The Dow Jones Industrial Average and the Labor Force Participation Rate from Ronald Reagan to Barack Obama

Posted by PITHOCRATES - February 10th, 2014

Economics 101

(Originally published May 21st, 2013)

The DJIA and the Labor Force Participation Rate tell us how both Wall Street and Main Street are Doing

Rich people don’t need jobs.  They can make money with money.  Investing in the stock market.  When you see the Dow Jones Industrial Average (DJIA) increasing you know rich people are getting richer.  Whereas the middle class, the working people, aren’t getting rich.  But they may be building a retirement nest egg.  Which is good.  So they benefit, too, from a rising DJIA.  But that’s for later.  What they need now is a job.  Unlike rich people.  The middle class typically lives from paycheck to paycheck.  So more important to them is a growing job market.  Not so much a growing stock market.  For the middle class needs a day job to be able to invest in the stock market.  Whereas rich people don’t.  For a rich person’s money works enough for the both of them.

So the Dow Jones Industrial Average shows how well rich people are doing.   And how well the working class’ retirement nest eggs are growing for their retirement.  But it doesn’t really show how well the middle class is living.  For they need a job to pay their bills.  To put food on their tables.  And to raise their families.  So the DJIA doesn’t necessarily show how well the middle class is doing.  But there is an economic indicator that does.  The labor force participation rate.  Which shows the percentage of people who could be working that are working.  So if the labor force participation rate (LFPR) is increasing it means more people looking for a job can find a job.  Allowing more people to be able to pay their bills, put food on their tables and raise their families.

These two economic indicators (the DJIA and the LFPR) can give us an idea of how both Wall Street and Main Street are doing.  Ideally you’d want to see both increasing.  A rising DJIA shows businesses are growing.  Allowing Wall Street to profit from rising stock prices.  While those growing businesses create jobs for Main Street.   If we look at these economic indicators over time we can even see which ‘street’ an administration’s policies favor.   Interestingly, it’s not the one you would think based on the political rhetoric.

Wall Street grew 75% Richer under Clinton than it did under Reagan while Main Street grew 65% Poorer

Those going through our public schools and universities are taught that capitalism is unfair.  Corporations are evil.  And government is good.  The Democrats favor a growing welfare state.  Funded by a highly progressive tax code.  That taxes rich people at higher tax rates.  While Republicans favor a limited government.  A minimum of government spending and regulation.  And lower tax rates.  Therefore the Republicans are for rich people and evil corporations.  While the Democrats are for the working man.  Our schools and universities teach our kids this.  The mainstream media reinforces this view.  As does Hollywood, television and the music industry.  But one thing doesn’t.  The historical record (see Civilian Labor Force Participation Rate and Recessions 1950-Present and Dow Jones Industrial Average Index: Historical Data).

DJIA vs Labor Force Participation Rate - Reagan

The Democrats hated Ronald Reagan.  Because he believed in classical economics.  Which is what made this country great.  Before Keynesian economics came along in the early 20th Century.  And ushered in the era of Big Government.  Reagan reversed a lot of the damage the Keynesians caused.  He tamed inflation.  Cut taxes.  Reduced regulation.  And made a business-friendly environment.  Where the government intervened little into the private sector economy.  And during his 8 years in office we see that BOTH Wall Street (the Dow Jones Industrial Average) and Main Street (the labor force participation rate) did well.  Contrary to everything the left says.  The DJIA increased about 129%.  And the LFPR increased about 3.4%.  Indicating a huge increase of jobs for the working class.  Showing that it wasn’t only the rich doing well under Reaganomics.  The policies of his successor, though, changed that.  As Wall Street did better under Bill Clinton than Main Street.

DJIA vs Labor Force Participation Rate - Clinton

Despite the Democrats being for the working man and Bill Clinton’s numerous statements about going back to work to help the middle class (especially during his impeachment) Wall Street clearly did better than Main Street under Bill Clinton.  During his 8 years in office the LFPR increased 1.2%.  While the DJIA increased 226%.  Which means Wall Street grew 75% richer under Clinton than it did under Reagan.  While Main Street grew 65% poorer under Clinton than it did under Reagan.  Which means the gap between the rich and the middle class grew greater under Clinton than it did under Reagan.  Clearly showing that Reagan’s policies favored the Middle Class more than Clinton’s policies did.  And that Clinton’s policies favored Wall Street more than Regan’s did.  Which is the complete opposite of the Democrat narrative.  But it gets worse.

The Historical Record shows the Rich do Better under Democrats and the Middle Class does Better under Republicans

The great economy of the Nineties the Democrats love to talk about was nothing more than a bubble.  A bubble of irrational exuberance.  As investors borrowed boatloads of cheap money thanks to artificially low interest rates.  And poured it into dot-com companies that had nothing to sell.  After these dot-coms spent that start-up capital they had no revenue to replace it.  And went belly-up in droves.  Giving George W. Bush a nasty recession at the beginning of his presidency.  Compounded by the 9/11 terrorist attacks.

DJIA vs Labor Force Participation Rate - Bush

The LFPR fell throughout Bush’s first term as all those dot-com jobs went away in the dot-com crash.  Made worse by the 9/11 attacks.  As all the malinvestments of the Clinton presidency were wrung out of the economy things started to get better.  The LFPR leveled off and the DJIA began to rise.  But then the specter of Bill Clinton cast another pall over the Bush presidency.  Clinton’s Policy Statement on Discrimination in Lending forced lenders to lower their lending standards to qualify more of the unqualified.  Which they did under fear of the full force and fury of the federal government.  Using the subprime mortgage to put the unqualified into homes they couldn’t afford.  This policy also pressured Fannie Mae and Freddie Mac to buy these toxic subprime mortgages from these lenders.  Freeing them up to make more toxic loans.  This house of cards came crashing down at the end of the Bush presidency.  Which is why the DJIA fell 19.4%.  And the LFPR fell 2.1%.  Even though the economy tanked thanks to those artificially low interest rates that brought on the subprime mortgage crisis and Great Recession both Wall Street and Main Street took this rocky ride together.  They fell together in his first term.  Rose then fell together in his second term.  Something that didn’t happen in the Obama presidency.

DJIA vs Labor Force Participation Rate - Obama

During the Obama presidency Wall Street has done better over time.  Just as Main Street has done worse over time.  This despite hearing nothing about how President Obama cares for the middle class.  When it is clear he doesn’t.  As his policies have clearly benefited rich people.  Wall Street.  While Main Street suffers the worst economic recovery since that following the Great Depression.  So far during his presidency the LFPR has fallen 3.7%.  While the DJIA has risen by 86%.  Creating one of the largest gaps between the rich and the middle class.  This despite President Obama being the champion of the middle class.  Which he isn’t.  In fact, one should always be suspect about anyone claiming to be the champion of the middle class.  As the middle class always suffers more than the rich when these people come to power.  Just look at Venezuela under Hugo Chaves.  Where the rich got richer.  And the middle class today can’t find any toilet paper to buy.  This is what the historical record tells us.  The rich do better under Democrats.  And the middle class does better under Republicans.  Despite what our schools and universities teach our kids.  Or what they say in movies and television.

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The BLS Employment Situation Summary for December 2013

Posted by PITHOCRATES - January 13th, 2014

Economics 101

The Labor Force Participation Rate has Fallen Steadily since President Obama became President

Ever since the recovery summer of 2010 the Obama administration has told us the recession was over.  And his policies were creating one heck of an economic recovery.  Backed up by all those glowing monthly jobs reports. Like the December 2013 jobs report (see Employment Situation Summary posted 1/10/2014 on the Bureau of Labor Statistics).

The unemployment rate declined from 7.0 percent to 6.7 percent in December, while total nonfarm payroll employment edged up (+74,000), the U.S. Bureau of Labor Statistics reported today.

The unemployment rate is down.  And new jobs were created.  Again.  Jobs report after jobs report it’s the same thing.  The administration touts the falling unemployment rate and new job creation as confirmation that their economic policies are working.  Even though it’s been 5 years.  And the economy is still in the toilet.  Despite that falling unemployment rate.  For there is a reason why the unemployment rate is falling.  And it has nothing to do with an economic activity.

The civilian labor force participation rate declined by 0.2 percentage point to 62.8 percent in December… The labor force participation rate declined by 0.8 percentage point over the year…

In fact, the labor force participation rate has fallen steadily since President Obama became president.  This is not good.  In fact, it’s very bad.  Because it means that under President Obama’s economic policies more people have left the labor force than entered or remained in it.  Meaning that his economic policies have caused a net loss of jobs throughout his presidency.

The U-6 Unemployment Rate is Closer to the Bitter Sentiment of Job Seekers in the Current Economic Climate

In January of 2009 when President Obama began his presidency there were 80,507,000 people not in the labor force.  At the end of December 2013 that number grew to 91,808,000.  Subtracting one from the other and you get 11,301,000 people that have left the labor force since President Obama entered office.  Because his policies destroyed 11,301,000 jobs.  And because these people couldn’t find new jobs they just gave up looking.  Which is why the unemployment rate keeps falling.

So you can talk of new jobs created.  And a falling unemployment rate.  But those numbers don’t reflect the 11,301,000 jobs President Obama destroyed with his policies.  Which comes to 260,200 jobs lost per year.  Or 188,350 each month.  Which is a lot more than the 74,000 new jobs.  In fact, if you look at the change in the number of people not in the labor force from November to December of 2013 you’ll see that 525,000 people left the labor force.  So the December jobs lost is about 2.8 times the average jobs lost during the Obama presidency.  And giving a ratio of about 7 jobs lost for every new job created in December.  Making December a horrible month for jobs.  Much worse than the 6.7% unemployment rate would have us believe.

The funny thing about the official unemployment rate is that the Bureau of Labor Statistics (BLS) doesn’t count people who quit looking for a job.  Or who are working part-time because they can’t find a full-time job.  If we want an alternative measure of labor underutilization (that counts more people who can’t find a full-time job) we should look at the U-6 unemployment rate.  We can find this number in the same BLS jobs report (in Table A-15).  Which was 13.1% for December 2013.  An unemployment rate much closer to the bitter sentiment of job seekers in the current economic climate.

We will have to Wait through many more Bad Jobs Reports before we can Enjoy a Healthy Economy Again

The Employment Situation Summary confirms the horrible economy.  Though misleading with these falling unemployment rates the real economic picture is still in these reports.  All you have to do is look for them.  And understand what they mean.  For example:

In December, job gains occurred in retail trade and wholesale trade…

Employment in retail trade rose by 55,000 in December. Within the industry, job gains occurred in food and beverage stores (+12,000), clothing and accessories stores (+12,000), general merchandise stores (+8,000), and motor vehicle and parts dealers (+7,000)…

In December, wholesale trade added 15,000 jobs. Most of the job growth occurred in electronic markets and agents and brokers (+9,000).

Note that of the 74,000 new jobs 70,000 (94.6%) of them were in retail and wholesale trade.  Which is not surprising when you consider what’s in December.  Christmas.  (While near-zero interest rates sold cars to people who would otherwise not buy them.)  The final sprint of retailers for the year.  And when many of them go firmly into the black.  But while the Christmas surge on employment was underway other sectors did not fare as well.

Within the [professional and business services] industry, temporary help services added 40,000 jobs in December, while employment in accounting and bookkeeping services declined by 25,000.

Businesses add temporary workers when they have a surge in sales they believe won’t last.  And don’t want to have more permanent workers on their payroll when that surge in sales ends.  For it is easier to let temps go than full-time workers.  And less costly.  Accounting and bookkeeping services aren’t the most glamorous of services.  When the economy is growing businesses have more accounting and bookkeeping work.  But when the economy is contracting businesses have less accounting and bookkeeping work.  So a decline here could indicate an economic contraction.

The December 2013 jobs report is bleak.  Just as the oncoming winter looks in December.  Knowing we’ll have to wait through a long and cold winter before we can enjoy the warmth of summer again.  Just as we know we will have to wait through many more bad jobs reports before we can enjoy a healthy economy again.  Thanks to the horrific economic policies of the Obama administration that have failed to work these past 5 years.

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Inventory to Sales Ratio and Labor Force Participation Rate (1992-2013)

Posted by PITHOCRATES - November 12th, 2013

History 101

Just-in-Time Delivery lowers Inventory Costs but risks Manufacturing Interruptions

Carrying a large inventory is costly.  And risky.  First of all you have to warehouse it.  In a secured heated (and sometimes cooled) building.  With a fire alarm system.  A fire suppression (i.e., sprinkler) system.  A security alarm system.  You need lighting.  And people.  Safety training.  Safety equipment.  Forklifts.  Loading docks.  Delivery trucks.  Insurances.  Property taxes (real and personal).  Utilities.  Telephone and Internet.  A computer inventory system.  Etc.  It adds up.  And the larger the inventory the larger the cost.

Then there are the risks.  Fire damage.  Theft.  Water damage (say from a fire suppression line that freezes during the winter because some kid broke a window to let freezing air in that froze the water inside the sprinkler line with the expanding ice breaking the pipe and allowing water to flow out of the pipe onto your inventory).  Shrinkage (things that disappear but weren’t sold).  Damaged goods (say a forklift operator accidentally backed into a shelve full of plasma displays).  Shifts in consumer demand (what was once hot may not be hot anymore which is a costly problem when you have a warehouse full of that stuff).  Etc.  And the larger the inventory the greater the risks.

In the latter half of the 20th century a new term entered the business lexicon.  Just-in-time delivery.  Or JIT for short.  Instead of warehousing material needed for manufacturing manufacturers turned to JIT.  And tight schedules.  They bought what they needed as they needed it.  Having it arrive just as it was needed in the manufacturing process.  JIT greatly cut costs.  But it allowed any interruption in those just-in-time deliveries shut down manufacturing.  As there was no inventory to feed manufacturing if a delivery did not arrive just in time.

A Rising Inventory to Sales Ratio means Inventory is Growing Larger or Sales are Falling

There are many financial ratios we use to judge how well a business is performing.  One of them is the inventory to sales ratio.  Which is the inventory on hand divided by the sales that inventory generated.  If this number equals ‘1’ then the inventory on hand for a given period is sold before that period is up.  Which would be very efficient inventory management.  Unless a lot of sales were lost because some things were out of stock because so few of them were in inventory.

Ideally managers would like this number to be ‘1’.  For that would have the lowest cost of carrying inventory.  If you sold one item 4 times a month you could add one to inventory each week to replace the one sold that week.  That would be very efficient.  Unless four people want to buy this item in the same week.  Which means instead of selling 4 of these items you will probably only sell one.  For the other three people may just go to a different store that does have it in stock.  So it is a judgment call.  You have to carry more than you may sell because people don’t come in at evenly spaced intervals to buy things.

We can look at the inventory to sales ratio for the general economy over time to note trends.  A falling ratio is generally good.  For it shows inventories growing as a lesser rate than sales.  Meaning that businesses are getting more sales out of reduced inventory levels.  Which means more profits.  A flat trend could mean that businesses are operating at peak efficiency.  Or they are treading water due to uncertainty in the business climate. Doing the minimum to meet their current demand.  But not growing because there is too much uncertainty in the air.  A rising ratio is not good.  For the only way for that to happen is if inventory is growing larger.  Sales are falling.  Or both.

The Labor Force Participation Rate has been in a Freefall since President Obama took Office

When inventories start rising it is typically because sales are falling.  Businesses are making their usually buys to restock inventory.  Only people aren’t buying as much as they once were.  So with people buying less sales fall and inventories grow.  Rising inventories are often an indicator of a recession.  As unemployment rises there are fewer people going to stores to buy things.  So sales fall.  After a period or two of this when businesses see that falling sales was not just an aberration for one period but a sign of worse economic times to come they cut back their buying.  Draw down their inventories.  And lay off some workers to adjust for the weaker demand.  As they do their suppliers see a fall in their sales and do likewise.  All the way up the stages of production to raw material extraction. 

Retailers typically carry larger inventories than wholesalers or manufacturers.  To try and accommodate their diverse customer base.  So when their sales fall and their inventories rise they are left with bulging inventories that are costly to store in a warehouse.  They may start cutting prices to move this inventory.  Or pray for some government help.  Such as low interest rates to get people to buy things even when it may not be in their best interest (for people tend to get laid off in a recession and having a new car payment while unemployed takes a lot of joy out of having a new car).  Or a government stimulus program.  Make-work for the unemployed.  Or even cash benefits the unemployed can spend.  Which will provide a surge in economic activity at the consumer level as retailers and wholesalers unload backed up inventory.  But it rarely creates any new jobs.  Because government stimulus eventually runs out.  And once it does the people will leave the stores again.  So retailers may benefit and to a certain degree wholesalers as they can clear out their inventories.  But manufacturers and raw material extractors adjust to the new reality.  As retail sales fall retailers and wholesalers will need less inventory.  Which means manufacturers and raw material extractors ramp down to adjust to the lower demand.  Cutting their costs so their reduced revenue can cover them.  Which means laying off workers.  We can see this when we look at inventory to sales ratio and the labor force participation rate over time.

(There appears to be a problem with the latest version of this blogging software that is preventing the insertion of this chart into this post.  Please click on this link to see the chart.)

(Sources: Inventories/Sales Ratio, Archived News Releases

Cheap money gave us irrational exuberance and the dot-com bubble in the Nineties.  And a recession in the early 2000s.   Note that the trend during the Nineties was a falling inventory to sales ratio as advanced computer inventory systems tied in over the Internet took inventory management to new heights.  But as the dot-com irrational exuberance came to a head we had a huge dot-com economy that had yet to start selling anything.  As their start-up capital ran out the dot-coms began to go belly-up.  And all those programmers who flooded our colleges in the Nineties to get their computer degrees lost their high paying jobs.  Stock prices fell out of the sky as companies went bankrupt.  Resulting in a bad recession.  The fall in spending can be seen in the uptick in the inventory to sales ratio.  This fall in spending (and rise in inventories) led to a lot of people losing their jobs.  As we can see in the falling labor force participation rate.  The ensuing recession was compounded by the terrorist attacks on 9/11.

Things eventually stabilized but there was more irrational exuberance in the air.  Thanks to a housing policy that put people into houses they couldn’t afford with subprime mortgages.  Which lenders did under threat from the Clinton administration (see Bill Clinton created the Subprime Mortgage Crisis with his Policy Statement on Discrimination in Lending posted 11/6/2011 on Pithocrates).  Note the huge spike in the inventory to sales ratio.  And the free-fall of the labor force participation rate.  Which hasn’t stopped falling since President Obama took office.  Even though the inventory to sales ratio returned to pre-Great Recession levels.  But there is so much uncertainty in the economic outlook that no one is hiring.  They’re just shedding jobs.  Making the Obama economic recovery the worst since that following the Great Depression.

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The Fed keeps Printing Money and People keep Leaving the Labor Force

Posted by PITHOCRATES - September 22nd, 2013

Week in Review

The Federal Reserve has failed to bring down the unemployment rate.  So the Fed will continue to devalue the dollar.  In their fervent Keynesian hope that it will actually do good.  While it continues to do a whole lot of bad (see STOCKS EXPLODE, RATES COLLAPSE AFTER FED SHOCKER: Here’s What You Need To Know by Sam Ro posted 9/18/2013 on Business Insider).

No taper. The Federal Open Market Committee (FOMC) shocked the markets by announcing that it would continue its monthly purchases of $85 billion worth of Treasury Securities and mortgage bonds. Most economists were looking for a reduction, or tapering, of around $5 to $10 billion dollars…

Markets went nuts. The Dow and S&P 500 surged to new all-time highs. Interest rates collapsed, the dollar tanked, and gold surged.

During the press conference, Bernanke said that the tightening of monetary policy (i.e. raising the Fed’s benchmark rate) may not begin until the unemployment rate is considerably below 6.5%. He also said that an inflation rate floor could be a sensible modification to its forward guidance policy.

The only thing lowering the unemployment rate is people leaving the labor force.  The labor force participation rate is at record lows.  Which means more and more people who can’t find work have just given up trying.  And because they have the labor department doesn’t count them anymore as unemployed.  Which brings down the unemployment rate.

So for the Obama economic policies to lower the unemployment rate below 6.5% will require bringing the labor force participation rate lower still.  Because the Obama economy is not growing.  Obama’s policies, especially Obamacare, are the greatest job killers to ever come down the pike.  If the unemployment rate drops below 6.5% in this jobless ‘recovery’ we’ll have Great Depression unemployment.  Tens of millions of real people out of a job despite what the official unemployment rate says.

And you know it’s bad when “interest rates collapsed, the dollar tanked, and gold surged.”  They’re printing so much money ($85 billion each month) that massive inflationary pressures are building up in the pipeline.  There’s so much money out there that there is more than people (other than Wall Street investors) want to borrow.  Hence the low interest rates.  Because they’re printing so much money each dollar is worth less and less.  Which is why the dollar tanked.  Because the Fed is going to continue to devalue it.  And when inflationary pressures are building and are just waiting to explode people want to protect their assets with gold.  So when inflation explodes and our money becomes worthless gold will hold its value.  Why?  Because you can’t print gold.  That’s why Keynesian economists hate it.  It forces governments to be responsible.  Something anathema to a Keynesian.

The economy under the Obama policies is now just a train wreck waiting to happen.  And when it does the fallout will be Great Depression bad.  Because of Keynesian economics.  The worst and most destructive theories ever to be implemented by government.  In fact, everything wrong in government finances today can be traced to Keynesian policies.  Expanding the money supply to stimulate the economy has only made recessions worse.  And increasing government spending (to replace private spending during recessions) has burdened governments so much that they are flirting with bankruptcy throughout the world.  Even a city in the United States.  The City of Detroit.  A harbinger of what is to come.

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The August Jobs Report, Stuck between a Lie and a Hard Place

Posted by PITHOCRATES - September 8th, 2013

Week in Review

The left has been lauding the good economic news jobs report after jobs report.  Always talking about all those new jobs created.  And the falling unemployment rate.  While not talking at all about the falling labor force participation rate.  For good reason.  For while new jobs and a falling unemployment rate are good people leaving the labor force is not.  And, sadly, the only thing making the jobs report look good is that people are simply disappearing from the labor force (see 169K New Jobs Last Month, 7.3% Unemployment: Conflicting Signals For The Fed by Abram Brown posted 9/6/2013 on Forbes).

Unemployment continues to fall, with joblessness reaching a 4-and-a-half-year low in August at 7.3%. Troublingly, the drop in unemployment comes from fewer people looking for jobs rather than a robust economy adding workers to open positions. The number of Americans participating in the labor market is at the lower [sic]point since August 1978.

Going forward, the Fed will need to decide how much stock to put in the unemployment number. It threatens to continue to fall while job creation stays meager–setting up a situation when the Fed could reduce its stimulus at a time when the recovery still isn’t firmly rooted. “People were not supposed to be dropping from the labor force this year,” says FTN Financial’s Chris Low. “While the Fed wrestles with this quandary, we’ll wait to see if it really meant what it said about the quality of improvement in the unemployment rate…At the Fed, there is a tendency to fall back on the unemployment rate as the best gauge of labor market health.” And he warns, “Markets will be unsettled.”

So what is a lying government to do?  After all of those years, and all those jobs reports, trumpeting the success of their economic policies based on the fall in the official unemployment rate, what do they say about the Fed who may raise interest rates because the official unemployment rate says the economy has recovered while the labor force participation rate says it’s still in the toilet?  When the only economic activity has been their friends on Wall Street taking the money the Fed was making and investing it?  Making money with money?  But making no jobs?  That’s something a Democrat administration is not supposed to do.  Helping rich people at the expense of the middle class.  So what is a lying government to do?

Tell the truth and admit that their economic policies have all failed?  To keep that cheap money tap open for their friends on Wall Street?  Or lie?  And say their economic policies have been successful?  And offer no rationale to keep the easy money tap open?  And let them close that tap?  Killing the only economic recovery?  That was enjoyed only by their friends on Wall Street?  Thus exposing the lie that their economic policies created any kind of economic recovery?

Quite the quandary for the Obama administration.

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President Obama’s Policies are Destroying the Economy and Transforming the Country in a Bad Way

Posted by PITHOCRATES - September 7th, 2013

Week in Review

Is President Obama the worst president ever?  Perhaps.  Based on what he has done to the economy.  FDR and LBJ caused great damage and destroyed families by putting us on the path President Obama has taken us further down than any other president.  Towards European socialism.  It’s all there in history.  And the economic numbers.  How activist governments destroy everything that made capitalist countries great.  Thrift.  Frugalness.  Working hard to save for your future.  Which created a strong banking system.  Where people deposited their money.  Creating investment capital.  And bankers practiced sound lending practices.  And suffered the consequences of making risky loans.  Unlike today.  Thanks to Keynesian economics.  And a monetary policy that controls and plays with interest rates to create artificial demand that causes great bubbles.  And prolonged recessions.  Ever since governments took control of interest rates and began printing money to finance the growth of their activist governments they have set countries everywhere on the path to financial ruin.  And bankruptcy.  As government spending outgrew the ability of taxes to pay for it.  And then the debt grew so great they struggled to finance it.

But it doesn’t deter the Keynesians from trying the same failed policies of the past.  They continue to intervene into the private sector economy.  And when they cause great economic damage they just report bad economic news as good (see Employment Situation Summary by the Bureau of Labor Statistics posted 9/6/2013).

Total nonfarm payroll employment increased by 169,000 in August, and the unemployment rate was little changed at 7.3 percent, the U.S. Bureau of Labor Statistics reported today.  Employment rose in retail trade and health care but declined in information.

Sounds good.  Things are good.  The economy added new jobs.  Fans of the Obama administration are trumpeting this as good news.  And proof that the Obama economic policies are working.  But if you take a close look at the jobs data you find that the economy is horrible.  Because of President Obama.  And his awful, job-killing economic policies.  Such as Obamacare.  Greater regulatory policies.  And higher taxes.  President Obama has advanced (or tried to advance in the case of cap and trade) every policy that he could think of that causes great harm to the economy.  Is he doing this on purpose because he hates capitalism?  Or is he just another Keynesian who thinks that government is smarter than the people going about their business in the private sector economy?  Or both?

The unemployment rate (the official U-3 rate that counts about the fewest of the actual unemployed) has fallen from a high of 10% since he’s been president.  But it’s not because he’s creating jobs.  It’s because these people just gave up and left the labor force.  Because there are no jobs.  As the falling labor force participation rate clearly shows.

U-3 Unemployment Rate and Labor Force participation Rate Jan 2009- Aug 2013

Ever since President Obama took office the labor force participation rate has steadily declined.  Showing a steady trend of destroying jobs.  Not creating them.  If you want to know exactly how many jobs his policies have destroyed you can get that from the Bureau of Labor Statistics, too.  By subtracting the number of people NOT in the labor force when he took office in January 2009 (80,507,000) from the number of people NOT in the labor force from the August Jobs report (90,473,000).  And when you subtract 80,507,000 from 90,473,000 you get 9,966,000 jobs that President Obama and his economic policies have destroyed.  Just under 10 million people have left the labor force while President Obama has been president.  And yet they celebrate the creation of 169,000 jobs in August.

The economy is not good.  It’s not improving.  It will only improve when we finally abandon the failed Keynesian policies of the past.  And get the government out of the private sector economy. The way it was when America became the number one economic power in the world.  Before the progressives/liberals transformed the country into what it is today.  A dying European social democracy.  Where governments tried to give the people everything.  Only to bankrupt their countries.  And caused their people to riot when they couldn’t borrow enough money to keep giving the people what they had been giving them.  Which is usually what happens when you take stuff away from people who have gotten used to having that stuff.  Which is why Obamacare is so insidious.  And important to the left.  Once they make Obamacare a ‘third-rail’ program like Social Security and Medicare they know it will never go away.  No matter what economic damage it does.  Or how much it destroys the quality of health care.

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The Unemployment Rate and the Labor Force Participation Rate tell Two Different Stories

Posted by PITHOCRATES - July 7th, 2013

Week in Review

The June jobs report is out.  And already they’re putting a positive spin on it.  Because of the new jobs reported in June.  But that’s about as far as anyone wants to dig into the report.  For the rest of it is rather dismal (see Employment Situation Summary posted 7/5/2013 on Bureau of Labor Statistics).

Total nonfarm payroll employment increased by 195,000 in June, and the unemployment rate was unchanged at 7.6 percent, the U.S. Bureau of Labor Statistics reported today. Employment rose in leisure and hospitality, professional and business services, retail trade, healthcare, and financial activities.

Yeah.  195,000 new jobs.  This was better than expected.  And the markets rallied.  While the Obama administration made the perfunctory statement that their economic policies are working.  Eternal optimists.  Never willing to admit that it is their economic policies that have given us the worst economic recovery since that following the Great Depression.  What with things like Obamacare causing a nationwide freeze on new hiring.  And their war on fossil fuels raising energy costs.  Further strangling business growth.  It’s all there in the Employment Situation Summary.  If you read further down the report.

Among the major worker groups, the unemployment rate for adult women (6.8 percent) edged up in June, while the rates for adult men (7.0 percent), teenagers (24.0 percent), whites (6.6 percent), blacks (13.7 percent), and Hispanics (9.1 percent) showed little or no change. The jobless rate for Asians was 5.0 percent (not seasonally adjusted), down  from 6.3 percent a year earlier. (See tables A-1, A-2, and A-3.)

Interestingly, strong supporters of President Obama in the last election (women, teenagers, blacks and Hispanics) either have rising unemployment rates (women) or unchanged unemployment rates that are well above the national average (teenagers, Hispanics and blacks).  The president may talk about being the guy for them.  But his actions sure would suggest otherwise

In June, the number of long-term unemployed (those jobless for 27 weeks  or more) was essentially unchanged at 4.3 million. These individuals  accounted for 36.7 percent of the unemployed. Over the past 12 months,  the number of long-term unemployed has declined by 1.0 million. (See table A-12.)

The civilian labor force participation rate, at 63.5 percent, and the employment-population ratio, at 58.7 percent, changed little in June. Over the year, the labor force participation rate is down by 0.3 percentage point. (See table A-1.)

The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) increased by 322,000 to 8.2 million in June. These individuals were working part time because their  hours had been cut back or because they were unable to find a full-time job. (See table A-8.)

In June, 2.6 million persons were marginally attached to the labor force, essentially unchanged from a year earlier. (The data are not seasonally adjusted.) These individuals were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey. (See table A-16.)

Among the marginally attached, there were 1.0 million discouraged workers in June, an increase of 206,000 from a year earlier. (The data are not seasonally adjusted.) Discouraged workers are persons not currently looking for work because they believe no jobs are available for them. The remaining 1.6 million persons marginally attached to the labor force in June had not searched for work for reasons such as school attendance or family responsibilities. (See table A-16.)

So there were 195,000 new jobs in June.  But there is still a net loss of jobs over the year as the labor force participation rate fell by 0.3 percentage points.  Meaning that there were fewer people in the labor force in June than there were in January.  Because the job market is so bad people are discouraged and give up trying to find a full-time job.  Work a couple of part-time jobs instead.  Live on their spouse’s income.  Or on their retirement nest egg.  The Obama administration and their economists and the mainstream media talk about positive signs with every jobs report.  That we’re turning the corner.  That the president’s economic policies are working.  But they’re not.  As you can see if you look at the official (U-3) unemployment rate and the labor force participation rate since he’s been president (the following numbers were pulled from the Bureau of Labor Statistics).

U-3 Unemployment Rate and Labor Force participation Rate 2009-2013 R1

The economic numbers show a decline in the official (U-3) unemployment rate starting sometime in 2010.  But it wasn’t because of an improving economy.  It was because people were just disappearing from the labor force.  For the fall in the labor force participation rate is GREATER than the fall in the unemployment rate.  That is, even though the official unemployment rate showed more people were entering the labor force (i.e., fewer people unemployed) the labor force participation rate showed an even greater number of people leaving the labor force.  (Note: If both graphs were plotted on the same vertical axis the graphs would have nearly the same slop.  Perhaps with the unemployment rate falling at a slightly greater rate.  However, because the actual number of people working far exceeds the number of people unemployed each percentage point move in the labor force participation rate represents a far greater number of people than each percentage point move in the unemployment rate.  So the above graph shows the trend in the number of people more accurately than it does in the percentage of the totals of each data set.  That is, there are more people who have lost a full-time job than have found a full-time job.)  Throughout the Obama presidency the economy has been getting worse.  Not better.  So there is nothing to cheer about in this jobs report.  Or in the many to come.

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The Dow Jones Industrial Average and the Labor Force Participation Rate from Ronald Reagan to Barack Obama

Posted by PITHOCRATES - May 21st, 2013

History 101

The DJIA and the Labor Force Participation Rate tell us how both Wall Street and Main Street are Doing

Rich people don’t need jobs.  They can make money with money.  Investing in the stock market.  When you see the Dow Jones Industrial Average (DJIA) increasing you know rich people are getting richer.  Whereas the middle class, the working people, aren’t getting rich.  But they may be building a retirement nest egg.  Which is good.  So they benefit, too, from a rising DJIA.  But that’s for later.  What they need now is a job.  Unlike rich people.  The middle class typically lives from paycheck to paycheck.  So more important to them is a growing job market.  Not so much a growing stock market.  For the middle class needs a day job to be able to invest in the stock market.  Whereas rich people don’t.  For a rich person’s money works enough for the both of them.

So the Dow Jones Industrial Average shows how well rich people are doing.   And how well the working class’ retirement nest eggs are growing for their retirement.  But it doesn’t really show how well the middle class is living.  For they need a job to pay their bills.  To put food on their tables.  And to raise their families.  So the DJIA doesn’t necessarily show how well the middle class is doing.  But there is an economic indicator that does.  The labor force participation rate.  Which shows the percentage of people who could be working that are working.  So if the labor force participation rate (LFPR) is increasing it means more people looking for a job can find a job.  Allowing more people to be able to pay their bills, put food on their tables and raise their families.

These two economic indicators (the DJIA and the LFPR) can give us an idea of how both Wall Street and Main Street are doing.  Ideally you’d want to see both increasing.  A rising DJIA shows businesses are growing.  Allowing Wall Street to profit from rising stock prices.  While those growing businesses create jobs for Main Street.   If we look at these economic indicators over time we can even see which ‘street’ an administration’s policies favor.   Interestingly, it’s not the one you would think based on the political rhetoric.

Wall Street grew 75% Richer under Clinton than it did under Reagan while Main Street grew 65% Poorer

Those going through our public schools and universities are taught that capitalism is unfair.  Corporations are evil.  And government is good.  The Democrats favor a growing welfare state.  Funded by a highly progressive tax code.  That taxes rich people at higher tax rates.  While Republicans favor a limited government.  A minimum of government spending and regulation.  And lower tax rates.  Therefore the Republicans are for rich people and evil corporations.  While the Democrats are for the working man.  Our schools and universities teach our kids this.  The mainstream media reinforces this view.  As does Hollywood, television and the music industry.  But one thing doesn’t.  The historical record (see Civilian Labor Force Participation Rate and Recessions 1950-Present and Dow Jones Industrial Average Index: Historical Data).

DJIA vs Labor Force Participation Rate - Reagan

The Democrats hated Ronald Reagan.  Because he believed in classical economics.  Which is what made this country great.  Before Keynesian economics came along in the early 20th Century.  And ushered in the era of Big Government.  Reagan reversed a lot of the damage the Keynesians caused.  He tamed inflation.  Cut taxes.  Reduced regulation.  And made a business-friendly environment.  Where the government intervened little into the private sector economy.  And during his 8 years in office we see that BOTH Wall Street (the Dow Jones Industrial Average) and Main Street (the labor force participation rate) did well.  Contrary to everything the left says.  The DJIA increased about 129%.  And the LFPR increased about 3.4%.  Indicating a huge increase of jobs for the working class.  Showing that it wasn’t only the rich doing well under Reaganomics.  The policies of his successor, though, changed that.  As Wall Street did better under Bill Clinton than Main Street.

DJIA vs Labor Force Participation Rate - Clinton

Despite the Democrats being for the working man and Bill Clinton’s numerous statements about going back to work to help the middle class (especially during his impeachment) Wall Street clearly did better than Main Street under Bill Clinton.  During his 8 years in office the LFPR increased 1.2%.  While the DJIA increased 226%.  Which means Wall Street grew 75% richer under Clinton than it did under Reagan.  While Main Street grew 65% poorer under Clinton than it did under Reagan.  Which means the gap between the rich and the middle class grew greater under Clinton than it did under Reagan.  Clearly showing that Reagan’s policies favored the Middle Class more than Clinton’s policies did.  And that Clinton’s policies favored Wall Street more than Regan’s did.  Which is the complete opposite of the Democrat narrative.  But it gets worse.

The Historical Record shows the Rich do Better under Democrats and the Middle Class does Better under Republicans

The great economy of the Nineties the Democrats love to talk about was nothing more than a bubble.  A bubble of irrational exuberance.  As investors borrowed boatloads of cheap money thanks to artificially low interest rates.  And poured it into dot-com companies that had nothing to sell.  After these dot-coms spent that start-up capital they had no revenue to replace it.  And went belly-up in droves.  Giving George W. Bush a nasty recession at the beginning of his presidency.  Compounded by the 9/11 terrorist attacks.

DJIA vs Labor Force Participation Rate - Bush

The LFPR fell throughout Bush’s first term as all those dot-com jobs went away in the dot-com crash.  Made worse by the 9/11 attacks.  As all the malinvestments of the Clinton presidency were wrung out of the economy things started to get better.  The LFPR leveled off and the DJIA began to rise.  But then the specter of Bill Clinton cast another pall over the Bush presidency.  Clinton’s Policy Statement on Discrimination in Lending forced lenders to lower their lending standards to qualify more of the unqualified.  Which they did under fear of the full force and fury of the federal government.  Using the subprime mortgage to put the unqualified into homes they couldn’t afford.  This policy also pressured Fannie Mae and Freddie Mac to buy these toxic subprime mortgages from these lenders.  Freeing them up to make more toxic loans.  This house of cards came crashing down at the end of the Bush presidency.  Which is why the DJIA fell 19.4%.  And the LFPR fell 2.1%.  Even though the economy tanked thanks to those artificially low interest rates that brought on the subprime mortgage crisis and Great Recession both Wall Street and Main Street took this rocky ride together.  They fell together in his first term.  Rose then fell together in his second term.  Something that didn’t happen in the Obama presidency.

DJIA vs Labor Force Participation Rate - Obama

During the Obama presidency Wall Street has done better over time.  Just as Main Street has done worse over time.  This despite hearing nothing about how President Obama cares for the middle class.  When it is clear he doesn’t.  As his policies have clearly benefited rich people.  Wall Street.  While Main Street suffers the worst economic recovery since that following the Great Depression.  So far during his presidency the LFPR has fallen 3.7%.  While the DJIA has risen by 86%.  Creating one of the largest gaps between the rich and the middle class.  This despite President Obama being the champion of the middle class.  Which he isn’t.  In fact, one should always be suspect about anyone claiming to be the champion of the middle class.  As the middle class always suffers more than the rich when these people come to power.  Just look at Venezuela under Hugo Chaves.  Where the rich got richer.  And the middle class today can’t find any toilet paper to buy.  This is what the historical record tells us.  The rich do better under Democrats.  And the middle class does better under Republicans.  Despite what our schools and universities teach our kids.  Or what they say in movies and television.

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Economic Indicators

Posted by PITHOCRATES - May 20th, 2013

Economics 101

To Better Understand the Economy we should Study the Economic Indicators Investors Study

If you’ve lost your job you have a pretty good idea about the state of the economy.  It’s bad.  An unemployed person is like a soldier in the trench.  He or she doesn’t need to examine any data to understand what’s happening in the economy.  They know firsthand how bad things are.  But generals far behind the lines don’t have that up close and personal economic experience.  So they have to examine data to understand what’s going on.  Just as government officials, investors and economic prognosticators have to examine data.  Giving them an understanding of the state of the economy.  So they can know what the unemployed know.  The economy sucks.

Government officials want positive economic data so they can say their policies are working.  Whether they are or not.  In fact, they will parse the data to serve them politically.  When necessary.  Such as during the run-up to an election.  So their reports on the economy are not always, how should we say, full of truthiness.  For they can take some bad economic data and put a positive spin on it.  Completely changing the meaning of the data.  The unemployed won’t believe the rosy picture they’re painting.  But those in the trenches may.  And those in the rear with the gear.  After all, they have jobs.  So things don’t really seem that bad to them.

No, for a better picture of the economy you should listen to the people with skin in the game.  Those who are making bets on the economy.  Investors.  And business owners.  Who are risking their money.  And if we look at what they look at we can get a better understanding of the economy.  See what bothers them.  What pleases them.  And what excites them.  So what do they look at?  Economic data we call economic indicators.  Because they indicate the health of the economy.  And give an idea of what the future holds.  There are a lot of economic indicators.  The government compiles most of them.  They each give a little piece of the economic puzzle.  And when you put them together you see the bigger picture.

With a Rise in Housing Starts a Rise in Durable Goods should Follow Creating a lot of New Jobs

As far as economic indicators go retail sales is a big one.  Because consumer spending is the vast majority of economic activity in the new Keynesian economy.  (John Maynard Keynes changed the way governments intervene in the private sector economy in the early 20th century.)  Keynesians believe consumer spending is everything.  Which is why governments everywhere inflate their money supplies.  To keep their interest rates artificially low.  To encourage people to borrow money.  And spend.  When they do retail sales increase.  Signaling a healthy economy.  When they fall it may mean a recession is coming.  Of course, if retail spending rises more than expected investors get nervous.  Because it could mean inflation is coming.  Which the government will try to prevent by raising interest rates.  Thus cooling the economy.  And hopefully sending it into a soft landing.  But more often than not they send it into recession.

Another economic indicator is housing starts.  A lot of economic activity comes from building houses.  Building them generates a lot.  And furnishing them generates even more.  So governments are always trying to do everything within their power to encourage new housing.  They keep interest rates artificially low.  Encouraging people to get mortgages.  And they’ve pressured lenders to lower their lending standards.  To get more people with bad credit (or no credit) into houses.  Which led to subprime lending.  The subprime mortgage crisis.  And the Great Recession.  So more housing starts can be good.  But too many housing starts can be bad.  Generally, though, if they are increasing it’s a sign of an improving economy.

Before Keynesian economics the prevailing school of economic thought was classical economics.  Which we used to make America the world’s number one economic power.  Unlike Keynesians in the classical school we looked higher in the stages of productions.  Where real economic activity took place.  Raw material extraction.  Industrial processing.  Manufacturing.  And wholesaling.  An enormous amount of activity before you reach the consumer level.  All of these higher order economic activities fed into the making of durable goods.  Those things we bought to fill those new houses.  Which is why we like rising housing starts.  Because a rise in durable goods should follow.  And when we’re producing more durable goods we’re employing more people.  Making the durable goods economic indicator a very useful one.

One should Always be Skeptical when the Government says their Policies are Improving the Economy

The Producer Price Index (PPI) tells us how the prices are moving above the consumer level.  So if the PPI is rising it tells us the costs to produce consumer goods are rising.  And these higher costs will flow down the stages of production to the consumer level.  Causing a rise in consumer prices.  So the PPI forecasts what will happen to the CPI.  The consumer price index.  When it rises it means inflation is entering the picture.  Which the government will try to prevent by raising interest rates.  To cool the economy down.  And lower the prices at both the consumer and producer level.  Again, trying to send the economy into a soft landing.  But usually sending it into recession.  Which is why investors pay close attention to the PPI.  So they can get an idea of what will happen to the CPI.  So they can buy and sell (stocks and/or bonds) accordingly.

The rest of us can get an idea of what these investors think about the economy by following the Dow Jones Industrial Average (DJIA).  Which is the weighted ‘average’ of 30 stocks.  (We calculate it by dividing the sum of the 30 stock prices by a divisor that factors in all stock splits and changes of companies in the Dow 30).  As a company does well in a growing economy its stock price grows.  And if investors like what they see in other economic indicators they bid up the stock price even further.  So a rising DJIA indicates that investors believe the economy is doing well.  And will probably even improve.  But sometimes investors have a little irrational exuberance.  Such as during the dot-com bubble in the Nineties.  Where they poured money into any company that had anything to do with the Internet.  Making a huge bet that they found the next Bill Gates or Steve Jobs.  Of course, when that blind hope faded and reality set in those inflated stock prices came crashing down to reality.  Causing a long and painful recession in the early 2000s.  So even investors don’t always get it right.

When the dot-com bubble burst it threw a lot of people out of a job.  Increasing the unemployment rate.  Another big economic indicator.  But one that can be massaged by the government.  For they only count people out of a full-time job who are looking for full-time work.  The official unemployment rate (what we call the U-3 rate) doesn’t count people who gave up looking for work.  Or people who took a couple of part-time jobs to make ends meet.  A more accurate unemployment rate is the U-6 rate that counts these people.  For while the official unemployment rate fell below 8% during the run-up to the 2012 election the U-6 rate was showing a much poorer economic picture.  And the labor force participation rate showed an even poorer economic picture.  The labor force participation rate shows the percentage of people who could be working who were actually working.  So the lower this is the worse the economy.  The higher it is the better the economy.  So while the president highlighted the fall of the U-3 rate below 8% as a sign of an improving economy the labor force participation rate showed it was the worst economy since the Seventies.  Something the unemployed could easily understand.  But those who had a job believed the less than honest U-3 economic indicator.  Believed the president was making the economy better.  When, in fact, he had made it worse.  Which is why one should always be skeptical when the government says their policies are improving the economy.  For they are more concerned about winning the next election than the people toiling away in the trenches.

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Wall Street doing Very Well under President Obama while Main Street Continues to Suffer

Posted by PITHOCRATES - May 18th, 2013

Week in Review

The Dow Jones Industrial Average is at a record high.  The unemployment rate fell one tenth of a percentage point in April.  Nonfarm payroll employment rose by 165,000 in April.  And interest rates are still so low that they are almost negative.  Good news for Wall Street.  And rich investors (see Revised Wall Street Forecast: We’re All Going to Be Rich by Kyle Stock posted 5/13/2013 on BloombergBusinessweek).

Whether, the country’s 500 biggest companies are collectively worth that much is another question. Goldman says most of its own valuation engines show the market is currently at or above where it should be trading. In other words, eager buyers are keeping it high. Low interest rates are spurring things along, as investors borrow increasingly large sums to place bigger bets.

That’s not to say some people aren’t nervous about the recent gains. “It’s one big carry trade, and all it’s doing is setting us up for a bigger correction,” says Joseph Saluzzi, partner and co-founder of Themis Trading, an institutional brokerage firm that specializes in equities. “Whether it’s going to be a week from now or a year from now, I don’t know; but it’s going to be ugly.”

President Obama has been saying for years now that the economy has turned around and things are getting better.  But better for who?  Wall Street.  Not Main Street.  The 1%.  Not the 99%.   Things are still pretty horrible for the 99%.  The unemployment rate may have fallen in April but the labor force participation rate hasn’t budged from March.  It’s still at record lows.  You have to go all the way back to President Carter’s Seventies to find so many people unable to find full time work.  That’s right, even George W. Bush had better economic numbers throughout his presidency.  And he suffered through a couple of recessions.  And the greatest terrorist attack on American soil.  So things aren’t getting better.  They’re only getting better for the 1%.  Who are borrowing that cheap money the government is printing to make more money.  While the general economy languishes in the worst recovery since that following the Great Depression.

And it gets worse.  Once the markets correct all of that irrational exuberance the economy is going to crash.  Hard.  Just as it always does after artificially low interest rates push stock prices into the stratosphere.  And “it’s going to be ugly.”  As it always is.  And the longer they keep those interest rates artificially low the uglier the inevitable correction will be.  When the correction comes it will be the 99% that will suffer the most.  As they always do.  As even more people will be unable to find a full time job.  Pushing the labor force participation rate even lower than it ever was in the Seventies.  This is what President Obama is doing to the 99%.  While he and his 1% friends are living large.  And will continue to live large after the crash.  Just as Hugo Chavez was able to live large in a country that couldn’t even make enough toilet paper for its people.  Because rich people and those in government always do well.  No matter what they do to the people.

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