Mauldin: The Unemployment Quandary Show Me The Jobs

[Robbien]

This week we tackle some rather odd discrepancies in the employment numbers - are we adding jobs or losing them? Then is there a relationship between those numbers and the stock market? Are businesses getting ready to hire and spend money? All good questions, and I will try to shed some light on them as we see if we can fit some rather disparate pieces of the information puzzle together to form a picture that we can recognize.

First, there are two different sets of employment numbers. One, the establishment survey of the Bureau of Labor Statistics (BLS), shows we have lost about 3,000,000 jobs since the start of the recession. This survey is a result of looking at the unemployment insurance accounts of about 160,000 businesses (establishments, and thus the name of the survey) at over 400,000 different locations, which covers about 1/3 of all employment. If you are a Democrat presidential candidate or of that persuasion, this is the number you feel is most important. I should point out that if Al Gore were president, this would most certainly be the number repeated daily by those running in a Republican primary.

Then there is the household survey. This survey is conducted by the Census Bureau on the behalf of the BLS. They survey 60,000 homes to see who is working and who's not. This shows the unemployment rate dropping from 6.3% at its height to today's 5.6%, adding 1.8 million or so jobs to the economy.

This is, of course, a huge difference. The difference between the surveys is as wide as it has ever been and by a significant margin. Let's look at my guess as to why.

http://www.frontlinethoughts.com/article.asp?id=mwo020604

comment: Interesting also is that further down in the article it explains why the increase in jobs number they are cheerleading this week really is only a matter of smoke and mirrors. A quirk in their seasonal ajustment factoring. Very informative read.

1. Very good article

Nice analysis of the jobs dilemma.

It suggests to me that the longer we pursue the course of high-debt finance with weak job generation and weak income growth, the worse the subsequent contraction will be. The question I have, is if it is already too late, given the GDP spurt is already well behind us (Q3 03), and there is still job contraction in key areas.

In the article, there is no limit or dimension on when the good times will end. It suggests "a few quarters". Markets tend to look ahead a few quarters--typically 2-3.

What's interesting is that a wall has apparently already been hit in the housing markets--even with low interest rates, houses are becoming unaffordable in some regions. Anecdotal, but real reports. And there were a few high-tech companies who warned about next quarter already. And Japan is under stress due to the exchange rate--a big stress which isn't mentioned.

...in the midst of continuing job contraction in the two key areas.

Housing slowdown is only a relatively recent development, and has to due with (for the first time) housing prices going up during a "recession", apparently because of the lowering of rates below where they have ever been before. Ypu can read about that in the Fed report I have linked into my website (they don't say why, just that rising prices in this environment hasn't happened before).

As a final comment, it should be added that Snow promised jobs generation LAST YEAR of hundreds of thousands a month.

A promise broken.

There is a paper I am trying to find about how the Federal Reserve was caught in traps in the past, and it reminds me of the scenario we are now in. Low interest rates cannot solve the job problem, and the longer the Fed tries via this route, the worse the end result will be.

In fact, this whole scenario reminds me of the last stock market ...in the new scenario, there isn't sustained earnings potential because there will be no one to pay the bills for the credit being drawn upon up to this point(who has a job). It seems like a cliff scenario, and we can already see the edge.

Dan