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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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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Wall Street Cheers a Dismal Jobs Report

Posted by PITHOCRATES - May 5th, 2013

Week in Review

The markets reacted positively to the new jobs report.  The unemployment rate changed little.  But what really got them excited was that the economy created 165,000 new jobs.  More than last month.  But not really good.  But you wouldn’t know that from reading the report (see Employment Situation Summary posted 5/3/2013 on Bureau of Labor Statistics).

The unemployment rate, at 7.5 percent, changed little in April but has declined by 0.4 percentage point since January. The number of unemployed persons, at 11.7 million, was also little changed over the month; however, unemployment has decreased by 673,000 since January. (See table A-1.)…

The civilian labor force participation rate was 63.3 percent in April, unchanged over the month but down from 63.6 percent in January. The employment-population ratio, 58.6 percent, was about unchanged over the month and has shown little movement, on net, over the past year.(See table A-1.)

When you read this it sounds good.  But it’s not.  The labor force participation rate holding at 63.3% is horrible.  It wasn’t this bad since the Seventies.  That’s a lot of people who have just disappeared from the labor force.  Who just gave up trying to find a job.  Because they just aren’t out there.  And because they’ve disappeared the government doesn’t count them anymore.  Which is the only reason why the unemployment rate has fallen during the Obama presidency.

When President Obama entered office the labor force participation rate was at 65.8%.  Which means it has fallen 3.8% in little over four years.  This is a huge fall.  The steepest decline ever.  And the fact that it is holding at 63.3% means there are a lot of people out of work that have to reenter the workforce.  Also, the current number is the lowest it has been since President Obama entered office.  Which means we haven’t even begun the economic recovery yet.   So these jobs numbers couldn’t be worse.  Yet Wall Street celebrates.  Why?  Probably because they’re suffering from irrational exuberance.

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The Obama Administration was lying about the Success of the Stimulus Bill

Posted by PITHOCRATES - April 20th, 2013

Week in Review

President Obama promised us that if Congress passed his stimulus bill the unemployment rate wouldn’t rise above 8%.  Because million of people would go back to work immediately thanks to all of those shovel-ready jobs.  Well, the president signed it into law on February 17, 2009.  In October of that year the unemployment rate topped out at 10%.  And the president joked that those shovel-ready jobs weren’t as shovel-ready as they thought.  Still, they claimed it was a success.  And bragged about the millions of jobs they created or saved.  All the while the economy remained mired in one of the worst economic recoveries of all time (see Did Obama’s stimulus bill really work? Not even the gov’t knows by Sean Higgins posted 4/15/2013 on The Examiner).

Reason magazine’s Peter Suderman has a lengthy but eye-opening examination of President Obama’s 2009 American Recovery and Reinvestment Act — aka the stimulus bill — and why even after spending $833 million through it the economy continues to suck.

The article is a top-to-bottom dissection that exposes the many layers of folly involved. Several passages stand out but this one in particular is worth noting because it points out the central flaw in reports that argue the stimulus was a success: There is literally no way to measure those claims.

“According to the non-partisan Congressional Budget Office,” says Recovery.gov, the Obama administration’s stimulus website, “the Recovery Act supported as many as 3.5 million jobs across the country.” As the stimulus ran its course over roughly three years, the capital’s top newspapers kept printing similar, supportive-sounding figures from the budget office. “CBO Says Stimulus May Have Added 3.3 Million Jobs,” a Washington Post headline trumpeted in 2010. “CBO: Stimulus Added Up to 3.3 million Jobs,” declared a Politico headline in 2011. Senate Democrats touted the estimates as proof of ARRA’s success. So did the vice president…

The CBO estimated that the stimulus created or saved up to 3.6 million jobs. But CBO Director Douglas Elmendorf has also noted that if the real-world results were different — if the law created 5 million jobs, or if it created none at all — the agency wouldn’t know. At a March 2010 presentation, Elmendorf characterized the CBO’s follow-up reports as “repeating the same exercises we did rather than an independent check.” At the same event, Elmendorf was asked, “If the stimulus bill did not do what it was originally forecast to do, then that would not have been detected by the subsequent analysis?” His response: “That’s right. That’s right.” (Emphasis added.)

You may not be able to measure how many jobs you saved but you sure can measure one thing.  The labor force participation rate.  The percentage of those who could be working who are actually working.  Which shows the true economic picture unlike the official unemployment rate.  Which just doesn’t count people if they leave the labor force.  Because they can’t find a job.  You see, for them to count you in the unemployment rate you have to be looking for work.  And if you gave up looking for work after a year or so of not finding work they don’t count you.  Which lowers the unemployment rate.  Even though more people are unemployed.

So how did the labor force participation rate respond to the stimulus bill?  Not good.  It suffered its steepest decline the year they passed the stimulus.  And continued in the longest and steepest free-fall during the Obama presidency.  These numbers show the stimulus was an abject failure.  And any talk contrary to this was nothing but wishful thinking.  Or outright lies.

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Civilian Labor Force Participation Rate and Recessions 1950-Present

Posted by PITHOCRATES - April 9th, 2013

History 101

LBJ was able to pass JFK’s Tax Cuts resulting in a Long Period of Economic Growth

The official unemployment rate is stuck around 8%.  But if you count all the people who can’t find a full-time job the actual unemployment rate is closer to 14%.  With every jobs report we hear the positive spin from the government about another down tic in the official unemployment rate.  And the hundreds of thousands of new jobs created.  But after three years or so of hearing these reports people start questioning the numbers.  And the rosy spin.  Because despite all the good news they tell us people are disappearing from the civilian labor force.  Which is the only reason why the official unemployment rate is falling.  Because they’re not counting a lot of unemployed people.  So looking at the civilian labor force may be a better indicator of the health of the economy.  Or better yet, the civilian labor force participation rate (CLFPR).  Which is basically the percent of those who can work that are working.  So let’s do that.  Starting with the Fifties.

Labor Force Participation Rate and Recessions 1950 to 1959

After World War II veterans went to college on the G.I. Bill.  These new college graduates with degrees in science, engineering and business management entered the workforce in the Fifties.  Helping the United States to develop new technologies.  New industries.  And a lot of new jobs.  American wells were busy pumping domestic oil.  Keeping gasoline cheap.  Having escaped the damage of war the American economy exported to those countries that didn’t.  And consumer spending took off.  Thanks to the new advertising industry telling Americans about all the great things to buy.  They bought houses and cars with borrowed money.  And used the new credit card to spend even more money they didn’t have.  Changing the American economy into a consumer-based economy.  Making the Fifties one of the most prosperous times in U.S. history.  Despite the Korean War.  And the Cold War.  Which was getting underway in a big way.  There was a burst of inflation to help pay for the Korean War.  When it ended they contracted the money supply to get rid of that inflation sending the economy into recession.  But once the recession ended the economy took off with all that consumerism.  Shown by the sharp rise in the CLFPR.  To correspond with the very good economic times of the Fifties.  Another monetary contraction happened in 1957 to tamp out some price inflation.  With a corresponding fall in the CLFPR.

Labor Force Participation Rate and Recessions 1960 to 1969

The Sixties started with another recession.  After it ended, though, the CLFPR continued to fall.  The recession was officially over but the economy was not doing well.  The CLFPR fell for almost three years following the recession.  Things were different from the Fifties.  For one, a lot of those war-torn economies were up and running again.  Providing some competition.  Especially a little island nation by the name of Japan.  Which one day would build all the televisions sold in America.  It was because of this fall in economic activity that JFK started talking about tax cuts in 1963.  Congress blocked his attempt to cut tax rates.  But after his assassination LBJ was able to pass the Revenue Act of 1964.  This lowered the top marginal tax rate from 91% to 70%.  And lowered the corporate income tax from 52% to 48%.  Among other favorable business measures.  Resulting in a long period of economic growth.  And a long upward trend in the CLFPR.

The Tax Cuts and Deregulation of the Eighties created one of the Longest Periods of Economic Growth

But following the Revenue Act of 1964 came the Great Society.  The Vietnam War.  And the Apollo moon program.  All paid for with a huge surge in federal spending.  Deficits began to grow.   As the government struggled to pay for everything.  And were unwilling to cut anything.

Labor Force Participation Rate and Recessions 1969 to 1979

The economy fell into a mild recession in 1970.  The CLFPR remained relatively flat.  To meet their spending needs they started printing money.  Devaluing the dollar.  Still part of Bretton Woods the dollar was still pegged to gold at $35/ounce.  That is, the U.S. agreed to exchange gold for dollars at $35/ounce.  But as they devalued the dollar our trading partners no longer wanted to hold dollars.  Because they were losing their purchasing power.  They wanted the gold instead.  So they began exchanging their dollars for gold.  Causing a great outflow of gold from the U.S.  Causing a problem for President Nixon.  He didn’t want the U.S. to lose all of their gold reserves.  But he didn’t want to cut any spending.  Which meant he didn’t want to stop printing money.  In fact, he wanted to print more money.  And the easy way out of his dilemma was by doing the most irresponsible thing.  He slammed the gold window shut in 1971.  And refused to exchange gold for dollars anymore.  And when he did there was no restriction to the amount of money they could print.  And they printed it.  A lot.  Creating double-digit inflation before the Seventies were over.  The inflation caused prices to rise.  Which Nixon tried to prevent with wage and price controls.  Causing a shortage of available rental property as people converted them into condos to get away from the rent control.  Gasoline stations ran out of gas as people filled their tanks with below-market priced gas.  And meat disappeared from grocery stores.  Wage controls kept wages from keeping pace with inflation.  So even though people had jobs they lost more and more purchasing power.  Or simply found there was nothing to purchase.  Throwing the economy into recession in 1973.  After the recession the CLFPR grew throughout the remainder of the Seventies.  But it wasn’t good growth.  It was growth sustained with double-digit inflation.  A bubble of artificial economic activity.  That would have to crash.  As all inflationary periods must crash.

Labor Force Participation Rate and Recessions 1979 to 1989

In the Eighties Paul Volcker, Federal Reserve Chairman, raised interest rates to double digits to wring out the double-digit inflation from the economy.  To restore people’s purchasing power.  And return the nation to real economic growth.  The tax cuts and deregulation of the Eighties created one of the longest sustained periods of economic growth in U.S. history.  With one of the longest upward trends in the CLFPR ever.  Indicating a growing economy.  With more and more people who could work finding work.  Proving that Reaganomics worked.  And worked very well.

If JFK or Ronald Reagan were President Today we wouldn’t be seeing a Freefall of the CLFPR

But it wouldn’t last.  Thanks to the government’s interference into the banking industry.  They had set a maximum limit on interest rates S&Ls (and banks) could offer.  When inflation took off people pulled their money from their savings accounts.  Putting it in higher earning instruments.  So they didn’t lose their savings to inflation.   This bad banking policy begat more bad banking policy.  They deregulated the S&Ls and banks.  So they could do other things to make up for their lost savings business.  And that other thing was primarily real estate.  They borrowed short-term money to make long-term loans.  Helping to create a housing bubble.  And when they began to wring that inflation out of the economy interest rates rose.  When those short-term loans came due they had to refinance them at higher interest rates.  While the interest they were earning on those long-term loans remained the same.  So their interest expense soon exceeded their interest income.  Creating the savings and loan crisis.  And a severe recession that ended the economic expansion of the Eighties.  With a corresponding fall in the CLFPR.

Labor Force Participation Rate and Recessions 1990 to 2000

Once the recession ended the CLFPR resumed a general upward growth.  But not as good as it was in the Eighties.  Also, it would turn out that much of the growth in the Nineties was artificial.  Bill Clinton’s Policy Statement on Discrimination in Lending forced lenders to lower their lending requirements.  And to qualify the unqualified.  Which created a surge in subprime lending.  And the beginning of a housing bubble.  The Internet entered the economy in the Nineties.  Just as the personal computer entered the economy in the Eighties.  Making Bill Gates a very rich man.  Investors were anxious to find the next Bill Gates.  Taking advantage of those low interest rates creating that housing bubble. And poured money into dot-com start-ups.  Companies that had no revenues.  Or products to sell.  Creating a dot-com bubble.  And a surge in computer programming jobs.  Also, as the century came to a close there was the Y2K scare.  Creating another surge in computer programming jobs.  To rewrite computer code.  Changing 2-digit date codes (i.e., ’78) to 4-digit codes (i.e., 1978).

Labor Force Participation Rate and Recessions 2000 to 2013

The Y2K scare proved to be greatly overblown.  Which put a lot of computer programmers out of a job in January of 2000.  And they wouldn’t find a dot-com job for the dot-com bubble burst in the same year they lost their Y2K job.  Throwing the economy into recession in 2001.  And then making everything worse came the terrorist attacks on 9/11.  Prolonging the recession.  As can be seen by the long decline in the CLFPR.  Which leveled out after the Bush tax cuts.  But then that housing bubble peaked in 2006.  And burst in 2007 into the subprime mortgage crisis.  Thanks to all those toxic mortgages Bill Clinton’s Policy Statement on Discrimination in Lending forced lenders to make.  And because Fannie Mae and Freddie Mac bought these toxic mortgages and had Wall Street package them into collateralized debt obligations this crisis spread worldwide.  Selling what they told unsuspecting investors were high yield, low risk investments.  Because they were backed by the safest of all loans.  Mortgages.  What they failed to tell these investors was that these mortgages were not safe 30-year conventional mortgages.  But highly risky subprime mortgages.  In particular adjustable rate mortgages.  Where the monthly payment would increase with an increase in interest rates.  And that is what happened.  And when it happened the unqualified could not afford the new monthly payment.  And defaulted.  Kicking off the Great Recession.  And because President Obama was more interested in national health care than ending the Great Recession he didn’t cut taxes.  Or cut regulations.  Instead, he increased taxes and regulations.  Making the current recovery one of the worst in U.S. history.  As can be seen in the greatest decline in the CLFPR since the Great Depression.  If you look at a continuous graph from 1950 to the present you can see just how bad the Obama economic policies are.

Labor Force Participation Rate and Recessions 1950 to Present

The JFK and Reagan tax cuts caused the greatest economic expansions.  And the greatest rise in the CLFPR.  Also, after most recessions there was a return to a growing CLFPR.  Interestingly, the two times that didn’t happen are tied to Bill Clinton.  Who created two of the greatest bubbles.  The dot-com bubble in the Nineties.  And the subprime mortgage bubble that was built in the Nineties and the 2000s.  The growth was so artificial in building these bubbles that the CLFPR did not recover following the bursting of these bubbles.  It might have following the dot-com bubble if the subprime mortgage crisis didn’t follow so soon after.  The current recovery is so bad that it has taken the CLFPR back to levels we haven’t seen since the Seventies.  Making the current recovery far worse than the official unemployment rate suggests.  And far worse than the government is telling us.  So why are they not telling us the truth about the economy?  Because the government wants to raise taxes.  And if the economy is improving there is no need for recession-ending tax cuts.  So they say the economy is improving.  As they hate tax cuts that much.  Unlike Ronald Reagan.  Or JFK.  And if either of them were president today we wouldn’t be seeing a freefall of the CLFPR.

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The Politics of Jobs Data

Posted by PITHOCRATES - April 8th, 2013

Economics 101

The Party of the Working Man misrepresents the Jobs Data and Lies to the People

Figures don’t lie but liars figure.  Something Mark Twain is said to have said.  Mark Twain is, of course, Samuel Langhorne Clemens.  But we know him by his pen name.  Mark Twain.  And the author of The Adventures of Tom Sawyer and Adventures of Huckleberry Finn.  But he was also a science buff.  And close friend of Nikola Tesla.  The father of AC power.  And he thought that most Congress people were liars and thieves.  With personal agendas.  Who will lie about facts and figures to get what they want.  And what do people in government want?  What all people in governments throughout time have wanted.  Wealth.  And power.

Every king, noble and aristocrat has acted selfishly in history to acquire wealth and power.  The privileged few.  Or one.  They held the power.  Traded favors.   And worked together.  Landowners amassed great wealth thanks to peasants working their land.  The king maintained the system that limited land ownership to a privileged few.  And the privileged few paid back the king with a share of their wealth.  By working together they exploited the masses to amass wealth.  So they could live the good life.  Comfortable in their wealth.  With the power to do whatever they wanted.  And this hasn’t changed over time.  Well, it has in one respect.  With the advent of democracy it is a little more difficult to do what you want when in elected office.

Today no one leaves Congress poor.  They are set for life.  With a generous pension.  And benefits most workers never get while gainfully employed.  And how do they do this?  The same way that kings, nobles and aristocrats have always acquired wealth.  By using political power to exploit the masses.  And the key to this is growing government as large as possible.  To give them that power.  And the ability to grant favors.  Throwing a few handouts to the peasants to win their love and admiration.  Thus pleasing enough of the electorate to win elections.  But the policies they use to make this happen have a major drawback.  They are anti-business.  And kill jobs.  Putting people out of work.  Which can be a problem when you’re the party of the working man.  And working woman.  So you have to at times misrepresent the jobs data.  And lie to the people.

The United States and Kim Jong Un have an Obesity Problem while the North Korean People suffer Famine

History has shown that low taxes and limited government grow economies.  This is what made the United States the number one economic power in the world.  Which was able to happen because it happened before the era of Big Government in the United States.  Right now there are emerging economies in the world going through a similar phase.  And their stellar economic growth will sputter out once the size of their governments grow.  Just like they have in many advanced economies that have transitioned into a social democracy.  For there is nothing that stamps out economic growth like higher taxes and greater regulatory costs.  Which is why the Soviet Union, the countries behind the Iron Curtain in Eastern Europe, The People’s Republic of China (under Mao), North Korea, Cuba, etc., have never been great economic powers.  Instead these countries that practiced fairness and redistributive policies suffered some of the most abject poverty and the lowest standards of living.  Not to mention having some of the most brutal and oppressive police states to keep their people from fleeing their social utopias.

But when it came to economic production these nations all lied to their people.  If you listened to the Soviet propaganda machine communism had won.  There was no way free market capitalism could match the managed communist economy.  They were growing bumper crops.  Their factories were putting out more goods than they could use.  And life was just peachy in the Soviet police state.  A lot of people in the West believed this.  And fought to undermine capitalism so they, too, could install socialist utopias in the West.  But the people living in those socialist utopias had a little more trouble believing the lies.  For they were waiting hours in lines to buy soap and toilet paper.  They saw stores with empty shelves.  And stores with shelves full of things no one wanted to buy.  They had to wait years before it was their turn to buy a car.  Or get an apartment.  And forever speak in hushed tones for fear the secret police might hear them utter some dissatisfaction of the socialist system.  Lest they disappear to some reeducation camp in Siberia.

And while the people suffered those in power did not.  In socialism everyone was equal.  But like George Orwell said in Animal Farm, some were more equal than others.  North Korea suffers from recurring famine.  And depends on food imports to prevent future famines.  So your average North Korean is not going to have an obesity problem.  While the United States suffers an obesity crisis because their people eat too much food North Korea suffers through recurring famines where people starve to death.  But you know who isn’t starving to death?  Kim Jong Un.  The new ruler of North Korea.  Who not only appears to be well fed.  But even looks obese.  And this in a country that suffers from recurring famines.  And it’s been the same throughout history.  Those champions of the people always lived better than the people.  For those in the inner party in the Soviet Union went to the front of the line when it came to cars and apartments.

Kings, Nobles, Aristocrats and those in the Federal Government act Selfishly to acquire Wealth and Power

This is why people want political power.  Because it is a pathway to wealth.  Especially for those people who don’t have the ability to create wealth on their own.  Like a small business owner.  So they need to use political power.  Favor.  Privilege.  And deceit.  Which is an important tool for today’s politician’s in a democracy.  Deceit.  Such as when they figure with the economic figures.  The Obama administration has implemented some of the most business unfriendly policies that have just stamped out all economic growth.  Which is why we have been wallowing in a jobless recovery following the Great Recession.  While some would even say the Great Recession lingers on.  Despite what the economic data says.  For they have little faith in the numbers anymore.  For with every jobs report the Obama administration highlights the new jobs the economy created.  And how even though the numbers could be better we are definitely on the right path.  As the unemployment rate continues to fall.  Dropping below 8% just in time for the 2012 election.  As no president ever won reelection with an unemployment rate above 8%.  So it was rather convenient it fell just in time for the election.  Perhaps a little bit too convenient.  Especially when you look at the other economic numbers (see Table A-15. Alternative measures of labor underutilization and Labor Force Statistics from the Current Population Survey).

U3 U6 Civilian Labor Force

The U3 unemployment rate is the official unemployment rate.  Which fell to 7.6% in March.  Yet another improvement.  But the U3 unemployment rate doesn’t count everyone who can’t find a full time job.  The U6 unemployment rate counts more people who can’t find a full-time job.  And it fell to 13.8% in March.  Which is an improvement.  But the number of people who can’t find a full time job is still in double digits.  And has moved little from around 14%.  One thing both the U3 and the U6 numbers have in common is that they have changed little in the last 6 months.  While the number of people in the civilian labor force has changed.  A lot.  So one of these numbers doesn’t appear to agree with the other two.  For if the unemployment rate was steady one would think the number of people in the civilian labor force would be steady, too.  Which makes one question the accuracy of the official unemployment rate.  And the constant reports of how the economy is improving.  How it’s on the right path.  As they talk about all the new jobs their policies have created.  Despite the stubbornly high unemployment numbers.  But if we look at that job creation and the changes in the size of the civilian labor force we get a different picture of that improving economy (see Employment Situation Archived News Releases).

Jobs Added Change in Civilian Labor Force

The latest jobs report shows 88,000 new jobs added to the economy.  Less than projected.  And a bit of a disappointment to those in the ‘the economy is on the right path’ crowd.  But they still find solace in the fact that the economy added jobs.  Just as it has for the previous 5 months.  If you add this job creation up during this 6-month period it totals 953,000 new jobs.  That’s about 1 million new jobs.  Not a strong recovery.  But not too shabby.  But if we look at the change in the civilian labor force we don’t see 1 million new jobs.  Over the same 6-month period we see a net LOSS of 28,000 people from the civilian labor force.  Which agrees more with the reality of the current economy.  And the U6 unemployment rate.  It’s bad.  People can’t find a full-time job.  And it’s because of the anti-business policies of the Obama administration.  But for the past 4 years or so they have massaged the jobs data to lead us to believe that they were creating jobs when they were actually destroying jobs.  Why?  Because kings, nobles, aristocrats and those in the federal government act selfishly to acquire wealth and power.

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U-3, U-6 and the Labor Force Participation Rate 2004 through February 2013

Posted by PITHOCRATES - March 12th, 2013

History 101

During Obama’s First Term the U-3 and U-6 Unemployment Rates moved Further Apart

The latest employment data showed the official unemployment rate fell in February to 7.7% from 7.9% in January.  The Labor Department also reported the addition of 227,000 new jobs.  Proof, the economists say, that the economy is improving.  But when you dig deeper into the data you find otherwise.  For the economy may have added 227,000 new jobs but 296,000 jobs left the labor market.  And they didn’t count these people as unemployed.  So there was a net loss of jobs.  Despite the fall in the official unemployment rate.

We keep saying official unemployment rate for a reason.  For the government has six different unemployment rates.  The ‘official’ rate is what they call U-3.  Which doesn’t count a lot of people who can’t find full time work.  A more inclusive rate is the U-6 number (see Labor Force Participation Rate for an explanation of the U-3, U-6 and the labor force participation rate).  The U-6 rate counts pretty much everyone who can’t find a full-time job.  Including discouraged workers, the marginally attached and those working part-time because they can’t find a full-time job.  Before the Great Recession (during the George W. Bush administration) the U-3 and U-6 unemployment rates tracked closer together than they do now (during the Barack Obama administration).  As we can see in the following chart (see Data Retrieval: Labor Force Statistics (CPS) for data source).

Unemployment Rates U3 U6 2004-2013

During Bush’s second term U-3 was between 4% & 6%.  And U-6 was between 8% and 10%.  But during Obama’s first term U-3 shot above Bush’s U-6.  And Obama’s U-6 soared to twice Bush’s U-6.  Most of this was due to the subprime mortgage crisis.  And the resulting Great Recession.  But that doesn’t explain why the graphs moved further apart.  And why did they do this?  Was it because they were overstating U-6?  Were they understating U-3?  Or is there some other explanation?  It has to be something.  And it’s likely not good.

The Official Unemployment Rate has been Understated by at least 2.9 Points during the Obama Presidency

During President Bush’s second term there was on average a 4-point spread between U-3 and U-6.  During President Obama’s first term this point spread increased to 6.9.  A difference of 2.9 points.  Which if we subtract to U-6 or add to U-3 the graphs will move closer together.  So they track each other at the same distance apart from each other they did during Bush’s second term.  When you look at the labor participation factor and the lost jobs one can only assume we’re understating U-3.  And not overstating U-6.  So if we add 2.9 points to U-3 after December 2008 the graphs look like this.

Unemployment Rates U3 Adjusted U6 2004-2013

We can ignore the sharp rise in U-3 adjusted.  As the loss 2.9 points of the U-3 unemployment rate would not have been instantaneous once January 2009 hit.  But once we get to the new highs the graphs maintain the same distance from each other as they did during Bush’s second term.  Which means the official unemployment rate didn’t fall from approximately 10% to 8% during Obama’s first term.  It actually fell from 12.9% to 10.6%.  And that the current official unemployment rate is not 7.7%.  But 10.6%.  Which is, of course, 2.9 points higher.

So the official unemployment rate is higher than they report.  With the official unemployment being understated by at least 2.9 points.  And the economy is not improving like they say.  Anyone reading the jobs data can see this.  But the Obama administration and their friends in the media, as well as mainstream economists, all say everything is getting better.  Or they say it is just the new normal.  To provide some cover for their failed Keynesian economic policies.  Which failed to pull the economy out of the Great Depression.  They failed to pull the economy out of the stagflation of the Seventies.  And they are now failing to pull the economy out of the Great Recession.

The ‘New Normal’ under President Obama has been a Steadily Declining Labor Force Participation Rate

Keynesian economics calls for the government to have control of interest rates.  They keep interest rates artificially low.  To expand the money supply.  They also increase taxes.  And borrow money.  Just so they can spend.  A lot.  For Keynesian theory says when the economy falls into recession the government should spend.  Even if it requires running a deficit.  To generate economic activity.  But expanding the money supply only causes inflation.  And higher prices.  Which dampens economic activity.  Which is why we have never spent our way out of a recession.  And never will.

President Obama is a Keynesian.  His Keynesian policies have hindered, not helped, the economic recovery.  And his excessive regulations have further hindered the economic recovery.  He shut down the domestic oil industry on public lands.  His war on coal has laid off swaths of coal miners and others in the coal industry. His rejection of the Keystone XL Pipeline has prevented the creation of thousands of new jobs.  His environmental regulations have increased the cost of doing business.  As has Obamacare.  Which has put a freeze on new hiring.  And pushed lot of full time people to part time.  Nothing this administration has done has helped the economy.  While most everything it has done has hurt the economy.  And we can see that when we look at the labor force participation rate.  When we graph it along with U-3 (the official rate not the adjusted rate) and U-6 (see Employment Situation Archived News Releases for data source).

Unemployment Rates U3 U6 Labor Participation Rate 2004-2013

And here we see what caused U-3 and U-6 to move further apart.  U-3 is understated because people are continually leaving the labor force.  Unable to find a job.  This is why we have a net loss of jobs even when they report a gain of 227,000 new jobs in February.  Or a gain in any other month.  This is why the economy hasn’t improved under President Obama.  Despite what the official unemployment rate is.  And despite all of the new jobs they’ve created.  Because the ‘new normal’ under President Obama has been a steadily declining labor force participation rate.  Meaning he is a job destroyer.  And the only reason why the unemployment rate falls is because these people disappear from the labor force and they just don’t count them anymore.  Sort of how the European employment picture improved after the plague.  So many people left the labor force by dying that it created a labor shortage.  And low unemployment.  The problem here is that these people didn’t die.  They’re still out there waiting to rejoin the labor force.  To hire into jobs that are just not there.  And it’s going to take a long, long time for the economy to absorb these people.  Meaning the economy won’t be getting better anytime soon.  Because it’s a lot worse than they’re reporting.

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