time job but could only find part-time work. In the last month, the number of people working part-time for economic reasons jumped by 444,000.

Part-time jobs are volatile but this is a huge jump.

Table A-15

Table A-15 is where one can find a better approximation of what the unemployment rate really is.

click on chart for sharper image

Distorted Statistics

Given the total distortions of reality with respect to not counting people who allegedly dropped out of the work force, it is hard to discuss the numbers.

The official unemployment rate is 9.1%. 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.

While the “official” unemployment rate is an unacceptable 9.1%, U-6 is much higher at 16.5%. The jump in U-6 this month is from part-time workers.

Things are much worse than the reported numbers would have you believe. Moreover, the unemployment rate is barely better than it was a year ago. It would actually be worse than a year ago were it not for people dropping out of the labor force.

Mike “Mish” Shedlock
Click Here To Scroll Thru My Recent Post ListMike “Mish” Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.


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