Jobs Figures Continue to Deteriorate but are Simply Understated

Submitted By Trader Mark
It is hard to write a proper entry on the monthly jobs numbers because some readers have been here a long time, some for a while, and some just found the site yesterday. So I try to strike a balance - to be blunt these numbers are so poorly reported I've basically chosen to ignore them in terms of "analysis" but since they move markets we need to be cognizant they are there. Simply stated I believe they are far under reported.

For new(er) readers I think if you care about the markets and these government reports you need to seek out the truth/reality. Here are some earlier posts before I "suspended" coverage. First, we have the underemployment effect in America [Apr 2: The Underemployment Rate is Rising] I wrote

I've been struggling to think of a term for all these people who are struggling with part time work, working 2 jobs, or in contractor jobs where they get hired/fired on a daily whim ( I call them "nomad workers") This is a systematic and secular situation - nothing to do with 1 month's report or another. It is part and parcel with the erosion of living standards - and why so many in the middle and lower economic strata turn to home equity, credit cards, etc to just get by.

On the plus side, we can get to part of the unemployment number using the government statistics - I'll show you below. But whatever the "official" number is, understand many are struggling with multiple part time jobs or working in jobs they are over qualified for but need money to make ends meet as we move away from a "production" society to a "service economy" (you do my taxes, I'll cut your hair, she'll walk my dogs, he'll serve me a burger) as our multinationals move jobs away to cheaper labor pools.

Much like our inflation report, and our GDP report, our labor numbers have been "changed" over the years to reflect a "gentler, kinder economy". I always try to point newer reader to how statistics in our economy would look like if they were reported AS THEY WERE before the changes happen in the past 20 years by BOTH parties. Below is a chart from Shadowstats.com which shows our government figures (today) versus how they would show if we used methodologies we used to use when we actually told the truth to our people. So as you see below the blue line is reality and shows a country struggling at elevated unemployment for a long time, but now it is spiking. The red line is what you are told and the mainstream media will talk about (U-3). The gray line is the broader measure of unemployment (U-6) which includes people with PART time jobs but WANT full time jobs. The blue line is reality - this is U-6 + "discouraged workers" aka people who have plain given up. Because the dirty secret about the American unemployment reports are once people become discouraged and give up, after a short time frame they are no longer counted as unemployed. Period. They disappear into the ether.

Next, we have a nasty thing called the birth/death model which I wrote about extensively in the past [Jan 27: Monthly Jobs Report & Birth/Death Model] - again if you are new to the site or really care to understand the statistics you should read that post. In summary form this represents new business formation (or closing) in America - a guesswork. It is "fine" when the economy is generally trending slowly in one direction but terrible when we have changes in directions. And it has been manipulated like mad - over the past half year the government has been filling this data point with "new businesses/jobs" created in construction, financial services, manufacturing, etc. How is that possible? It's not - but that's what you can do when part of your official report is guesswork - you can put whatever number you want in it.

Now, those are the mechanical issues - even if you ignored all those, I have a major beef with the type of jobs we are creating which I outlined in [Apr 2: The Underemployment Rate is Rising] The major job creators in America, instead of say "making stuff other people want" are healthcare and government. Two things bankrupting the country; that's the dirty details behind the numbers.

We have 2 huge beaurocracies - federal government and healthcare. To keep the government from going even more insolvent we should in theory be cutting jobs from these 2 white elephants. Healthcare costs spiral out of control and we hire more people - I believe healthcare is now 16% of GDP. But how do you cut costs without cutting jobs? Thats the other dark secret - most of our recent gains in jobs are either government or healthcare related. So how do you fix the long term problems in either? Chicken or egg? They are sapping our national wealth away by their huge excesses/costs BUT they also provide the main job growth as well. As with everything my expectation is the "kick the can down the road" theory will continue - keep growing these massive beaurocracies (create more jobs and costs now) and let another generation pay for it.

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So with all that said I really get dispirited trying to even "report" this figure because it is so false - just know it is vastly understating conditions in America - in good times and bad. Many people are falling behind in this country; in the soft underbelly. And what jobs are being created are mostly in areas we should not be creating jobs - things that are bankrupting our country. But other than that - things are rosy.

For the past few months I simply point readers to Mish's (another blogger) website and copy his post about the Employment report whole hog since he does a good breakdown. But every so often I like to do what I do above and explain to new(er) readers what the version of reality you are hearing truly is and why the figures from government are a complete hoax. It is pathetic that when the numbers get bad, government agency after government agency has systematically changed the reporting methodology to make the numbers more benign the past two decades. And both parties are guilty of this, so there is no "one bad guy" - they are all bad
and trying to cover their behinds.

Further, numbers reported "now" are subject to revision "later" - for example June 2008 was reported "then" at 50K and the market was "happy". Today they say, oops we really meant 100K. So this is why the "strong" market reaction, positive or negative, is nonsense - not only are the numbers useless, they get revised within months. But that doesn't stop a lemming overreaction.

My last comment is employment is a lagging indicator meaning it will get worse from here. That doesn't mean in a straightline and due to the issues I outlined above it might look better next month or two months from now and people will scream the TURN IS HERE IN THE ECONOMY. Wrong. We have a service economy based on "shopping" and "homebuilding" during a credit contraction. Meaning people cannot spend like they used to. So we have a lot more bankruptcies in retailers and restaurants and places we used to spend money at. And those will create more job losses - it will be a spiral effect. This is why I continue to mock these moves into "early cycle" stocks - it's going to get worse, and potentially far worse, before it gets better. I said this over a year ago when the blog started, and it has come to pass - even when the economic data (at the time) was completely rosy and I sounded like a nut case. I continue to repeat the same mantra. We are still early in our "readjustment" period in America, and again I am talking the "economy" not the "stock market" which has a mind of its own.

On to Mish's evaluation of this month's report (my comments in blue shade)

Here is a synopsis of the BLS report.

The unemployment rate rose from 5.7 to 6.1 percent in August, and nonfarm payroll employment continued to trend down (-84,000), the Bureau of Labor Statistics of the U.S. Department of Labor reported today. In August, employment fell in manufacturing and employment services, while mining and health care continued to add jobs. Average hourly earnings rose by 7 cents, or 0.4 percent, over the month.

Highlights

8,000 construction jobs were lost
61,000 manufacturing jobs were lost (who needs 'em! they pay too much! ship 'em to Mexico and China)
20,000 retail trade jobs were lost (America is the home of retail jobs, this is a bad sign)
27,000 service providing jobs were lost
53,000 professional and business services jobs were lost (a service economy does not want to be losing service jobs)
55,000 education and health services jobs were added (shocker! healthcare jobs added!)
4,000 leisure and hospitality jobs were lost
17,000 government jobs were added (thank you government! Who pays for these new jobs? Oh yes - I do!)

A total of 57,000 goods producing jobs were lost (higher paying jobs), and for the second time this year service sector jobs were lost. Government, the last pace one wants to see jobs, added 17,000 jobs or the service sector would have contracted more.

This was a very weak jobs report. And once again the Birth/Death Model assumptions are absurd. Last month the birth/death adjustments were back in orbit somewhere near Mars. This month they returned to deep outer space where they have been every month this year except for January and July.

(click to enlarge)

(Mark's comment: again folks they are saying "new businesses are forming" and we added 16K construction jobs and 23K professional and business jobs, and 26K leisure and hospitaly jobs - all categories where the normal data showed LOSSES this month - this is an absurb figure - 125K new jobs created out of thin air this month alone - look at the data for the year - all these "new jobs" when the normal report shows job losses all year!)

Every month I say the same nearly the same thing. The only difference is the numbers change slightly. Here it is again: The BLS should be embarrassed to report this data.

Repeating what I have been saying for months now, virtually no one can possibly believe this data. The data is so bad, I doubt those at the BLS even believe it. But that is what their model says so that is what they report.

There is simply no way in a real estate crash that net new construction businesses are added. Nor are there net new professional and business services when mortgage and financial activity is collapsing. A quick check on the Mortgage Lender Implode-O-Meter shows that 280 Major US lending operations have imploded.

Table A-12

Table A-12 is where one can find a better approximation of what the unemployment rate really is. Let's take a look

(click to enlarge)

If you start counting all the people that want a job but gave up, all the people with part-time jobs that want a full-time job, etc., you get a closer picture of what the unemployment rate is. The official government number jumped to 6.1%, and U-6 (the most inclusive number) rose .4 to 10.7%. To the average Joe on the street unemployment feels more like 10.7% (if not 15%) than 6.1. Both numbers are poised to rise further.

Looking ahead, I expect the service sector to continue to weaken. Mall vacancy rates are rising and a huge contraction in commercial real estate is finally started. There is no driver for jobs and states in forced cutback mode are making matters far worse. (I agree wholly with Mish's comments here as I have stated this for over a year - the only place we are creating jobs continues to be our bloated healthcare system which is economically killing us in our pocketbooks, and our federal government which - is killing us in our pocketbooks - malls will continue to empty as people's wages do not keep up with cost of life and less people have jobs - it's a very sickening death spiral. We've spoken over and over how state budgets will be cut heavily NEXT summer - that's going to be another leg down)

****************** Back to my comments

Again folks, I can only speak to the US economy - not the stock market. The current thesis is "We're #1!" United States of Subprime will lead the world out of the darkness because well "We're #1!". The reality is it is going to be a lot more likely that a country coming off a 25 year binge of spending over our heads is going to be led out of our pain by our export economy by "backwards countries" that have high savings rates, and plenty of cash and expanding infrastructure. Sort of ironic. But for now the thesis is reversed - we, the biggest debtor nation in the world, and getting worse by the day (wait for the next stimulus checks baby!) are going to the lead the world out of this mess? That we are the poster child for? Right. But that won't stop the stock market from having these interspersed rallies on "hope" since people continue to go off "company led" recession models of the early 90s or early 00s... this is our first consumer led recession since the late 70s/early 80s, and apparently 90% of people were either not around during that time, nor read their historic texts about how that worked out. So they will "buy buy buy" anticipating the "imminent recovery in 6 months" as they have done continuously the past year. I figure about a year to 18 months from now they will have lost most of their money and given up. Just about the time the market really bottoms. I love irony.

Anyhow, we won't speak of this useless report for another 30 days until I bring these comments back for any new readers who join us in the next month. But I'd recommend you check out the links I highlighted above over the coming weekend if you want to see what is really going on in this country behind the "benign" government reports. Frankly if you've believed these reports the last year and made your investing decisions off of them you'd be down 30%+. And wondering how the heck this all went so wrong when the "data" looks just dandy.

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