The worst things get, the more they stay the same.
As the stock market continues to set records, the latest Philadelphia Fed Business Outlook Survey shows that the business outlook for manufacturing is weakening. Of course, that could help continue to boost the market, since it gives The Fed an excuse to continue its quantitative easing.
President Obama and the Federal Aviation Administration blamed recent flight delays on sequestration. Now the Federal Reserve Board’s Open Market Committee is blaming sequestration for the poor performance of the U.S. economy.
Both claims are equally frivolous.
As The Wall Street Journal noted, “The FAA’s all-hands furloughs managed to convert a less than 4% FAA budget cut into a 10% air-traffic control cut that would delay 40% of flights. The 6,700 flights that the FAA threatened to force off schedule every day is twice as many delays as the single worst travel day of 2012.”
With members of Congress among those affected by the flight delays, Congress acted with uncharacteristic quickness and approved a bill to revoke FAA’s politically motivated furloughs.
When the unemployment rate declines, even by a little bit, it should be good news. But when it declines because people are leaving the workforce in record numbers, it’s not.
The U.S. Bureau of Labor Statistics (BLS) reported that the unemployment rate is now 7.6%, down from 7.7%. But this 0.1% drop is due entirely to a drop in the labor force by 663,000 in March.
Non-farm payroll was expected to increase by 190,000 in March, with the lowest forecast at 100,000. Instead, it increased by a meager 88,000 jobs.
As Zerohedge.com reported, a record 90 million Americans are no longer even looking for work. The labor force participation rate dropped from 63.55% to just 63.3% – its lowest level since 1979.
The BLS reports the U-6 unemployment rate for March at 13.8%, which is a more accurate number than the U-3 rate of 7.6%, as it includes those who have been unemployed long-term.
“Bernanke said, in essence, that he wasn’t a magician.”
Heidi Moore, The Guardian
The number one movie in America today, “Oz, the Great and Powerful,” could be a metaphor about The Federal Reserve Board and its role in the American economy.
Oz, a likable scoundrel, is a master of illusion. There is no substance behind his tricks, but they give the illusion of strength, and, since people believe what they want to believe, he is able to overcome the forces of evil.
Likewise, Fed Chairman Ben Bernanke’s prestidigitation relies on quantitative easing to create the illusion of strength. All appears well when the stock market rises and the unemployment rate drops, even if there is no strength behind the market’s rise and the drop in unemployment is by only 0.2%.
Of course, the U.S. Bureau of Labor Statistics has its own illusionists, as we’ve pointed out in the past, who are able to make a 14.4% unemployment rate look like a 7.7% unemployment rate.
“In your life expect some trouble
But when you worry
You make it double
Don’t worry, be happy…”
Bobby McFerrin
Higher and higher. The stock market has gone in only one direction since our last post and that’s been up.
As of yesterday, the Dow Jones Industrial Average had risen for 10 straight days for its best performance since 1996. The S&P 500, likewise, surged past 1,560 having gained 3.05% in the past month.
Don’t worry, be happy
And, so what if the world is going broke, if that genius Ben Bernanke continues printing money, the Dow could rise from its current 14,500 range all the way up to 18,000 by the end of the year, according to Wharton School Professor Jeremy Siegel.
Don’t worry, be happy
The Fed’s quantitative easing program has been like that endless tub of popcorn or vat of soda that those with large appetites buy at the theater. It goes on and on, but at some point, enough is enough. Are you really ever going to refill that?
The Federal Reserve Board has gorged on bonds for years now and some board members are finally losing their appetite for continuing, according to minutes from the last meeting of the Federal Open Market Committee.
The supersized QE3, the third round of quantitative easing, was supposed to continue until the unemployment rate dropped to a reasonable number. The only problem is that buying bonds doesn’t produce jobs.
Even accounting for Storm Sandy’s impact, job growth remains stalled, with the unemployment rate stuck at 7.8%. While the rate is significantly lower than it was in 2009 (9.9%), it is nowhere near the 5.0% rate of 2007. More troubling, much of the rate drop is due to people either dropping out of the workforce or taking low-paying part-time jobs.
That doesn’t mean that quantitative easing is without consequences. The sudden nervousness of some Fed members reflects the fear that buying $85 billion in Treasuries and agency paper will destroy the dollar.
All I want for Christmas is a new economy. Ours is broken.
While there are a few positive signs that optimists can latch onto, it appears that either the country will go over the fiscal cliff or virtually no cuts will be made in the $3.8 trillion federal budget. If nothing else, current spending should prove that Keynesian economics doesn’t work. With a fourth consecutive deficit exceeding $1 trillion, optimists take as good news a drop in the unemployment rate from 7.9% to 7.7%. Considering the federal spending that has taken place in recent years, wouldn’t the economy be booming now if Keynesian economics really worked?
In November, 146,000 new jobs were added, exceeding expectations of 85,000, according to the Bureau of Labor Statistics (BLS). In spite of Sandy, according to the BLS, the unemployment rate declined to 7.7% from 7.9%. However, these preliminary figures could be more BS from BLS. Final BLS job figures for September and October were revised downward by 49,000 jobs. You may recall that the BLS stats brought the jobless rate below 8% just in time for the election. We’re betting that when final stats are released, the number of new jobs will not have to be revised upward.
Those cheered by the latest job figures can always find a black cloud in the silver lining by visiting Zerohedge.com, which correctly points out: “What is certain is that the broader mainstream media will continue to focus purely on the quantitative aspect of the report, while the real story over the past 3 years has been a qualitative one: a shift to lower paying jobs, a painfully slow (if any) rise in average hourly earnings, a transformation of the US labor pool to ‘Just In Time’ inventory as virtually all new hiring needs are met by temps, and finally a secular shift to an older labor force, as job creation in the 25-54 category since January 2009 is still negative!”
The biggest driver of the U.S. economy is consumer spending. Over the past four years, income for the average consumer has dropped by about $4,000. While the inflation rate has been relatively tame, prices for basics such as food and oil have increased significantly. On top of this, going over the fiscal cliff would cost the average household nearly $3,500 in new taxes, according to BloombergBusinessWeek.
So consumers need to lift the economy while taking a $7,500 hit to their incomes and paying more for essentials. The only way that will happen is if consumers use the federal government as a role model and spend more money than they earn. Lots more.
Merry Christmas, indeed!
The unemployment rate has finally dropped below 8% to 7.8%! Or has it? Really?
The latest numbers are a head scratcher. The Bureau of Labor Statistics (that’s BLS, not BS) reported that only 114,000 non-farm payroll jobs were added in September. That’s well below the 206,000 increase in the working age population.
As we’ve previously reported, the overall unemployment rate has been dropping not because new jobs are being created, but because many people have stopped looking for work or are underemployed in part-time jobs.
Yet the BLS reported that 418,000 people were added to the labor force in September. So how can the unemployment rate fall when the number of people added to the labor force is nearly four times the number of new jobs created?
Have hundreds of thousands of people suddenly become farmers, in which case they wouldn’t be included in the stat? That’s not it.
The BLS explains that, “The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) rose from 8.0 million in August to 8.6 million in September. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job.”
In BLS-speak, people who are underemployed – i.e., all of those new involuntary part-timers — are counted as being fully employed and those who have given up looking are not counted as being unemployed.
Still, a sudden jump of 600,000 part-time jobs in a month is hard to believe, as it is inconsistent with previous months.
Is progress finally being made on the employment front? Or is it just convenient to the Presidential election that the unemployment rate has finally fallen below 8%?
As one analysis put it, “how do you have a 600k jump in part-time employment in just one month before the beginning of retail season with nobody realizing it until the BLS published today’s report?”
Even if the unemployment rate has indeed dropped to 7.8%, as the BLS reports, keep in mind that the drop is to the commonly reported U3 rate. The broader U6 rate, which includes those who had stopped looking for work is at 14.7%.
Bond buying will pump money into the economy and reduce long-term interest rates, which are already at historic lows.
Theoretically, this will give consumers a greater incentive to spend their money now. Or it would, if they had money to spend.
The Fed announcement comes on the heels of a Census Bureau report that annual household income fell in 2011 for the fourth straight year to $50,054, which is the level it was at in 1995.
In addition, of course, many Americans are currently living off of their unemployment benefits. As we reported, many Americans have given up looking for jobs. The deficit between the number of jobs created and the number of jobs shed exceeded 200,000 in August alone.
While the reported unemployment rate dropped from 8.3% to 8.1% in August, if those who are underemployed and those who have stopped looking were included, the real unemployment rate would be about 19%, according to The Wall Street Journal.
And, of course, bond buying will increase inflation. Many Americans, who are barely subsisting, will need to find a way to spend more on food and gas. So, tell me again, how is this helping the middle class?
Want to reduce the unemployment rate? Stop looking for a job.
More than 300,000 workers dropped out of the labor force in August, while employers added just 96,000 positions.
In the bizzaro world of Washington, D.C., that cut the unemployment rate from 8.3 percent to 8.1 percent.
Now if we can only get a few million people to stop looking for work, we can achieve full employment!
