Archive for the ‘Unemployment’ Category

Economic Schizophrenia

Monday, June 8th, 2015

Schizophrenia is “a long-term mental disorder of a type involving a breakdown in the relation between thought, emotion, and behavior, leading to faulty perception, inappropriate actions and feelings, withdrawal from reality and personal relationships into fantasy and delusion, and a sense of mental fragmentation.”Personal Income

In general use it is referred to as “a mentality or approach characterized by inconsistent or contradictory elements.”  It is also often used to refer to someone with a split personality.

It is a truly severe mental disorder that is difficult to treat.  And it seems to be a perfect description of today’s economy.

Thursday: Don’t Raise Rates This Year

As a recent example, consider last week’s announcement by the International Monetary Fund (IMF) that it was lowering its growth estimate for the U.S. economy from 3.1% to 2.5%.  Both estimates are well below the 3.3% annual growth rate that was the norm before the financial crisis, but even 2.5% is average the average we’ve seen throughout the Obama presidency. (more…)

Appearance vs. Reality

Monday, April 6th, 2015

Maybe if the good news about the U.S. economy gets repeated often enough, appearance will become reality.

We’re not there yet.

The official word from the U.S. Bureau of Labor Statistics is that the unemployment rate has been cut nearly in half, from a double-digit 10% in October 2009 to just 5.5% today.  As the chart shows, unemployment has been steadily falling and, given today’s improving economy it should continue to fall.  So all is good, right?

Appearance

Appearance

 

Not really.  Even CNBC, which is not exactly an anti-government media outlet, has caught on that the U-3 rate is bogus.

CNBC wrote that, “A number of economists look past the ‘main’ unemployment rate to a different figure the Bureau of Labor Statistics calls ‘U-6,’ which it defines as ‘total unemployed, plus all marginally attached workers plus total employed part time for economic reasons, as a percent of all civilian labor force plus all marginally attached workers.’ ”

In other words, the U-6 rate is what any sane individual would consider to be the real unemployment rate.

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AP Poll: Americans Want Less Economic Growth

Monday, March 2nd, 2015

Well, here’s a shocker.  A new AP poll shows that a majority of Americans want a higher minimum wage.  They also want paid sick leave and parental leave, free community college and more gender equality laws.  And, of course, they want wealthy taxpayers to pay for all of it.

Who wouldn’t?  The poll doesn’t ask about the resulting economic impact of these feel-good policies.

Polls are supposed to be objective.  They rarely are.  Asking Americans if they support a higher minimum wage isn’t too far removed from asking, “Do you want to help poor people?” Transfer Payments

Pollsters will never ask questions such as, “Studies show that increasing the minimum wage results in fewer jobs and slower economic growth.  Do you favor an increase in the minimum wage?”

The Poll That Will Never Be

To provide some balance, perhaps AP should poll Americans about the following questions.

Do you favor higher unemployment and lower economic growth?

It’s basic economics that when the price of something goes up, demand falls.  Increasing the minimum wage, and requiring paid sick leave and parental leave may be desirable for employees, but many would lose their jobs as a result.

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Economic Dissonance

Monday, February 9th, 2015

In today’s economy, the theory of cognitive dissonance is itself dissonant.

Social psychologist Leon Festinger believed that humans strive for internal consistency, and that two or more contradictory beliefs cause mental stress.  Yet in today’s world, it seems that every policy, every vote, every executive order is designed to contradict rationality and add to our collective mental stress.

We’ve given a few examples of economic dissonance in the past:

The stock market.  During six years of quantitative easing (QE), bad economic news caused the stock market to rise and good economic news caused the stock market to fall.  That’s because bad news meant more Fed bond buying and good news made bond buying unnecessary.

Higher inflation.  Lower oil prices have done more to give the economy a boost than trillions of dollars in bond buying – yet the Federal Reserve Board has fretted that the U.S. is headed toward deflation.  Its policies were designed to increase inflation to the magic rate of 2%.  Why 2%?  No one seems to know.College Costs

The unemployment rate.  The widely used U-3 unemployment rate drops when people give up looking for work and leave the workforce.  As a result, we have absurdities such as this latest report from The Boston Globe:

“U.S. employers hired at a stellar pace last month, wages rose by the most in six years, and Americans responded by streaming into the job market to find work.

“The Labor Department says the economy gained a seasonally adjusted 257,000 jobs in January. The unemployment rate rose slightly to 5.7 percent from 5.6 percent.”

So Americans are “streaming into the job market” – causing an increase in the unemployment rate! (more…)

Repeat After Me: The Economy Is Improving. The Economy Is Improving.

Wednesday, October 22nd, 2014

If you repeat something often enough, you may even start to believe it.

So try this phrase: “The economy is improving.  The economy is improving.  The economy is improving.”

Certainly, the U.S. Bureau of Economic Propaganda (aka, the U.S. Bureau of Economic Analysis or BEA) would have you think that’s the case.  The BEA initially reported growth in gross domestic product (GDP) of 4% for the second quarter of 2014.  That seemed like quite a leap from the first quarter’s -2.9% contraction, but the BEA adjusted that number to “negative growth” of -2.1%. Household Income

That’s old news, though.  Thanks to “a larger than previously estimated increase in nonresidential fixed investment,” the BEA announced in August that second quarter growth was really 4.2%.  A swing of 6.3% in a single quarter!  Well done!

But wait … there’s more.  The BEA announced in September that second quarter growth was 4.6%!  The BEA cited “growing personal consumption, private inventory investment, exports, both residential and nonresidential fixed investment, as well as local government spending,” none of which apparently existed when the BEA gave its first two estimates.

We can hardly wait for October 30, when the BEA is scheduled to report Q3 results.  Maybe by then, we’ll learn that second quarter growth exceeded 5%.  It will be interesting to find out whether Q1’s negative growth was an aberration or whether Q2’s giant leap forward was an aberration.

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Less than “Less than Zero”

Friday, September 5th, 2014

In June, the ECB lowered the interest rate on bank deposits, including reserve holdings in excess of the minimum reserve requirements, from zero to -0.10%.  This week, surprising just about everyone not named Mario Draghi, the ECB lowered the rate by another 10 basis points to -0.20%.

14950766600_d52f0bba78_zAs we wrote when the less-than-zero rate was announced, “banks will pay a fee on money they fail to lend out.  Whether or not that stimulates the economy, it could encourage banks to take more risk, approving loans that otherwise may not have been approved.  Isn’t that what caused the financial crisis?”

Zerohedge explained that while rates were already negative, “Now they’re even more negative. Because in the world of Central Banking if something doesn’t work at first the best thing to do is do more of it. Whatever you do, DO NOT question your thinking or your economic models at all.”

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The Economy Is Booming – For the Repo Man

Friday, August 22nd, 2014

“Credit is a sacred trust, it’s what our free society is founded on. Do you think they give a damn about their bills in Russia?”                                                                                                                                                 Bud in “Repo Man”

The good news for the economy is that consumers are buying more.  The bad news is that they’re not paying for what they buy.

The Urban Institute found that more than a third of Americans are not only in debt, but are being chased down by debt collectors.  Debt collectors are, of course, a last resort; they’re used when all else fails and the debtor is more than 180 days past due.  When a consumer goes six months without paying a bill, it’s a good sign the person either has no intention of paying or is unable to pay.

Yet about 77 million Americans – 35% of adults with a credit file – have debt in collections.  They owe an average of $5,178, which doesn’t sound like much, but keep in mind that’s debt that’s gone into collection, not total household debt.  It does not include mortgage debt, but does include credit card, medical and utility debt.

Consumer creditThe average American household has $15,480 in credit card debt alone and consumer debt totals $11.74 trillion.  Add in federal debt, corporate debt, state government debt, municipal debt and the debt of other countries and it’s a wonder that anyone anywhere is still solvent.

You may recall the cheering that took place in 2009, when consumer debt levels decreased.  But, as the chart shows, that was a small mogul on a steep and steadily rising mountain of IOUs.

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Baby Boomer Bust

Friday, August 15th, 2014

Each day, another 8,000 baby boomers turn 65.

The U.S. Census Bureau says there are more than 77 million baby boomers, defined as those born between 1946 and 1964.  By 2030 all boomers will be over 65 and will represent about 20% of the population.

So, given the growing number of boomers who have reached retirement age, why is the unemployment rate still so high?Over 65 retirement

Based on the official U-3 statistics, unemployment is still at 6.2%.  That’s much better than the 10% rate we had in 2009, but it’s considerably higher than the 3.9% rate the U.S. enjoyed in 2000 – which was long before baby boomers even thought about retirement.

If Americans are retiring at 65, that should open up more than a quarter million new jobs per month – on top of job growth caused by economic recovery.  So when the Bureau of Labor Statistics reports that 205,000 jobs were created in July 2014, it’s not exactly a sign of prosperity.

The U-6 unemployment rate, which includes those who have given up looking for work, is still 12.2%, which is practically European.

So why is the unemployment rate still stubbornly high?

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Attention Deficit Capitalism

Friday, June 13th, 2014

“Democracy would not be democracy, rule of the people, without at least a modicum of political attention and activity from its citizens.”                                                                                                                                                                                              James Bovard, Attention Deficit Democracy

Is anyone paying attention?

It seems as though the faster the world moves, the shorter our attention span becomes.  And today, speed is measured in nanoseconds.

Many have become complacent as technology has taken over.  High frequency trading, in which computers make the decisions, accounts for the majority of trades today.  HFT is based on arbitrage.  Computers look for discrepancies in pricing and take advantage of them, and that’s how money is made.  A company’s performance is irrelevant.

Humans created computers, but can’t compete with them.  They can try to produce a better algorithm, but the computers will make the decisions.epi_college_unemployment.png.CROP.promovar-mediumlarge

Technology has affected much more than just trading, of course.  Consider communications.  The telephone made it possible to communicate almost instantly.  The Internet, though, has made communications even faster.  Anyone with a computer can send a message to a database of thousands with the click of a mouse.  We can not only hear, but see people anywhere in the world while we talk to them, and our smartphones guarantee that we remain virtually connected at all times.

These and other technological developments have been a big boost to productivity, but they remove the human element.  Life in real time is also life on auto pilot.  We’re connected electronically, but disconnected socially and emotionally.

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Household Income Shows Troubling Outcome

Friday, May 23rd, 2014

Hold off on the victory dance.

The 2014 “Economic Report of the President” and many media reports indicate that the U.S. economy has finally recovered.  But has it?

One measure of economic health is household income.

Historically, America has prospered, as each generation typically has earned more inflation-adjusted income than the generation that preceded it.  The American Dream is not just to succeed yourself, but to provide your children with a better life.

A better life means more than money, of course, but money enables the next generation to do more, live more comfortably and worry less about making the mortgage payments.  Materialistic though it may be, it’s part of the American Dream.

So it’s alarming to see the drop in income that has taken place since 2007, when the financial crisis began.  Median household income has dropped from $56,000 to $51,017, which is a dip of nearly 10%.

We’ve had dips before, as the chart below shows, particularly during the “stagflation” years of the late ’70s and early ’80s.  But this has been the most dramatic drop in income in recent history.

Household Income

Household Income

When household income shrinks, some in the middle class risk sinking down to the lower class and those on the cusp of becoming middle class no longer are able to achieve that status.  As the lower class grows, government expenditures grow, resulting in higher taxes and even further erosion of discretionary income for those in the middle class.

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