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Friday, August 01, 2014

Employment Report, Interesting

In most respects this is a good report. Again, the two-month tally of jobs gained has a strong correspondence between the Household survey and the Establishment survey, which should raise confidence in the results. 

The unemployment rate ticked up to 6.2%, but this was due to increased participation, with the number of persons coming back into the workforce higher by 141 thousand. So the Household survey shows 131,000 new jobs, but 197,000 more unemployed persons, with the not-in-labor force tally dropping by 119,000. This usually indicates a stronger labor environment. 

My attention was caught by the rise in the unemployment rate for women. The rate for adult men did not change at 5.7%, but it rose from 5.3% to 5.7% for adult women. Checking A-10, which gives the age breakdown, one sees that it is mostly in the 55 and over women. For that cohort, unemployment over the year increased over the year (4.2% -> 4.6%) and over the month (4.1% -> 4.6%). 

Usually such a change is due to weak household finances, but I checked the geezer table (A-6) to be sure, and indeed it is not in the 65 and over crowd.So I think this is reflective mostly of tight household cash for a cohort of low-to-moderate income households.

The Establishment survey shows that the relative weakness in job gains this month compared to last month is in services. At 140K that is low, and lower than last July. It was widespread except for government, which has racked up increases in June and July. But I think this makes sense, given the strong services hiring in preceding months, and is not an indicator of problems. Goods-producing employment was reported as being very strong at 58K. 

So I think the picture is pretty consistent. The question is whether US households can maintain final demand. Cooler summer weather in summer regions should be helping household finances, but of course it also raises concerns about what the winter will be like! 

In most respects the current reports are coming in very consistently, with just two outliers. Chicago PMI showed a sudden drop in which I do not quite believe, and petroleum demand seems to be too low for the other reports. I can possibly argue the distillate figures as being attributable to lower utility demand and increased rail freight, which is exceedingly real. Yet the gas doesn't match the jobs either. 

Rail has been, as always, extremely indicative of the movements in the overall economy this year, so I am watching rail for signs that would indicate the next slowdown. B2B credit has been showing increased signs of money shortages along with an increased rate of economic activity, so now it is just a question if we can consolidate our finances in time to ride through what looks likely to be another bad winter. July B2B looked better than June. 

Small Business (NFIB) shows that there are real inflationary pressures in the economy, with hiring desired but apparently being unaffordable for too many small businesses. I am waiting for the next NFIB report to see what it all means - it is one of the large survey samples so it should tell the tale.. Prices for small businesses have risen sharply against flat plans, so the money crunch is real, and compensation costs are rising over planned. The June NFIB report and the June CMI agreed. Improvement in July CMI published yesterday may auger improvement in the July NFIB. 

There's a Main Street crunch which means that costs that should be trending down over the next six months may not. Feed prices should be falling and therefore consumers should be getting assistance, but it looks like everyone is trying to make up lost ground. 

So I am still at the 15%-20% chance of escaping recession next year, and biting my nails over the suspense!

PS: Update to Depressing Graph:
It is absolutely the case that persons may not be able to afford to work.

Isn't the job increase almost all from part-time employment?
People may not be able to afford transportation. I am not seeing vehicles that run for less than $1000. If you can't drive to work, you are unlikely to be able to work at part time jobs. And once again, it may be easier to cobble together a living (scrapping, flipping low end cars, odd jobs and EBT) than to find a regular job.
The jobs situation report showed 141,000 jobs lost in the 25-54 age group. Something is really wrong here.

Catering to the well to-do is a viable way to make a living and will be more so in the future.

I think automation is going to massacre jobs, including service jobs, but less so service jobs.
I was trying to tease out the number of part time jobs, but I wasn't sure if I was looking in the right places.
Automation is why it's so important to improve labor market flexibility (i.e., remove regulations). People are going to find something to do with their time, and some way to earn a little cash. If it's complicated to do so within the legitimate labor market, then they'll go into the black market.

The barrios and ghettos provide a demonstration of what this looks like. For one reason and another, those folks have trouble getting into the legitimate labor market, but that doesn't mean they just collect welfare checks and sit on their hands.

Now, imagine the effects on societal cohesion if most of lower-middle-class America joined the black market. Heck, the Scots-Irish always have one toe pointed in that direction anyway...

Notes from outside the USA:

" The People’s Bank of China warned that the country’s credit and money supply have increased rapidly and indicated that it will refrain from broader monetary easing to support growth."


Eurozone CPI ( YOY ) falls to 5 year low...


Japan Q2 2014 GDP growth could be -5%


Prices are too high.

Car prices are absurd because of subprime loans and the evil skill of the auto cos. to sell the payment not the price.

Education price is ridiculously high because of the government created industry cartel.

Health care prices are absurd because of the government supported industry cartel.

We are all slaves to the prowess of the Goebbels MBA marketing departments staffed by employees who have psychology undergraduate degrees and no morals.

As a corporate finance C suite guy I was in awe of the skill of the marketing people to find the weakness and go in for the kill.
My friends view me as right of center. My ex-friends view me as radical right wing. Little do they know of my bleeding heart.

We cut off extended unemployment benefits only to see the FRED chart line in “Not in the Labor Force, Want a Job Now”, spike upwards.

You may have no idea what it is like to keep on going to interviews that mean so much because you put days, weeks and even months in trying to get them, and at first several years ago one was treated politely and now the brats can’t even look you in the eye to tell you that you are worthless to them.

The black market, @Neil is the way it is going to go.

Joseph, I was out of work for 13 months, following the dot.com bust. Had to take an $8 an hour job when I ran out of unemployment benefits. I had been making $50k at the job. After all this time, I am finally making as much as I had been making on unemployment. I call it "career deflation". And yes, I put in applications in all sorts of places and they wouldn't even bother to respond. You can count on that being even worse, with the flood of illegals.

Black market is the way to go and you'll see more ex-middle class people going that route.
Teri: Growing up, they said eastern Oregon was nice country but "bring your own job".

Now we've rolled that situation out nationwide.
Yeah, and Spokane was brutal too. I had to borrow money to get out of the place and that was back in the 80s!

I can understand being broke in the country (which I've been a lot) because the jobs just aren't there. When I was laid off in town during the tech bust, they also laid off a whole plant full of Sharp electronic workers. It was pretty bad.And it would be easier to cobble together a living if it were possible to string together a couple of part time jobs. That's very difficult these days.
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