A Three Ring Circus

My Two Cents

Andy Sutton * Gold Seek

Just when you think things can’t get any more ludicrous or obscene in terms of insulting the truth, out comes the BLS with its monthly jobs numbers. I’m going to break those down in a minute. But wait! There’s much more. We’ve got the fed, which had been promising to raise rates starting in 2010, then 2011, then ’12, and now they’re all the way out in 2015. Double that for the monetization (not just asset purchases). Those programs were supposed to be exited, starting this year. Now those exit plans are going to be redrawn. I’d say at this point they should just drop the charade. Anyone with a pulse and two brain cells knows that ZIRP (zero interest rates in perpetuity) and monetization are both here to stay. And that will remain the case until the next monetary scheme – whether it ends up being regional or global – is concocted. And then there is the ongoing ‘fiscal cliff’ disaster. Which is not new, but is merely a by-product of the last compromise a whole 16 months ago. Our leaders created the cliff; now we get to jump off of it. Or be pushed, whichever you prefer. Buckle up folks, its’ going to be a raucous and wild column this week.

The Labor Market – One Step Forward, Two Steps Back

The propaganda meisters at Bloomberg were out in full force early this morning as BLS reported the November employment situation. 7.7% unemployment is the headline number and that’s what you’ll get when you turn on the daily soap opera, aka ‘news’, this evening. This might have been the worst report yet, but you won’t get that from the press. Now there are probably a lot of folks who are going to accuse those of us in the alternative media for having a permanent case of cynicism. I wouldn’t go that far. It certainly isn’t good that our economy is in such a shambles that we have to rely on seasonable, part-time, and lower-paying service jobs to get by, but looking at the shopping mall parking lots, things can’t be that bad. Right?

On to the BLS and its’ monthly edition of the statistical circus. ‘Officially’, 146,00 new jobs were ‘created’ in November and the unemployment rate fell to 7.7% Let’s break that down. First, don’t forget that the US needs to create around 150,000 new jobs each month just to keep up with population growth. So before we go any further, November is a wash. But let’s play it out, shall we?

In November, the CESBD (birth/death) model of new businesses actually subtracted 29,000 jobs from the total, not added, which has been customary. A first look indicates that this could very likely be due to the massive hurricane that hit the East Coast last month. Ironically, the NY Times spun the failure of Sandy to hit the jobs report as a sign that the economy is moving into super-strong mode. Not so fast guys.

Goods-producing jobs saw the second decrease in 4 months, shedding a total of 22,000 jobs in November, and for the previous quarter, the goods-producing sector lost 21,000 jobs. This is a principle case where the government’s own data bucks its assertions that manufacturing is returning to America. The manufacturing sub-section is down 13,000 jobs in the same period.

As usual, the majority of jobs ‘created’ were on the service side. I’ve been asked many times why this is a sticking point economically and a big deal. Generally speaking, if this situation were reversed we most likely would be looking at much smaller trade deficits at a minimum, and would perhaps even have surpluses. Nearly all goods can be exported. It is impossible to export a haircut for instance.

The big winners in November were predictable. Retail trade (52,000), leisure and hospitality (23,000), healthcare and social assistance (22,000), education and health service (18,000), and temporary help (18,000) were the big winners. With the possible exception of certain healthcare jobs, at least 133,000 of the 146,000 jobs allegedly created were of a subsistence nature in terms of pay and benefits. Goods-producing jobs, which generally pay more, disappeared in November in the aggregate.

The biggest piece of data, which got marginal attention, is the fact that another 540,000 people LEFT the workforce. This is the number one biggest reason why the unemployment rate has been falling. In idiotic BLS logic, if you have fallen off the unemployment wagon and have given up looking for a job, then you must have found one and are no longer counted as unemployed. Workforce participation is at multi-decade lows and this tells the story better than anything else BLS is reporting.

The labor force participation rate hasn’t been this low since 1980. While the average onlooker might quibble and say we’re only talking about a few percentage points worth of change over that time, it translates into literally millions of people that have left the labor force. Granted, some are retirees. The baby boomers will skew this number a tad, but their exit presents a fiscal cliff of a genuine nature, not the manufactured, cheap show that we’re getting right now from Congress and the press.

The take-home conclusion from the BLS report is that our economy is continuing the fundamental change that has been ongoing for the past decade or so as more people will be working lower-paying service jobs. Couple that with the blowout in housing and it is easy to understand why household net worth is at 43-year lows. Expect that to get worse. Also, watch for revisions (most likely downward) in November’s numbers. September and October were revised downward a total of 49,000 after the fact – with no media coverage of course. Expect the same to happen again for November.

The Saver’s Death Sentence – Continued, Not Commuted

The federal reserve made a point of giving savers a death sentence when it reduced its fed funds rate to near 0% what seems like a thousand years ago. But it was going to be short in duration. It wasn’t going to last very long we were promised. We’ll raise those rates as soon as the economy starts growing again. Now, four years into ZIRP there is still no light at the end of the tunnel and the window for keeping rates buried continues to get pushed further into the future.

The same can be said of the fed’s various asset purchase programs which I’ve analyzed ad nauseum on several prior occasions as serious encroachments on private property rights as opposed to being economic stimulus programs – the ridiculous notion pushed by the fed and in the press.

There is increasing speculation and likelihood that the fed will expand its asset purchase programs when it meets next week. The cover for doing so will be the flagging economy and a weak labor market. Justifying this move will be the assertion that inflation is tame as measured by the CPI, which has about as much relevance to the average American as the price of vacations to Mars. Few people seem to be making the connection that the fed taking ownership of everything from car loans to USGovt debt is doing nothing to help the economy, nor was it ever intended to.

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