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Friday, April 03, 2015

Unfortunately This Employment Report Was Not A Surprise

Still it's unwelcome. There is always the hopeful prospect of spring, and so far housing is okay when you look at weather effects, and the change in FHA premiums will help.

BUT, the employment report shows several disturbing characteristics. 

1) Household survey Feb/March combined total employment gains are 130K, for 65K average, with only 34K new jobs in March. 
2) Feb/March not-in-labor force numbers increased 600K, so of course the unemployment rate is not rising.
3) The Establishment survey shows different numbers, but the same sharp down-swing in employment increase, confirmed by drops in hours measurements.
4) The agreement in trend for March between two very different ways of measuring employment suggests that this is real, at least for the time being.
5) The temporary help indicator went negative in Jan, stayed negative in Feb, and rose 11.4 in March. I wouldn't get too hopeful about that March rise. because the overall category didn't rise, which may mean that companies don't want to hire permanents and went to temps.

One is tempted to put on the rose-colored glasses and announce that this is centered in manufacturing/strong dollar effects, and has natural limitations, and so forth. But that is why paying attention to the CMI B2B credit report referenced in the previous post is wise. The implications of CMI are that we have a propagating effect. If CMI were to take an uptick, then I think we would see employment follow. The type of financial stress shown in CMI does not contribute to good employment numbers.

I am not saying that a recession impends, because I feel sure that all the required factors have not lined up yet. But CMI is predictive, and the drops in indicators there are very significant and definitely don't forecast any trend improvement for April.

This trend is not our friend.

Lastly, you should take the reports of epic employment gains over the last year with more than a grain of salt. Covered employment gains YoY have not gone up since 2013:

When you see a credit contraction and YoY covered employment change is even stalling out for a significant period, you need to be very alert. If stimulus can't come from business spending, and it can't come from wage spending, then it has to come from government spending or lower interest rates. We have kind of tapped out low interest rate stimulus, anything the federal government dumps in the pot will be more than removed by necessary increases in government taxes at the state and local level, and I doubt the Fed will launch another QE.

We do have a little interest rate stimulus in the form of good mortgage rates and the policy change in FHA, which can provide some help to first-time buyers. However that's not huge, and if individuals sense problems on the ground, they won't buy a first house unless they have a lot of money in the bank. FHA buyers generally don't.

Note - what's confounding about covered employment is that it should have increased a lot due to the permits granted over the last few years to individuals allowing them to work legally, which should shift already-existing employees from the shadows to the light.

Comments:

I'm not sure that immigrants with temporary permits are taking above-board jobs. I haven't observed a shift around here in immigrant employment--they're working the same cash jobs they always did (lawn maintenance, construction, etc.).

I think it would require some undercover work to find out what people are really doing in response to the new regulations. Don't the permits allow one to file for unemployment, food stamps, etc.?

 
Covered employment as a percent of working age population:
https://research.stlouisfed.org/fred2/graph/?graph_id=232146


 
"...what's confounding about covered employment is that it should have increased a lot due to the permits granted over the last few years to individuals allowing them to work legally..."
= = = = = =

This may indicate that those "people in the shadows" *LIKE* being in the shadows!!

El trabajador gets paid in cash, so he has no verifiable income (and the employer can call it "contract work" and make sure the total paid is under $600/yr), thus he-and-family are eligible for all kinds of benefits; there's NO worry about getting back his withholding (since no taxes were deducted); he's got no permanent address and is not-on-the-grid, so "La Migra won't know where to start looking for me".

If he runs out of bennies in location "A", the worker can change his name or SSN or address, and apply for NEW benefits for the next term of eligibility.

Why be legal, when (at least for some) illegal pays so well?
 
That could well be true, A_Nonny.

Plenty of people who have all the credentials are working under the table.
 
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