Investors have been anxiously awaiting the August unemployment report from the Bureau of Labor Statistics due this morning.
Here’s an excerpt from this morning’s Wall St. Journal:
SEPTEMBER 4, 2009, 8:46 A.M. ET
Job Losses Moderate, but Unemployment Rate Hits 9.7%
WASHINGTON -- U.S. job losses softened last month but the unemployment rate soared to its highest level since June 1983, proving that it will take some time for the ailing labor market to recover from the worst financial crisis in decades. Nonfarm payrolls declined 216,000 last month compared to a revised 276,000 drop in July, the Labor Department said Friday. The August drop is smaller than the 233,000 decline economists in a Dow Jones Newswires survey had expected.
So – the bottom line is that a 233,000 decline was ‘expected’ and job losses just beat this estimate – once again.
As always – we need to take a closer look at how this number was calculated and see if it makes sense.
From the U.S. Dept of Labor CES (Current Employment Statistics) birth/death model:
So – once again – we see that this ‘model’ added a significant number of jobs back into the total. What were total job losses without this model? Approximately 334,000 [I realize that the government's reported number is 'seasonally adjusted' - so we can't simply add these jobs back into the total - but the message here is that the reported number is being manipulated higher - without reason]. What do you think would happen to the markets if we reported a much worse than ‘expected’ job loss total (334K) coupled with an unemployment rate of 9.7%? I think it’s safe to say that stock markets will respond much more favorably to a total of 216.
If you’re not familiar with this model – it doesn’t measure the birth/death of people – it is supposed to account for the birth/death of businesses. Instead of using a quantitative number that can be verified – like payroll tax information (which is declining by significant amounts) – or ADP payroll gains/losses + actual government job gains/losses – our government uses a very confusing method for ‘calculating’ monthly job gains/losses. They use this model to guess how many businesses started and/or failed in a given month. How they do this – no one really knows. This is why many people are now noticing how ridiculous this model actually is – it has added a total of 1,029,000 jobs to the ‘official’ job reports since February. – during one of the worst recessions in decades. People expected the model to subtract jobs for August – based on all of the jobs added to the model since Feb – but no – it just keeps on adding jobs – which makes absolutely no sense in this current economic environment. The model added jobs to every sector in August – construction, manufacturing, mining, finance, services, hospitality, etc. Of course, very few people take the time to explore how the government reports unemployment numbers – so very few people know that this type of smoke and mirrors is going on. At some point, they won’t be able to disguise what’s happening – and you can guess what will happen once the truth gets out.
You might ask yourself – with all of the recent negative media articles related to all of these sectors – how could the government add jobs to each of them? Very good question. It would seem that the BLS modelers are not concerned with reality. It seems that they don’t even agree with other government agencies. Here’s a few I’ve seen over the past few days:
“The U.S. service sector contracted in August for the 11th straight month” (Service Sector) WSJ
“States shut down to save Cash” (including furloughs & lay-offs) WSJ
“Retailers reported that August sales declined 2.9%” (Service Sector) WSJ
“American Airlines lays off 1,200 flight attendants” AJC
“Shipping rates are sinking” (Baltic Dry Index declines 44% over the past 3 months) WSJ
“The [U.S.] service sector is crucial for the job market, accounting for nearly 86% of all nonfarm jobs in the U.S. – and it is still contracting, the ISM reported on Thursday” WSJ
“American Apparel will lay off more than a quarter of its factory workforce in Los Angeles……” WSJ
“Quiksilver profit drops 53% in tough retail environment” WSJ
“Boeing Co. said its commercial jet deliveries fell 22% in August from a year earlier and orders were down 11.5%.....” WSJ
“The long recession and rising joblessness are taking an increasing toll on the nation’s most credit-worthy borrowers, who are now falling behind on their mortgage and credit-card payments at a faster pace than people with poor financial histories.” WSJ
“Unemployment rates in 372 U.S. metropolitan areas continued their upward climb in July, Labor Department figures released Tuesday show. Some 19 metros now have unemployment rates above 15%...” WSJ
“Service-sector employment declined by 146,000 in August, while goods-producing jobs including construction and manufacturing fell by 152,000, according to Automatic Data Processing Inc., a payroll firm.” WSJ
Take note of this excerpt from an article in Thursday’s WSJ:
“The ADP report suggested "some downside risk" to the government's official August employment report, due Friday, but the ADP figure has been worse than the government's figure in six of the past eight months, according to economists at Goldman Sachs Group Inc. That is in part because ADP only tallies private-sector jobs. Government hiring has added about 2,000 jobs per month over the past year.” AJC
I would say that the ADP numbers are worse than the government’s unemployment numbers because the ADP numbers are based on reality.
If we calculate the unemployment rate the way it was calculated (total number of unemployed people who would work full time if they could find a job/total working age population) before all of this ‘modeling’ and ‘polling’ used to calculate current unemployment stats – what do we see?
We see a true unemployment rate of over 20%. I wonder what would happen if this was ever reported?
My guess is that if you are in a business that has direct contact with consumers – you are seeing (or are beginning to see) significant sales declines as unemployment continues to deteriorate.
You get the picture. This is just one more way the American people are being misled.