Employment disaster
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Fleet Mechanic
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Employment disaster
I didn't say any of it but worth quoting
Here's the real skinny about the GDP and the true Unemployment rate.
Employment disaster
October 1, 2003
Dr. Kurt Richebächer's articles appear regularly in The Wall Street Journal, Barron's, the U.S. edition of The Fleet Street Letter This piece was orginally published in the The Daily Reckoning, a free daily e-mail <http://www.dailyreckoning.com/> offering commentary on the days stock news.
There has been much talk to the effect that America has just had its slightest recession in the whole postwar period. That is measured in real GDP growth, being bolstered by many statistical tricks. Measured, however, by job losses, which certainly are the far more important gauge, it is already America's worst recession by far.
In June it was declared that the recession had ended in November 2001. Yet in the 20 months since, payroll employment has declined by a total of about 1 million jobs, or about 8%. In not one of the seven or eight postwar recoveries has there been any employment decline. Immediate strong job growth has been the regular characteristic of all business cycle recoveries. On average, payroll jobs increased 3.8% in the 20 months following the end of recession.
What's more, no letup in job losses is in sight. During the second quarter, widely hailed for its better-than-expected GDP growth, the household measure of employment slumped by 260,000. However, this figure concealed an even greater number of workers - 556,000 - who statistically quit the workforce because they have given up looking for nonexisting jobs.
This rapidly growing group of people no longer count as unemployed. What American job statistics really measure are not changes in unemployment, but changes in job seekers. Including the frustrated job seekers, the U.S. unemployment rate is hardly lower than in Europe. Certainly, it is rising much faster.
In addition, the Labor Department is employing month for month the same two practices that camouflage the horrible reality. In July, for example, it reported a decline in payrolls by 44,000, while job losses for June were revised upward from 30,000 to 72,000. For May, the retrospective upward revision was even from 17,000 to 70,000. As such upward revisions of job losses in the prior month have become a regular feature, this practice has the convenient effect of producing correspondingly lower new numbers every month. The same happens, at more moderate scale, with weekly reported claims.
There is still more spinning involved. The government adds every month some 30,000-50,000 imaginary workers to the job total. It is based on the assumption that in an economic recovery a lot of people start their own business. In normal recoveries, they have done so, indeed.
All it needs to activate this statistical job creation is a unilateral decision by the government that the economy is in recovery. Once a year, the statisticians reconcile their assumption with reality by a revision. When they did this in May of this year, 400,000 new jobs that had been reported earlier simply vanished. Such revisions, of course, take place outside the monthly reported job losses. Together, we presume, these statistical casuistries have reduced the reported job losses in the past two years by well over 100,000 per month.
It rather abruptly became the consensus view that in America the great recovery from protracted, sluggish growth is finally on its way. Record-low interest rates, runaway money and credit growth, new big tax cuts, record-high cash-outs by consumers through mortgage refinancing, increasing house and stock prices, and rising profits are cited as the compelling reasons for this optimism.
We are more than skeptical about the true impact of all these influences on the economy primarily for one reason: Most of them, if not all of them, have been at work for some time already, but with grossly disappointing overall effects on the whole economy, and now some of these influences are weakening or even reversing.
Think of the sharp rise in long-term interest rates that is most assuredly stopping the mortgage-refinancing bubble dead in its tracks. That, in our view, will not only abort any recovery but will also mean the economy's relapse into new recession.
As for fiscal policy, it clearly gave its biggest boost to the economy between the fourth quarter of 2000 and the second quarter of 2002. That is a period of six quarters during which the federal budget gyrated from a quarterly surplus of $306.1 billion to a deficit of $526 billion, both at annual rate. This year, the deficit is supposed to hit $455 billion. Most probably, it will come out much higher. But this follows a deficit in the last year of $257.5 billion. The fiscal stimulus is waning, not increasing.
In any case, actual, historical experience in the 1970-80s with large-scale government deficit spending has been anything but encouraging. It created more inflation than economic growth. Over time, rising deficits were rather recognized as impediments to economic growth. Japan's recent experience makes frightening reading. Since 1997, government debt has skyrocketed from 92% to 150% of GDP, rising every year by more than 10% of GDP. Yet nominal GDP keeps shrinking.
As to monetary policy, we have very much the same doubts about its efficacy in generating economic growth under current economic and financial conditions. It is the traditional American consensus view that monetary policy is omnipotent if properly handled. In this view, any recession, or worse, always has its decisive cause in the failure of the central bank to ease its reins fast enough. In this view whatever happened in the economy during the prior boom is irrelevant.
This time, both monetary and fiscal policies in America have acted with unprecedented speed and vigor. To people's general surprise, the economy's rate of growth abruptly slumped during 2000 from 3.7% in the first half to 0.8% in the second.
Starting on Jan. 3, 2001, the Fed slashed its short-term rate in unusually quick succession. Within just 12 months, its federal funds rate was down from 5.98 to 1.82.
Assessing the development, the first thing that struck us as most unusual was that this sudden, sharp economic downturn occurred against the backdrop of most rampant money and credit growth. Total nonfederal, nonfinancial credit grew by $1,144.3 billion in 2000, after $1,102.6 billion in the year before. This compared with nominal GDP growth during the year by $437.2 billion. The first important conclusion to draw therefore was that this sudden economic downturn had obviously nothing to do with money or credit tightness.
Ever since, nonfinancial credit growth has sharply accelerated. In the fourth quarter of 2002, it hit a record of $1,612.8 billion, at annual rate, followed in the first quarter of 2003 by $1,338.3 billion. This coincided with simultaneous nominal growth of $388.4 billion and real GDP growth of $224.4 billion, both also at annual rate. For each dollar added to real GDP, there were thus six dollars added to the indebtedness of the nonfinancial sector.
P.S. During the 1960-70s, by the way, there was on average about 1.5 dollars of debt added for each dollar of additional GDP. Just extrapolate this escalating relationship between the use of debt and economic activity. And think of it: the GDP growth of today is tomorrow a thing of the past, while the debts incurred remain. Plainly, Greenspan's policy has collapsed into uncontrolled money and debt creation that has rapidly diminishing returns on economic activity.
-----------------------------------------------------------------------------------
Please ask yourself this question. How much of the GDP growth is due to governmental spending? Then we must ask ourselves how much of that spending was because of borrowed money.. ....both consumer and government spending. I'm afraid there is fair amount of SMOKE AND MIRRORS in the lastest GDP report...............Lastly, does the war in Iraq add to the GDP?
..............and if we gained a hefty 7.2 in GDP with the shedding of jobs, doesn't that mean that the relationship between GDP and job growth is NIL? Therefore, the real unemployment rate is about 11% give or take a few points. The underemployment rate
(those who are qualified for higher paying jobs, but work for less money) probably is in the neighborhood of 20-30 percent. Also, the number of people who are the WORKING POOR, is also very high. What are the real numbers? Heaven only knows!!!!!!
Here's the real skinny about the GDP and the true Unemployment rate.
Employment disaster
October 1, 2003
Dr. Kurt Richebächer's articles appear regularly in The Wall Street Journal, Barron's, the U.S. edition of The Fleet Street Letter This piece was orginally published in the The Daily Reckoning, a free daily e-mail <http://www.dailyreckoning.com/> offering commentary on the days stock news.
There has been much talk to the effect that America has just had its slightest recession in the whole postwar period. That is measured in real GDP growth, being bolstered by many statistical tricks. Measured, however, by job losses, which certainly are the far more important gauge, it is already America's worst recession by far.
In June it was declared that the recession had ended in November 2001. Yet in the 20 months since, payroll employment has declined by a total of about 1 million jobs, or about 8%. In not one of the seven or eight postwar recoveries has there been any employment decline. Immediate strong job growth has been the regular characteristic of all business cycle recoveries. On average, payroll jobs increased 3.8% in the 20 months following the end of recession.
What's more, no letup in job losses is in sight. During the second quarter, widely hailed for its better-than-expected GDP growth, the household measure of employment slumped by 260,000. However, this figure concealed an even greater number of workers - 556,000 - who statistically quit the workforce because they have given up looking for nonexisting jobs.
This rapidly growing group of people no longer count as unemployed. What American job statistics really measure are not changes in unemployment, but changes in job seekers. Including the frustrated job seekers, the U.S. unemployment rate is hardly lower than in Europe. Certainly, it is rising much faster.
In addition, the Labor Department is employing month for month the same two practices that camouflage the horrible reality. In July, for example, it reported a decline in payrolls by 44,000, while job losses for June were revised upward from 30,000 to 72,000. For May, the retrospective upward revision was even from 17,000 to 70,000. As such upward revisions of job losses in the prior month have become a regular feature, this practice has the convenient effect of producing correspondingly lower new numbers every month. The same happens, at more moderate scale, with weekly reported claims.
There is still more spinning involved. The government adds every month some 30,000-50,000 imaginary workers to the job total. It is based on the assumption that in an economic recovery a lot of people start their own business. In normal recoveries, they have done so, indeed.
All it needs to activate this statistical job creation is a unilateral decision by the government that the economy is in recovery. Once a year, the statisticians reconcile their assumption with reality by a revision. When they did this in May of this year, 400,000 new jobs that had been reported earlier simply vanished. Such revisions, of course, take place outside the monthly reported job losses. Together, we presume, these statistical casuistries have reduced the reported job losses in the past two years by well over 100,000 per month.
It rather abruptly became the consensus view that in America the great recovery from protracted, sluggish growth is finally on its way. Record-low interest rates, runaway money and credit growth, new big tax cuts, record-high cash-outs by consumers through mortgage refinancing, increasing house and stock prices, and rising profits are cited as the compelling reasons for this optimism.
We are more than skeptical about the true impact of all these influences on the economy primarily for one reason: Most of them, if not all of them, have been at work for some time already, but with grossly disappointing overall effects on the whole economy, and now some of these influences are weakening or even reversing.
Think of the sharp rise in long-term interest rates that is most assuredly stopping the mortgage-refinancing bubble dead in its tracks. That, in our view, will not only abort any recovery but will also mean the economy's relapse into new recession.
As for fiscal policy, it clearly gave its biggest boost to the economy between the fourth quarter of 2000 and the second quarter of 2002. That is a period of six quarters during which the federal budget gyrated from a quarterly surplus of $306.1 billion to a deficit of $526 billion, both at annual rate. This year, the deficit is supposed to hit $455 billion. Most probably, it will come out much higher. But this follows a deficit in the last year of $257.5 billion. The fiscal stimulus is waning, not increasing.
In any case, actual, historical experience in the 1970-80s with large-scale government deficit spending has been anything but encouraging. It created more inflation than economic growth. Over time, rising deficits were rather recognized as impediments to economic growth. Japan's recent experience makes frightening reading. Since 1997, government debt has skyrocketed from 92% to 150% of GDP, rising every year by more than 10% of GDP. Yet nominal GDP keeps shrinking.
As to monetary policy, we have very much the same doubts about its efficacy in generating economic growth under current economic and financial conditions. It is the traditional American consensus view that monetary policy is omnipotent if properly handled. In this view, any recession, or worse, always has its decisive cause in the failure of the central bank to ease its reins fast enough. In this view whatever happened in the economy during the prior boom is irrelevant.
This time, both monetary and fiscal policies in America have acted with unprecedented speed and vigor. To people's general surprise, the economy's rate of growth abruptly slumped during 2000 from 3.7% in the first half to 0.8% in the second.
Starting on Jan. 3, 2001, the Fed slashed its short-term rate in unusually quick succession. Within just 12 months, its federal funds rate was down from 5.98 to 1.82.
Assessing the development, the first thing that struck us as most unusual was that this sudden, sharp economic downturn occurred against the backdrop of most rampant money and credit growth. Total nonfederal, nonfinancial credit grew by $1,144.3 billion in 2000, after $1,102.6 billion in the year before. This compared with nominal GDP growth during the year by $437.2 billion. The first important conclusion to draw therefore was that this sudden economic downturn had obviously nothing to do with money or credit tightness.
Ever since, nonfinancial credit growth has sharply accelerated. In the fourth quarter of 2002, it hit a record of $1,612.8 billion, at annual rate, followed in the first quarter of 2003 by $1,338.3 billion. This coincided with simultaneous nominal growth of $388.4 billion and real GDP growth of $224.4 billion, both also at annual rate. For each dollar added to real GDP, there were thus six dollars added to the indebtedness of the nonfinancial sector.
P.S. During the 1960-70s, by the way, there was on average about 1.5 dollars of debt added for each dollar of additional GDP. Just extrapolate this escalating relationship between the use of debt and economic activity. And think of it: the GDP growth of today is tomorrow a thing of the past, while the debts incurred remain. Plainly, Greenspan's policy has collapsed into uncontrolled money and debt creation that has rapidly diminishing returns on economic activity.
-----------------------------------------------------------------------------------
Please ask yourself this question. How much of the GDP growth is due to governmental spending? Then we must ask ourselves how much of that spending was because of borrowed money.. ....both consumer and government spending. I'm afraid there is fair amount of SMOKE AND MIRRORS in the lastest GDP report...............Lastly, does the war in Iraq add to the GDP?
..............and if we gained a hefty 7.2 in GDP with the shedding of jobs, doesn't that mean that the relationship between GDP and job growth is NIL? Therefore, the real unemployment rate is about 11% give or take a few points. The underemployment rate
(those who are qualified for higher paying jobs, but work for less money) probably is in the neighborhood of 20-30 percent. Also, the number of people who are the WORKING POOR, is also very high. What are the real numbers? Heaven only knows!!!!!!
Posting Guru
Joined: Sep 2003
Posts: 2,263
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From: N. Florida - The "No 4x4
Mark my words; to fix this personal employment situation start thinking outside the box.
Abandon the historically conventional definition of "work".
Case in point (briefly I promisse):
About "all the tech jobs going overseas": Man, my Internet connection to Japan is just fine. I work on technology IN JAPAN on a almost weekly basis.
. . Did I mention I am in FLORIDA while I am making money FROM JAPAN??
Get my drift? I'm talking *concept* - you may open an Internet web site selling "widgets" out of your basement.
God as my witness, I have a web site customer that I put a site up for about 3 or 4 years ago, he sells pressure washers and related equipment via the Internet exclusively - he has NO overhead, except web site maintenance costs (giggle) and he **netted** over $86,000 last year.
He took up playing music to fill his booring days between e-mails.
Mentally break the conventional "I have a job" mold and get creative. The bucks (and jobs) are there!!
Abandon the historically conventional definition of "work".
Case in point (briefly I promisse):
About "all the tech jobs going overseas": Man, my Internet connection to Japan is just fine. I work on technology IN JAPAN on a almost weekly basis.
. . Did I mention I am in FLORIDA while I am making money FROM JAPAN??
Get my drift? I'm talking *concept* - you may open an Internet web site selling "widgets" out of your basement.
God as my witness, I have a web site customer that I put a site up for about 3 or 4 years ago, he sells pressure washers and related equipment via the Internet exclusively - he has NO overhead, except web site maintenance costs (giggle) and he **netted** over $86,000 last year.
He took up playing music to fill his booring days between e-mails.
Mentally break the conventional "I have a job" mold and get creative. The bucks (and jobs) are there!!
Last edited by ctfuzzy; Nov 5, 2003 at 09:19 PM.
Postmaster
Joined: Aug 2001
Posts: 2,882
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From: Nevada
Why do you think every administration loves GDP for their numbers game? Of course government spending is included. So is divorce, crime and every cent spent in the US. GDP clocks transactions, nothing else. The old GNP measure, dropped for GDP in 1991, included sales by US companies outside the US, but that was falling so fast the feds quietly switched to GDP 'to be more in line with the rest of the world'.
Politically, GDP measurement encourages government spending because that offsets trade deficets, subtracted from GDP, something our economy has had for going on 25 years.
When I read the government proudly announcing a whatever increase or drop in GDP for whatever month, I laugh when they follow with the statement 'employment will catch up, it's just a matter of time'.
When I see demand for expansion capital go up in the manufacturing sector, resulting in higher interest rates and expanded jobs, then I'll believe the economy is on the mend. But I'm not holding my breath for that to ever happen again.
Starting your own method of circumventing a traditional job to supply revenue is great. Unfortunately, 95% of the public doesn't possess that capability. They need regular jobs with a supervisor directing their activities.
Politically, GDP measurement encourages government spending because that offsets trade deficets, subtracted from GDP, something our economy has had for going on 25 years.
When I read the government proudly announcing a whatever increase or drop in GDP for whatever month, I laugh when they follow with the statement 'employment will catch up, it's just a matter of time'.
When I see demand for expansion capital go up in the manufacturing sector, resulting in higher interest rates and expanded jobs, then I'll believe the economy is on the mend. But I'm not holding my breath for that to ever happen again.
Starting your own method of circumventing a traditional job to supply revenue is great. Unfortunately, 95% of the public doesn't possess that capability. They need regular jobs with a supervisor directing their activities.
Posting Guru
Joined: Sep 2003
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From: N. Florida - The "No 4x4
Originally posted by georgedavila
Starting your own method of circumventing a traditional job to supply revenue is great. Unfortunately, 95% of the public doesn't possess that capability. They need regular jobs with a supervisor directing their activities.
Starting your own method of circumventing a traditional job to supply revenue is great. Unfortunately, 95% of the public doesn't possess that capability. They need regular jobs with a supervisor directing their activities.
It is about $&^%& time "natural selection" became a significant factor again !!
There is an old saying in nature, I'll bet you are famililiar with it: "Grow, or die".
To save *myself* I can not see why we (humans) should not be playing by these rules ~or~ how NOT playing by them is beneficial to mankind.
FWIW.
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Postmaster
Joined: Aug 2001
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From: Nevada
ctfuzzy, more power to you and others who discover thinking outside the box can offer a much higher level of success. I don't think the natural selection process ever went away, we just got so fat and lazy with prosperity that it wasn't necessary for many people to use their minds for a long period of time. What to do with that big crowd of people who are without initiative or the mental capability to think for themselves is going to be the social problem of the next decade or so.
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Posting Guru
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From: PNW
"That is a period of six quarters during which the federal budget gyrated from a quarterly surplus of $306.1 billion to a deficit of $526 billion, both at annual rate. "
That's somewhat misleading. We've never really had a surplus because our leaders spend the money left over from Social Security, then write IOUs that never get paid. That money is supposed to stay there in the SS funs, but our government is very creative when it comes to finding ways to spend money.
That's somewhat misleading. We've never really had a surplus because our leaders spend the money left over from Social Security, then write IOUs that never get paid. That money is supposed to stay there in the SS funs, but our government is very creative when it comes to finding ways to spend money.
Posting Guru
Joined: Sep 2003
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From: N. Florida - The "No 4x4
Originally posted by georgedavila
. . What to do with that big crowd of people who are without initiative or the mental capability to think for themselves is going to be the social problem of the next decade or so.
. . What to do with that big crowd of people who are without initiative or the mental capability to think for themselves is going to be the social problem of the next decade or so.
While unpopular with THEM, it would be decidedly effective in rekindling their work ethic and motivation.
I don't see the problem here.
. . but none the less; I realize you are 100% correct in what you are saying. It STINKS, but I feel it is correct, and I agree completely.
Last edited by ctfuzzy; Nov 6, 2003 at 02:55 PM.
Posting Guru
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From: Near Wamego KS
I agree, for a professor this guy's numbers don't add up, and anybody who says we had a surplus is automaticly regulated to idiot status. I also notice that he makes no comparison to the economy as it emerged from the the recession of 1991. During that time employment lagged the recovery by about one year. Also to make an accurate comparison, in 1993 Bill Clinton was considering cutting the length of time a person could collect unemployment benefits (hard to believe I know) by about a third, because unemployment had reached the oh so low level of 6.8%, still higher then unemployment is today.
I also make this comparison to people. Think about all the kids you want to school with (gives you a good cross section of the population), of those kids how many would you hire? My high school class had 55 students and I know that 8 of them couldn't be trusted to do more then push a broom, unless they where watched to make sure they didn't wonder off. That means that almost 15% of the people I knew where marginal employees at best. With only 6% unemployment most of those losers are still employed.
I also make this comparison to people. Think about all the kids you want to school with (gives you a good cross section of the population), of those kids how many would you hire? My high school class had 55 students and I know that 8 of them couldn't be trusted to do more then push a broom, unless they where watched to make sure they didn't wonder off. That means that almost 15% of the people I knew where marginal employees at best. With only 6% unemployment most of those losers are still employed.
Postmaster
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From: Nevada
We've discussed published unemployment numbers on this forum. Claims filed are gleaned from state statistics, claims ended same source. No allowance for those who fall off the back end when their claims are exhausted. Or the drop in wages of those going from manufacturing to service level jobs. A very handy political statistic as it's a number you can make do just about whatever you want it to do. I always like the 'adjusted for' in all all government statistics. You'd think War & Peace was a one-sheet volume when compared government microeconomic explanations.
dhermesc, I've read that 20% is a decent number for unemployment when all factors, including those feeding on social services, are included.
dhermesc, I've read that 20% is a decent number for unemployment when all factors, including those feeding on social services, are included.
Posting Guru
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From: Near Wamego KS
Actually I think the 20% number might be a bit low when you consider all the retirees on Social Security. Then you add all the people on welfare, and unemployment and the number of nonworking Americans becomes quite staggering. For every four people working and supporting themselves and family, there's a fifth living off their sweat. If some of the social programs where less inviting to the lame and the lazy they might contribute to the economy instead of being a drag on it.
Postmaster
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From: Nevada
dhermesc,
Dono and others have attempted to point out the danger of saddling the youth of our country and their children with the debt service on these massive military deficits and your point regarding retirees is probably the best example anyone could make. Baby boomers in the process of retirement and those who will retire make up 1/3 of the US population. Add the social cost of maintaining retirement benefits and medical care for that number, debt service on the national debt, the annual cost of government and an economy migrating from industrial to service level wages and you have some very scary numbers. I don’t recall the projections right now, but withholding taxes to service those costs over the next few decades will probably make those who are still in the work force wonder why they’re even working. Not that it makes any difference to our current herd of politicians, who will enjoy retirement benefits comparable to those of a crooked corporate CEO. I don't envy the young people of our country or their children for the mess we're leaving them.
Dono and others have attempted to point out the danger of saddling the youth of our country and their children with the debt service on these massive military deficits and your point regarding retirees is probably the best example anyone could make. Baby boomers in the process of retirement and those who will retire make up 1/3 of the US population. Add the social cost of maintaining retirement benefits and medical care for that number, debt service on the national debt, the annual cost of government and an economy migrating from industrial to service level wages and you have some very scary numbers. I don’t recall the projections right now, but withholding taxes to service those costs over the next few decades will probably make those who are still in the work force wonder why they’re even working. Not that it makes any difference to our current herd of politicians, who will enjoy retirement benefits comparable to those of a crooked corporate CEO. I don't envy the young people of our country or their children for the mess we're leaving them.
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