Mish's Take on July Employment Report

I've suspended analysis on this monthly report, because analyzing fiction is not worth it, but we'll just copy over Mish's good works. And I'll add a few snide comments - here is my take on last month's report if you are new. Also keep in mind the underemployment effect [Apr 2: The Underemployment Rate is Rising]

Here is the latest chart per Shadowstats.com on what the unemployment rate would look like (blue line) if the government had not started to make (ahem) "adjustments" since the early 90s. The red line is what you are told and what Kool Aid drinking pundits who love the bullish story point to. Unfortunately most of the mass media also uses it... this is why the great disconnect between "official figures" and consumer confidence, and reality we read about and post on the blog each and every day.


I post this data not to be "controversial" but to show as many people as possible what really is going on, since its very insidious. Not in a Black Helicopter way, but simply administration after administration wanting to paint the rosiest picture possible way and with an extra change here, or a little change there - it's added up to an avalanche over 2 decades. Further, with "reality" we can make a lot better assessment of where to invest - if we went off government reports we would of piled into retailers, restaurants, and heck financials last fall - since everything is so rosy.

On a personal level, I like presenting this so as many people as possible (who stumble upon the site) can understand why the numbers do not jive with their "anecdotal" evidence from talking to friends, neighbors, and co-workers. And we have the same fictional world in our "official inflation" figures. Another area I've stopped "analyzing".

Back to the July employment report - key points are the birth/death model (not birth/deaths of people but of small businesses "too small" to count) It appears January and July are two months they try to "guess" at what corrections they need to make to the previous 5 months of "guesses" but for example, in this figure the government still shows February through July, constant growth in "small" construction firms - all these new employees - in the most protracted countrywide housing depression we've had. Fantastic. Sounds logical to me.

The other numbers are similar in absurdity. We're posting almost weekly now new retail & restaurant chains going out of business and many cutting 10,000+ jobs across their national footprint yet the Bureau of Labor Statistics believes new restaurants, retail outlets, and stores (too small to survey) are popping up across America - to the tune of 350K jobs since February. I could go on, but I'll spare you - and this is why this report is complete trash (among other reasons) Also note wage growth - still below even government's version of inflation - Americans are getting raises in the 3-3.5% range while inflation is growing at (government) 5% or (reality) 13-18%. So the great middle and lower class fall behind more by the day... but at least jobs are plentiful.

(click to enlarge)
Mish's comments below

This morning, the Bureau of Labor Statistics (BLS) released the July Employment Report. Jobs were negative for a 7th consecutive month. My target of 6% or higher stated unemployment by the end of the year remains on track. Here is a synopsis of that report.

The unemployment rate rose to 5.7 percent, and nonfarm payroll employment continued to trend down in July (-51,000), the Bureau of Labor Statistics of the U.S. Department of Labor reported today. Employment continued to fall in construction, manufacturing, and several service-providing industries, while health care and mining continued to add jobs. Average hourly earnings rose by 6 cents, or 0.3 percent, over the month.

Highlights

• 22,000 construction jobs were lost
• 35,000 manufacturing jobs were lost
• 17,000 retail trade jobs were lost
• 24,000 professional and business services jobs were lost
  
• 5,000 service providing jobs were lost
• 1,000 leisure and hospitality jobs were added
  
• 25,000 government jobs were added (my note - always healthy when your main job driver is government jobs - again)
  

A total of 46,000 goods producing jobs were lost (higher paying jobs), and for the first time this year service sector jobs were lost. Government, the last pace one wants to see jobs, added 25,000 jobs or the service sector would have contracted more.

These are clearly recession totals.

Birth/Death Model Absurd Once Again

This was a very weak jobs report. And once again the Birth/Death Model assumptions are absurd. However, they are back in orbit this month, somewhere near Mars, from deep outer space where they have been since February.

Every month I say the same nearly the same thing. The only difference is the numbers change slightly. Here it is again: The BLS should be embarrassed to report this data. There is a difference this month. The data is back in the solar system. I expected a massive negative revision downward this month (my call was -425,000) and the reason is that January and July are the months that the BLS makes some effort to catch up with past ridiculousness.

And there is a ton of past ridiculousness to catch up on, especially in the construction, financial activities, and professional & business service categories. Note the January number of -378,000. I expected another month similar to that, but it was not to be, not this month anyway. The economy is clearly in contraction and the BLS model still has the economy expanding, although just barely.

Repeating what I have been saying for months now, virtually no one can possibly believe this data. The data is so bad, I doubt those at the BLS even believe it. But that is what their model says so that is what they report.

For those unfamiliar with the birth/death model, monthly jobs adjustments are made by the BLS based on economic assumptions about the birth and death of businesses (not individuals). Those assumptions are made according to estimates of where the BLS thinks we are in the economic cycle.

The BLS has admitted however, that their model will be wrong at economic turning points. And there is no doubt we are long past an economic turning point.

Table A-12
Table A-12 is where one can find a better approximation of what the unemployment rate really is. Let's take a look

(Click to enlarge)

If you start counting all the people that want a job but gave up, all the people with part-time jobs that want a full-time job, etc., you get a closer picture of what the unemployment rate is. The official government number jumped to 5.7%, but U-6 (the most inclusive number) rose .4 to 10.3%. To the average Joe on the street unemployment feels more like 10.3% (if not 15%) than 5.7. Both numbers are poised to rise further. We are easily on pace for my 6% target by the end of the year.

Looking ahead, I expect the service sector to weaken considerably. Bennigan's and Mervyn's both went bankrupt this week, Starbucks is closing 600 stores, mall vacancy rates are rising and a huge contraction in commercial real estate is finally started. There is no driver for jobs and states in forced cutback mode are making matters far worse.

*********************
My comment: So the report is now out of the way - the financial punditry is happy because hey, unemployment is below 6% which in the old days was considered full employment. Unfortunately they fail to mention that in the old days the measurement of these numbers had not been "adjusted" like it is in the "new" days. But it's all good - we can't be lost in the details. And the 2nd half 2008.... err 1st half 2009 recovery is back on track.

We'll check back in 30 days to see how "on track" it is in August. In the meantime we'll keep posting the truth via company reports.