October 2013 Employment Situation Summary

Posted by PITHOCRATES - November 11th, 2013

Economics 101

Although there were 204,000 New Jobs in October 720,000 Workers left the Labor Force

The worst economic recovery since that following the Great Depression continues (see Employment Situation Summary by the Bureau of Labor Statistics posted 11/8/2013).

Total nonfarm payroll employment rose by 204,000 in October, and the unemployment rate was little changed at 7.3 percent, the U.S. Bureau of Labor Statistics reported today…

Both the number of unemployed persons, at 11.3 million, and the unemployment rate, at 7.3 percent, changed little in October…

The civilian labor force was down by 720,000 in October.

If the Obama administration was an employment agency that found people jobs someone would have fired the management team by now with numbers like this.  204,000 new jobs for 11.3 million unemployed people is a success rate of 1.81%.  Worse, although there were 204,000 new jobs 720,000 workers left the labor force.  Which means that for every new job we lost 3.5 existing jobs.  So for one step forward in fixing the economy the administration takes 3.5 steps backwards.  Which means we’re moving in the wrong direction with the economy.

After a near-trillion dollar stimulus bill and quantitative easing up the wazoo what do we have to show for it?  Not a whole hell of a lot.  Other than more debt.  And inflationary pressures just waiting to be unleashed.  Taking us back to the stagflation and misery of the Seventies.  The heyday of Keynesian economics.

Solid Economic Growth starts at Raw Material Extraction

Before John Maynard Keynes gave us Keynesian economics the economy hummed along based on classical economic principles.  Including, but not limited to, thrift.  Savings.  Investment.  A sound banking system.  And a strong currency.  People saved their money.  Banks accumulated their savings into investment capital.  Banks made this capital available to investors.  And interest rates were determined by our savings rate.  The more we saved (i.e., the more thrifty we were) the lower interest rates were.  These are the economic principles that made the United States the number one economy in the world.

Another key concept of classical economics is the stages of production.  From the extraction of raw materials to manufacturing to wholesale goods to retail goods.  In a healthy economy there is growth at all stages.  And solid economic growth starts at raw material extraction.  For this feeds manufacturing.  Which feeds wholesale goods.  Which feeds retail goods.  Where consumers spend their money.  The fatal flaw of Keynesian economics is that it focuses only on consumer spending.  Not at these higher-order stages of production.  And when Keynesians try to end a recession while ignoring them they fail.  And get job numbers like these.

Employment in retail trade increased by 44,000 in October, compared with an average monthly gain of 31,000 over the prior 12 months…

Manufacturing added 19,000 jobs in October, with job growth occurring in motor vehicles and parts (+6,000), wood products (+3,000), and furniture and related products (+3,000). On net, manufacturing employment has changed little since February 2013…

In October, employment showed little or no change elsewhere in the private sector, including mining and logging, construction, wholesale trade, transportation and warehousing, information, and financial activities.

This is not the picture of an improving economy.  Consumers are spending money.  Thanks to low interest rates and a record amount of government benefits.  But the economic activity is greatest at the consumer level.  As evidenced by the largest increase in jobs at the retail level.  There are fewer job gains at manufacturing.  And even less at the whole sale level and raw material extraction.  Meaning the new economic activity is greatest at the consumer level.  Because of cheap (and free) money.  But there are no new jobs at the highest stage of production.  Raw material extraction.  Because they see no real economic recovery.  Only Keynesian ‘hot’ money that will cause a surge in consumer spending.  And a surge in inflation.  Leading to a continued sluggish economic recovery.  Or a fall back into recession.  And the last thing they want should that happen is higher costs.  Or more debt.  So they don’t spend more or invest during periods of Keynesian stimulus.

President Obama’s Greatest Supporters are suffering some of the Greatest Unemployment

The October 2013 Employment Situation Summary paints a grim economic picture.  People continue to leave the labor force.  And the government’s efforts to stimulate economic activity isn’t stimulating anything above the consumer level.  As the higher stages of production fear the coming inflation.  And possible recession.  This after 5 years of President Obama’s Keynesian economic policies.  Further proving the futility of Keynesian economics.  And the failure of the Obama administration.  Whose policies have stalled new hiring.  And pushed people from full-time to part-time.

The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) was little changed at 8.1 million in October. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job.

Those individuals who had their hours cut or can’t find a full-time job are in large part due to the Affordable Care Act (Obamacare).  Which is not only destroying any economic recovery.  But the Affordable Care Act is also making health insurance unaffordable.  Which will make these economic numbers worse as the carnage spreads to employer-provided health insurance.  As people will have to both pay for health insurance AND pay for all of their health care out-of-pocket thanks to those high deductibles.  Which won’t help the unemployment numbers.  For as consumer spending falls so does hiring.

Among the major worker groups, the unemployment rates for adult men (7.0 percent), adult women (6.4 percent), teenagers (22.2 percent), whites (6.3 percent), blacks (13.1 percent), and Hispanics (9.1 percent) showed little or no change in October. The jobless rate for Asians was 5.2 percent.

It is interesting, or rather ironic, that the president’s greatest supporters are suffering some of the greatest unemployment.  Teenagers.  Blacks.  And Hispanics.  Who seem to never lose their faith.  No matter how much President Obama’s policies favor old white men and women.  And Asians.  It’s not for the lack of spending, either.  For the Obama administration has spent more domestically than any other president.  But it is only his rich Wall Street cronies who are doing well.  And other rich people.  Not the rank and file Obama supporters.  Yet they remain Obama supporters.  So far, at least.  These continual bad job numbers AND the unaffordable Affordable Care Act may change things.  Especially when these continue to fall disproportionally on teenagers, blacks and Hispanics. 

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The Obama Recovery is no Reagan Recovery

Posted by PITHOCRATES - February 4th, 2011

No New Jobs but the Unemployment Rate Falls.  Strange.

Unemployment fell a huge 0.4 percent.  All by adding 36,000 jobs (see Santelli Slams CNBC Panelists for Spinning Jobs Report by Julia A. Seymour posted 2/4/2011 on Business & Media Institute).

Jobs are heading up and down at the same time. The Bureau of Labor Statistics announced the morning of Feb. 4 that only 36,000 jobs were added in the month of January, but the unemployment rate dropped from 9.4 percent to 9.0 percent.

To be frank, there is no way 36,000 new jobs could move the unemployment rate 0.4 percent.  So this official unemployment rate (U3) is not giving the full picture.  It only measures the number of people without jobs who’ve looked for work within the past four weeks.  U6 would give a better measure of the economy.  This unemployment rate includes U3 plus those underemployed (i.e., working somewhere where they are overqualified) and those who have quit looking.  Because the economy is just in the toilet.  This number (U6) also went down.  But only from 16.7% to 16.1%.  Which means that the real unemployment out there is almost twice the actual number the government is reporting.

Cooking the Books on Unemployment

So how can they report the ‘official’ unemployment rate so much lower than actual unemployment?  Easy.  You just don’t count as many unemployed people (see Missing Workers: 4.9 Million Out Of Work And Forgotten by Lila Shapiro posted 2/4/2011 on The Huffington Post).

Over the last three years, nearly 5 million U.S. workers have effectively gone missing.

You won’t find their photos on the backs of milk cartons. The Coast Guard isn’t out looking for them. No missing-persons reports have been filed. These are jobless Americans who have grown so discouraged by their unsuccessful searches for work that they have simply given up the hunt. They are no longer counted among the 14.5 million Americans officially considered unemployed as of the end of last year, according to the Department of Labor.

You see, if you want to have a lower unemployment number, all you have to do is exclude a lot of the unemployed from the equation.  Of course, the question everyone must be asking is why?  Why would the government do this?  Well, there is a presidential election in less than 2 years.  And presidents find it very difficult to win reelection if you have an unemployment rate greater than 8%.  Especially when you spent a lot of money on bailouts and stimulus spending to keep the unemployment rate under 8%.  And the unemployment rate goes up instead of down.

The Ronald Reagan way was the Better Way

The Obama administration took a shellacking at the 2010 midterm elections.  Everything they’ve done to fix the economy has failed.  So Obama has been trying to go Ronald Reagan.  To make that connection to the American people.  So he can win reelection and keep pushing the same failing policies.

The urge to become a Ronald Reagan is understandable.  He was great.  And when you’re not it’s natural to aspire to be someone who is.  The problem is, President Obama is no Ronald Reagan (see Morning Bell: The Reagan Recovery vs The Obama Recovery by Conn Carroll posted 2/4/2011 on Heritage’s The Foundry).

According to the National Bureau of Economic Research, our most recent recession began in December 2007, lasted 18 months, and ended in June 2009. The last recession that lasted this long began in July 1981, lasted 16 months, and ended in November 1982. In his 1983 State of the Union Address, President Reagan described an economic situation that mirrored our own today: “The problems we inherited were far worse than most inside and out of government had expected; the recession was deeper than most inside and out of government had predicted. Curing those problems has taken more time and a higher toll than any of us wanted. Unemployment is far too high.” But where President Obama responded to an economic recession with a bigger than $2 trillion expansion of government (more than $1 trillion on health care and almost $1 trillion in economic stimulus), President Reagan passed the Economic Recovery Tax Act of 1981, which cut marginal income tax rates across the board permanently. And the differences don’t end there.

Where President Obama promised government action that was “bold and swift,” President Reagan said: “The permanent recovery in employment, production, and investment we seek won’t come in a sharp, short spurt.” Where President Obama used tax credits, subsidies, and bailouts to perpetuate industries in need of adjustment, President Reagan said: “Quick fixes and artificial stimulants repeatedly applied over decades are what brought us the inflationary disorders that we’ve now paid such a heavy price to cure.”

Reagan cut taxes.  Obama spent money.  And how do these actions compare?

According to the National Bureau of Economic Research, our most recent recession ended in June 2009, which means we are now in month 19 of the Obama Recovery. Today’s 9 percent unemployment rate marks the 21st consecutive month of unemployment at or above 9 percent, a post–World War II record. Unemployment is only 0.4 percentage points lower today than when the Obama Recovery began. Contrast those results with the Reagan recovery: 19 months into the Reagan recovery, in June 1984, unemployment stood at 7.2 percent. That is a full 3.6 points lower than when the Reagan Recovery began.

Well, the solution to our economic woes is simple.  Stop being Barack Obama.  And start being Ronald Reagan.  Because Reagan knew that government wasn’t the solution.  It was the problem.  And the sooner Obama learns this the better our economy will be.  And this isn’t theory.  It’s just history.

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The Fed to Buy $600 Billion in Government Bonds

Posted by PITHOCRATES - November 5th, 2010

The Fed’s $600 billion government bond Purchase may Worsen the Recession

The Fed is preparing to buy some $600 billion in government bonds.  They call it quantitative easing (QE).  The goal is to stimulate the economy by making more money available.  The problem is, though, we don’t have a lack of money problem.  We have a lack of jobs problem.  Unemployed people can’t go to the store and buy stuff.  So businesses aren’t looking to make more stuff.  They don’t need more money to borrow.  They need people to go back to work.  And until they do, they’re not going to borrow money to expand production.  No matter how cheap that money is to borrow.

This isn’t hard to understand.  We all get it.  If we lose our job we don’t go out and buy stuff.  Instead, we sit on our money.  For as long as we can.  Spend it very carefully and only on the bare necessities.  To make that money last as long as possible to carry us through this period of unemployment.  And the last thing we’re going to do is borrow money to make a big purchase.  Even if the interest rates are zero.  Because without a job, any new debt will require payments that we can’t afford.  That money we saved for this rainy ‘day’ will disappear quicker the more debt we try to service.  Which is the opposite of what we want during a period of unemployment.

Incidentally, do you know how the Fed will buy those bonds?  Where they’re going to get the $600 billion?  They going to print it.  Make it out of nothing.  They will inflate the money supply.  Which will depreciate our currency.  Prices will go up.  And our money will be worth less.  Put the two together and the people who have jobs won’t be able to buy as much as they did before.  This will only worsen the recession.  So why do they do it?

Quantitative Easing May Ease the Global Economy into a Trade War

A couple of reasons.  First of all, this administration clings to outdated Keynesian economics that says when times are bad the government should spend money.  Print it.  As much as possible.  For the economic stimulus will offset the ‘negligible’ inflation the dollar printing creates.  The only problem with this is that it doesn’t work.  It didn’t work the last time the Obama administration tried quantitative easing.  As it didn’t work for Jimmy Carter.  Of course, when it comes to Big Government policies, when they fail the answer is always to try again.  Their reason?  They say that the government’s actions that failed simply weren’t bold enough.

Another reason is trade.  A cheaper dollar makes our exports cheaper.  When the exchange rates give you bushels full of U.S. dollars for foreign currency, those foreign nations can buy container ships worth of exported goods.  It’s not playing fair, though.  Because every nation wants to sell their exports.  When we devalue the dollar, it hurts the domestic economies of our trading partners.  Which they want to protect as much as we want to protect ours.  So what do they do?  They fight back.  They will use capital controls to increase the cost of those cheap dollars.  This will increase the cost of those imports and dissuade their people from buying them.  They may impose import tariffs.  This is basically a tax added to the price of imported goods.  When a nation turns to these trade barriers, other nations fight back.  They do the same.  As this goes back and forth between nations, international trade declines.  This degenerates into a full-blown trade war.  Sort of like in the late 1920s.  Which was a major factor that caused the worldwide Great Depression.

Will there be a trade war?  Well, the Germans are warning this action may result in a currency war (see Germany Concerned About US Stimulus Moves by Reuters).  The Chinese warn about the ‘unbridle printing’ of money as the biggest risk to the global economy (see U.S. dollar printing is huge risk -China c.bank adviser by Reuters’ Langi Chiang and Simon Rabinovitch).  Even Brazil is looking at defensive measures to protect their economy from this easing (see Backlash against Fed’s $600bn easing by the Financial Times).  The international community is circling the wagons.  This easing may only result in trade wars and inflation.  With nothing to show for it.  Except a worse recession.

Businesses Create Jobs in a Business Friendly Environment

We need jobs.  We need real stimulus.  We need to do what JFK did.  What Reagan did.  Make the U.S. business friendly.  Cut taxes.  Cut regulation.  Cut government.  And get the hell out of the way. 

Rich people are sitting on excess cash.  Make the business environment so enticing to them that they can’t sit on their cash any longer.  If the opportunity is there to make a favorable return on their investment, guess what?  They’ll invest.  They’ll take a risk.  Create jobs.  Even if the return on their investment won’t be in the short term.  If the business environment will reward those willing to take a long-term risk, they will.  And the more investors do this the more jobs will be created.  And the more people are working the more stuff they can buy.  They may even borrow some of that cheap money for a big purchase.  If they feel their job will be there for awhile.  And they will if a lot of investors are risking their money.  Creating jobs.  For transient, make-work government jobs just don’t breed a whole lot of confidence in long term employment.  Which is what Keynesian government-stimulus jobs typically are.

We may argue about which came first, the chicken or the egg.  But here is one thing that is indisputable.  Jobs come before spending.  Always have.  Always will.  And quantitative easing can’t change that.

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