There’s an interesting post over at Business Insider describing why the employment situation is even worse than you might have concluded from looking at the BLS’s employment situation report for June which was discouraging on its face. After the commercial the author, John Mauldin, an investment advisor, points out a number of reasons to believe that the report actually overstates employment and is putting an optimistic face on things.
First, the model for business birth and death during the business cycle probably needs to be recalibrated. The BLS and other analysts estimate the number of employed based on an historic understanding of how businesses are created or add jobs (“birth”) or are destroyed or eliminate jobs (“death”) throughout the course of the year and business cycle. This time around the BLS estimated that the strongest job growth, based on their model, would be in construction and hospitality which, according to their model, would have added 24,000 and 80,000 jobs, respectively.
That’s based on what we’ve come to think of as the normal pattern during the summer months when more commercial and residential construction takes place and people go on vacations. However, actual residential and commercial construction are both way down and fewer people plan to take vacations this year that at any time since the last record low which was last year at roughly this time. He doesn’t mention it but the oil blowout in the Gulf is probably contributing to a decline in hiring in the hospitality sector as well.
Remove some portion of those estimated jobs and it looks much more as though on net no private sector jobs were created last month.
Second, as I’ve pointed out, too, unemployment went down solely due to discouraged workers leaving the work force. The household survey suggested a continuing loss of jobs:
The Household Survey was rather dismal. (This is where they call households and ask about their employment situation.) The survey showed a loss of 301,000 jobs, or 363,000 jobs if you adjust it to match the Establishment Survey. Not pretty.
Finally, personal earning are down, too:
Average hourly earnings dropped 0.1% in June, something that David Rosenberg notes is a 1-in-50 event. The trend is downward, with annual growth of less than 1.7%. Average hours worked were also slightly down.
My friend and Maine fishing buddy Bill Dunkelberg, chief economist at the National Federation of Independent Businesses, has produced his monthly survey, and there was not much to cheer about from a future employment perspective. Over the next 3 months, 8 percent of the businesses surveyed plan to reduce employment (up 1 point), and 10 percent plan to create new jobs (down 4 points), yielding a seasonally adjusted net 1 percent of owners planning to create new jobs, unchanged from May and only the second positive reading in 20 months – but barely so.
The employment situation is not the only negative indicator. The M3 money supply has turned negative for the first time in decades and the “money of zero maturity”, a measure of liquidity in the money supply (M2 – time deposits + money market funds) has been flat for well over a year. That suggests that deflation may be on the horizon.
Happy Fourth of July!
The free marketeers continue to confuse me. They profess to believe in markets. They obsess over inflation. Bond rates, 10 year, are dropping. Why don’t they believe the market?
Way back when Verdon was writing on OTB that he was not convinced that we were in a recession or that this one was special, it seemed fairly obvious that this was going to be a big one. The debt levels here and abroad were at or near record levels in many places. In the US we have the double whammy of the boomers trying to work down their debt, while also trying to save for imminent retirement, something they largely put off since they had so much house wealth.
Consumers are not leading us out of this for a long time. Exports as a vehicle with Europe in trouble and China not wanting to give up its export economy is not likely either. TBH, I think government policy at this time is pretty limited in effecting any change.
Steve
The free marketeers continue to confuse me. They profess to believe in markets. They obsess over inflation. Bond rates, 10 year, are dropping. Why don’t they believe the market?
To take one example, stock markets have been described as popularity contests in the short term, but as weighing devices in the long term. It’s possible to believe in markets AND think that the market has it wrong right now. Markets will become unbalanced at times, and the smartest (or luckiest) investors will be able to take advantage of the inevitable re-balancing.
In fact, this is one of the recurring themes on this blog: that government in particular has had its thumbs on the scales for a long time, largely so that the markets will have results that are popular. (See housing, healthcare, etc, etc.) Personally I think the government has it’s whole damned body on the bond market scales, but no reason to get into that here.