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Friday, July 05, 2013

Employment Report Is Unremarkable In Every Respect

It is honestly and squarely more of the same.

So what's the same? The unemployment rate is not dropping, but that's because workforce participation is increasing. Since April it's moved from 63.3 to 63.5. The emp/pop ratio is at 58.7, which exceeds last year's 58.6. That's all mildly good news.

Mildly bad news on the Household figures is a 350K increase in slack work part-timers.Discouraged workers show a big YoY increase. Marginally attached workers likewise. The 25 and over unemployment rate ticked up .1%, but at 6.2% it isn't bad at all and this month's uptick seems to be related to graduations.

Good news on the Establishment Report is that we peg in +195K jobs, just about the exact level we've had for three months. Bad news is that increases are too weighted toward the low-paid services (leisure, hospitality, retail), which generates strong suspicions that restrictions on part-time hours to reach the oh-so-sacred not-more-than-29 hour level are generating much of this increase. (The delay of the ACA employer mandate to 2015 won't change this, because the determination of the fines is from the prior period, so it's the previous year or previous six months. Employers are going to stick with and increase their part-time controls to avoid the fines.)

The manufacturing diffusion index has been in the 40s for months. It had improved in May, but in June it moved down again to 46.3. Still not awful. This is not a very strong economy at all. There are a lot of constraints, chiefly tax increases.  

But it's stable. Increasing construction is not brilliant, but enough to generate some activity. And increasing construction always sells trucks, which is good news for the domestics. Huge profit there. 

Can this economy withstand a hefty increase in oil prices? NO! No. 

But whether we can avoid a ratchet up in oil and inflation is questionable - this economy is strong enough to generate inflation on that side as the great Fed-cycle Flight of the Bondholders darkens our financial skies, but of course it will knock through the bottom supports. The shift up in oil is purely a migratory phenomenon, and it will end as all such do - either by the Fed tapering fast enough to knock the slats out or by recession. It may be recession. We have too much money in the system to control.

Discretionary spending is poor due to tax increases and employment isn't strong enough to really help spending capacity very much. On a YoY basis, we have gained a bit under 1.4 million full-time jobs. In June 2012, on a YoY basis we had gained about 2.7 million full-time jobs. Weakness is developing, and it will have to be watched. We are still close to 5 million jobs lower than in June 2007.

So my conclusion is that fundamentally we are in recovery. If it were not for that very scary Fedwad sitting out there, waiting to start rolling down the hill a la Indiana Jones, I'd be relatively confident for another year. As it is, I am not. This is an acutely imbalanced system and almost anything can happen. One of the worst problems we face is that there have to be international migratory shifts due to problems in other global powerhouses.

China is in such a deep hole that anything can happen. Growth keeps slowing while loans keep increasing. All that talk about correcting lending must be only talk - the moment the banks stop advancing new money on all those non-paying loans the whole edifice comes crashing down. HARD landing. Very hard. I imagine many are trying to quietly remove exposed positions and get them to safety.

Japan is seeing slight improvement but most of it is illusory. Exports actually aren't doing very well at all when you adjust for currency. And the new money isn't circulating domestically. I don't think it can. Japanese manufacturing has been gutted, the power problems aren't going to improve, and weakening the yen is not going to accomplish much because it subtracts from money domestically circulating.

Intermodal freight in the US is just slowly walking down, which means our demand doesn't bail out China. Europe is still in angst, and cannot improve much this year.

Comments:
M-o-M, What does this report imply for the timing of Fed "tapering"?
 
If the employment figures aren't changing and the economy is still looking feeble, why did the 10 year jump from 2.48% to 2.71% today?

The conventional wisdom in the bond market seems to be that everything is going well and the Fed will soon begin to let rates go wherever the market will take them. This seems very wrong to me. Or has the Fed lost control of rates?

A belated welcome back to posting, MOM. Your blog provides much needed insight for these old eyes.
 

The employment stuff does seem to make sense, considering ACA employment effects. It seems to be difficult right now to hire good temporary help. Some large percentage of the labor market is too concerned with whether they can make enough money to justify dropping their unemployment and disability--that keeps coming up as a question. It's making expansion a dicey proposition.


 
Jimmy & Joseph - oh, the Fed is going to taper as effectively announced in the last FOMC meeting. Three months of 200K plus has got to mean something.

Or at least, that's what everyone thinks it will do, so rates pop up. And people flee bonds. And oil goes up, because what else is there? Buy a ton of shares in some nice Chinese bank? India's very shaky.

Next we go to housing woe Part II, as new home buyers continue to be edged out of the market. Investors can buy, but fewer of the first-time prospects will be able to get in.

I think the Fed will be afraid not to taper, because they have to be acquiring a sense that all is not as smoothly controlled as hoped. Prof Ben seems to think that somehow repeating that rates won't go up will make Mr. Market think rates shouldn't go up, but Mr. Market is focusing more on the dearth of buyers at low rates.

Higher rates for Treasuries will attract buyers. Eventually.
 
Uncle Ben is hoping he can retire to academia and leave some other banker the unenviable task of riding the quantitative easing tiger.
 
What did you think of the 0.5% jump in U6?
 
WSJ - U6 includes involuntary part-time plus discouraged plus marginal, so the big jump in part-time and discouraged explains the rise in U6. Discouraged was 0.2 and part-time was 0.3.

We do definitely have a full-time employment problem.

I keep reading happy-dappy stuff in the financial press about employment increasing demand, but when I look in the stores I don't see it, inflation says the reverse, and when you stop and really look at the wage and employment figures, you realize that a lot of people are just scraping by.
 
MOM:

First, I think much of these employment increases are being driven by ACA. The cafeteria in the plant where I work is staffed is run by a third party. They ladies there just got their hours cut to 28/week. I imagine this is happening throughout the food service industries. The WH must see this, and is panicking.

Second, I see food inflation everywhere I shop. The rate of change has slowed as the drought has abated, but I am paying way more for meat and diary than last year.
 
Eligibility for government subsidies under Obamacare will be now self reported by the consumer. No verification. Reminds me of the "stated income" home loans:

http://tinyurl.com/n46mfph
 
I am seeing people getting priced out of even the rental market. My co-worker said he is having to pull together basically three months rent to move into a new place (1st, last, and deposit). He and his girlfriend both work, but still, that's hard to come up with. We took my boyfriend's disability check in May to pay property taxes, so there won't be any discretionary spending here for awhile ;)

I know of a couple of folks that have been paying $300 a month to rent a small travel trailer. And I've heard of the same sorts of prices to rent a room in a house. It really is becoming hard for folks on the bottom to keep a roof over their heads. I don't see any solutions in sight for these issues. You can't say it's just because they don't want to work (although that could be true in some cases.) Many people are having to put together multiple part time jobs to make ends meet and doing a poor job of that.
 
No wage growth and fewer work hours means most
are getting poorer, even without much inflation. Can't
devalue the dollar without raising energy prices and rising
energy prices drag down the economy. Good luck Ben.
Sporkfed
 
Talked to my friend in Los Angeles. He went to buy paint on sale at the Home Depot during July 4. After purchasing two gallon pails, he noticed a charge for recycling the paint cans at $.75 each. He also mentioned that the gasoline tax in California had gone up $.03/gal effective July 1. If they keep this up California is going to become known as a high tax state, haha.

Learner2
 
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