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Posts Tagged ‘Department of Labor’

There is no question that seeing a positive sign in front of the employment numbers is an encouraging sign.  It has been a very long time since that has occurred.  On Friday of last week, the Department of Labor announced that 166,000 jobs were created last month.  As always, let’s drill down into the numbers and look at the real story.  In order to get on the road to strong economic recovery, we need to start seeing a creation of 250,000 to 300,000 jobs each month.  In fact, we need to see those numbers for a very long time just to get the millions of unemployed workers back into the workforce.

Of the 166,000 jobs created last month, 48,000 were temporary hires by the government in order to take care of the census.  Then there is my favorite government accounting methodology which is the birth/death ratio where the Government “estimates” the number of people who were hired and were not counted in the employment survey.  It is always dangerous to give politicians the license to estimate.  They “estimated” 81,000 jobs were created.  This leaves us with roughly 37,000 that were full time hires.  Temporary hiring is better than nothing at all.  Although any positive number is a welcome sight, this is not a solution to the longer term problem. 

There are a few other items worth noting.  I have written in weeks past that I felt we are in a strong deflationary environment.  Deflation, as you might recall, is an economic phenomenon that causes prices of almost everything to decrease.  Along with deflation, we do have some undesirable inflationary pressures.  Most people are not aware that the cost of oil is now $86.34 a barrel (as I write).  It continues to slowly creep up.  Of course, this ends up being reflected at the gas pump.  The other thing worth noting is the rise in interest rates.  Rising interest rates in a debt-plagued environment is not a good thing, especially when we still have an ongoing foreclosure crisis were people desperately need to refinance at lower interest rates. 

It has often been noted that 4% on the 10 year treasury bond yield is a level that you want to stay below because of its effects on mortgage rates.  As of this morning, we are dangerously close to hitting that level.  The current level is 3.98% as interest rates are soaring upwards this morning.  Yet, all of these issues face the stock market and it looks like no one will be satisfied until the Dow can hit 11,000.  So, once we arrive at that level (19 points away) do we break out the party hats?  We would only if it is sustainable.  The market would need super human powers to sustain these levels with these headwinds.

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Out of the long list of risks and challenges facing the economy, the stock market, and investors, employment still remains near the top of the list. There were rumors all over Wall Street that the unemployment numbers would be positive for December.   With a big surprise and another sign that things are not getting better, 85,000 jobs were lost in December according to the “Government Accounting.” 

Yes, and the Government added around 59,000 fictitious jobs to the mix.  The Department of Labor’s unemployment rate, which includes much more of the workforce than the Government accounting, is creeping up closer to 18%.  I also like to follow Shadow Stats which has the most complete tracking.  They are looking at around 22%. 

However, there were was some bright news.  The Government went back and revised up 15,000 jobs from a -11,000 to a +4,000 jobs.  The talking heads on CNBC kept up the talk of recovery by pointing to the positive job numbers in November,  The funny thing is that they looked past the fact that Government revised DOWNWARD the job losses for October from 111,000 to 127,000 which sort of wipes out that positive job gain. 

The interesting little piece of data comes in this next unemployment report when they adjust the birth/date formula.  Remember that this is the formula that allows the government to add fictitious job growth to the overall number.  January is the month where they revise that number.  Over the past 5 Januarys, the loss of jobs reported by the birth/death ratio has resulted in an average lob loss of 276,000 jobs.  Given that job losses have not stopped along with the addition of the birth/death revision for January, that has the makings of a horrible number.

Incidentally, in the decade that has just ended, we created less than 500,000 jobs.  In the previous 4 decades, the economy generated at least 18 million jobs. 

Still there is no game plan for job creation other than the minimal impact from the stimulus package.  At some point the effects of this problem manifest itself in the stock market.  Until then, this market probably marches higher.  However, the biggest risk that awaits investors is the day reality of Main Street and the greed of Wall Street meet.  The problem is knowing when that will happen.  If and when it does, the level of risk should be through the roof.

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Unemployment is mysteriously reporting only a loss of -11,000.  Poof, just like that we transition from 100,000 and 200,000 plus jobs losses each month to just 11,000 without even a transition.  The unemployment rate has come down from 10.2% to 10%.  So what do these numbers really tell us about the economy?

Really nothing…

The unemployment rate has fallen in November two-thirds of the time over the course of the last 15 years.  Most of it has to do with temporary hires for holiday shopping and nothing permanent.  Regarding the job loss reporting, can you really trust government agenda filled accounting?  If you look closer at the numbers you see a different picture.  It is about all of the other people not accounted for in the report. Clusterstock.com had this chart of the day which I think is telling.

The number of those unemployed for at least 27 weeks rose by 463,000 people to 5.9 million.

There were 861,000 in November who were considered discouraged workers.  These are workers who believe that there are no jobs available for them.  This was up over the prior year. 

People working part time for economic reasons stood at 9.2 million. 

If you look past the 10% unemployment number and look at a closer number of those unemployed in this country from the Department of Labor, the number stands at 17.2%.  Finally www.shadowstats.com has the unemployment problem in this country at 21.8%.

Then you have the number of jobs that the Government has estimated to have been created.

Thus far the Government estimates over the past three years that 2.875 million jobs have been created.  Out of that number 31% of those jobs came from the Leisure and Hospitality area – how much leisure and hospitality has been occurring in the last 3 years that requires all of those jobs?  If I were going to make up (did I just write that), I mean, estimate numbers I would add them elsewhere to legitimize the process. 

I was talking with someone last night about the pain this country is going through.  The economic numbers just don’t reflect the reality of what is occurring.  The biggest concern is the result of all of this Government manipulation.  There are dangerous imbalances that exist.  Unfortunately, the band aid approach can only work for so wrong.   Imbalances will work themselves at some point.  For investors, it will be much like being in a capacity packed room and someone yells fire.  You will not be able to get out of the room fast enough.  Thus, if you are invested heavily in the stock market today, I would at least sit closer to the exit door or better yet consider calling it an early evening.

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It was announced Friday morning that 190,000 jobs were lost, which is higher than economists predicted.   That is significant for one reason.  At this stage in the game, we should NOT be seeing this amount of jobs being lost.  Companies get to the point where they stop laying people off because they have already cut to the bone.  Unfortunately, they are continuing to lay off people.  Of course, we always need to look at how many jobs the government “estimates” that were “created” and “missed” by the Department of Labor.  The government added 86,000 jobs back into the equation.   

The bigger story is the unemployment rate.  The new unemployment rate is 10.2%.  Now, that rate is extremely suspicious given government accounting and a loss of 190,000 jobs.  Also consider that the government went back and “revised” last month’s job losses stating that the original estimate of 263,000 jobs that were lost last month was now really only 219,000.  It is highly unusual that we would get such a jump in the unemployment rate considering how manipulated the number is in the first place.  Once again, it is tough to trust government accounting.  A “stated” unemployment report that shows the rate over the psychological level of 10% sure could be a good excuse for government run healthcare.  After all, all of those people out of a job can end up creating an enormous amount of people scrambling for healthcare coverage.  

The highest rate dating back to 1948 occurred November and December 1982 with a rate of 10.8%.  Many on Wall Street are looking at the unemployment situation in the 80’s, noting that it wasn’t long until the unemployment rate started to improve once it eclipsed 10%, and that a massive new bull market started about the same time. Thus, they are making the comparison between the 80’s and today and feeling very bullish. Well, before we break out those Dow 10,000 party hats again, let’s look at a few major differences.

First, the federal funds rate which is the benchmark set for interest rates was at 9.2%. The Fed had the ability to greatly reduce interest rates to spur demand which in turn positively effects unemployment.  Today, the federal funds rates sits at 0.12% with nowhere to go but up.  Second, the unemployment rate bottomed out in September 1973 and didn’t top out at 10.8% until December 1982.  It took a little over 9 years to gradually increase.

Our low for the unemployment rate was 4.4%, which occurred December 2006.  Fast forward almost 3 years and it has gone from 4.4% to 10.2%.  Further it was at 5% back in April 2008.  The speed at which things have deteriorated presents a much tougher challenge what was faced in the 70’s and 80’s.   

Then there is the 3.5% growth rate of the economy that was released a few weeks ago.  John Williams, founder of shawdowstats.com, states that 92% of the 3.5% growth came from one-time stimulants.  He also notes that “every recession in the last four decades has had at least one positive quarter to quarter growth reading, only to be followed by a renewed downturn.” (from Barrons)

On the front page an argument could be made for a recovery that has started. However, it is what the numbers are not telling that brings up continued concern.

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Unemployment numbers came out last Friday and they paint a very concerning situation.   The unemployment rate is 9.8% and the economy lost another 263,000 jobs.  That is 22 months in a row of job losses.  I looked back at historical data that I have that goes back to 1939 and cannot find a string of job losses this bad.  You would have to go back to the Great Depression. Fortunately, unemployment is not as bad thus far.  Here is what it looked like in the 30’s.

 

Now take a look at the latest from Shadowstats.  It shows a comparison between what the Government reports, the Department of Labor (which is higher and more accurate), and then their data which includes everyone effected by unemployment.  As you can see, Shadowstats is close to 22% unemployed.  That is a far cry from what the Government is reporting. 

Now we also always like to see how many jobs the Government “estimated.”  Every month, the Government estimates jobs created or lost that they feel that the Department of Labor misses.  Yes, this is purely a bogus number.  This last month it was actually on the low side. They added 34,000 jobs into the total.   In 9 months, they have created 1,063,000 jobs out of thin air.  Now do you know why you can’t trust Government reporting?

In 2008, they created 904,000 jobs out of thin air.

In 2007, they created 883,000 jobs out of thin air.

Dating back to early 2000, I cannot find a year where they have been so aggressive.  The problem is that we continue to lose 250,000 jobs a month with no job creation in sight.  We aren’t even stopping the bleeding much less creating jobs.  They have let this problem get way out of control and now the problem is going to be tough to eliminate.  Let’s all hope that the graphs don’t end up looking like the one in the 1930’s.

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Back in March of this year when the stock market found a bottom, I posed a question that I felt would be “the” question for investors. Is this a bear market rally or is this the beginning of a bull market?

I have felt all along that this is nothing more than a bear market rally. A bear market rally is a pause in the bear market where the stock market goes up for a period of time.  Think of it as the bear resting and gathering energy for the next big decline. 

Of course, if it is a new bull market, then the March low of this year was the worst that it will get. 

I believe that we might be getting close to finding out.  Many of the indicators are stating that the moment of truth is here.  If this were a healthy normal market, we would at least see some type of market decline in the course of a new bull market.   I think that we might have already started that process.  If this is a bear market rally, then this decline will morph into something serious.  This should be a big test. 

For this stock market to change from a bear to a bull, the important level for the S&P 500 to reach would be 1121.  The S&P 500 would have to surpass that level and stay above that level.  If that were to occur, the evidence would support a major change for the stock market trend.

The unemployment numbers came out again this past Friday and showed more disturbing news for the economy.  Remember, if they cannot fix unemployment, this economy is going to have a tough time getting going again.  Unfortunately, Obama’s answer to more jobs is Government jobs through the stimulus program.  That is not the type of solution that will solve this problem.   

According to the Government’s “version” of the unemployment report, we lost 216,000 jobs. Of course, that was after they “added” back in 118,000 jobs that they created out of thin air.  As a review, each month the Government “estimates” the number of jobs created each month that they “feel” the Department of Labor misses.  It is such a farce. 

The number of those jobless as well as the overall unemployment rate is much higher than reported.  It is an absolute joke that they continue to report this garbage. 

I wanted to give you a link to an article about Robert Prechter.  He is a well regarded market analyst that has called major tops and bottoms of the market.  He uses a discipline called the Elliot Wave Theory. According to Elliot Wave, we have again hit a major top and it is about to get ugly.  Who knows if this is right or not?  I do know that he has a very strong track record and warrants some attention. 

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The recession is declared to be over or over soon states many media outlets on Friday.  Unemployment was not as bad as expected and it appears that we are starting to lose less jobs. All of that is good news and it took the media and Wall Street no time at all to react positively. 

 

I really do regret taking the opposing view on this one.  I would like for it to be true.  There are just a few problems.  We have 14.462 million people unemployed.  The number is likely higher. This is the estimate from the Department of Labor.  Where are these people going to get jobs?  Unless you are ready to pick up a shovel and get on the Obama job creation bus, you might just be out of luck.  Once again, the Obama administration does not have a plan in place to fix the job situation. 

 

Looking back to 1948 (as far back as records take us), there has never been as big of a spike in the number of those unemployed.  The closest spike that you can find was between 1979 and 1982.  In 43 months, the unemployment numbers jumped 106% to a high of 12.051 million people. Today, in just 33 months the unemployment numbers jumped 125% to 14.462 million.  The following is a chart from www.freelunch.com that illustrates this dramatic rise.

I think that the monthly unemployment numbers could continue to look better.  However, that doesn’t mean that companies are hiring. I think that it means that companies have cut as far as they can cut.  Those lay-offs might start to slow.  Until there is a solution to the problem that over 14 million people are facing, we will continue to have this crisis. 

 

Regarding the market…the 1929 comparison that I wrote about still tracks very closely.  I would still suggest that there is extreme risk on the table.  As long as we stay below 1020 on the S&P 500, that will remain the case.

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