Tuesday, May 6, 2014

Reconciling Recent Job Reports With Economic Reality

How do we reconcile with economic reality the recent job report numbers showing hundreds of thousands of jobs being created while even far larger numbers of people drop from the work force? After watching a 45 minute U-tube speech by Kyle Bass from Hayman global Outlook I was swayed by his argument that we may
Unemployment, The Devil Is In the Details!
see the unemployment rate in America go lower in coming months. Sadly, it was based on more people dropping from the labor force and more part time very low paying jobs. My take on the recent jobs report is that as spring comes upon us ever optimistic and more desperate Americans are being pushed into making a decision as to whether to leave the work force or take a lower paying job that is often part time. Yes, people are busy scurrying around, but it should be clarified not at a fast pace.

The question then arises as to how this will spill over to economic policy. If the Fed begins to allow interest rates to rise it may effect the economy like a brick hitting a window and shatter it into a broken mess. Mr. Bass and I are in agreement that interest rates are destined to rise. The push higher in the stock market from this report might be considered as more proof that insane behavior has few limits. Even a dismal GDP coming in at .1% and disappointing factory order numbers can't turn back the enthusiasm created in this distorted and manipulated market. It appears given yields around the world and the fundamentals we face investors have excessively optimistic expectations about their future returns.

Breaking down the jobs report is an interesting exercise. Many people who do construction are shifted to snow removal and construction repairs during bad weather. While this adds to the economy it adds in a different way or a new dimension. Spending of this nature is more defensive then offensive, often the money is used to defend or to prevent losing assets and value rather than to move forward and create new and useful goods. As proof  most business and property owners will tell you harsh weather is not their friend, a great deal of money is shifted into unexpected repairs and towards utilities that would have been put in the profit column or put to better use such as upgrading equipment or doing improvements. 

The area we should pay more attention to is how the different sectors of the economy dependent on discretionary spending fared. I contend a shift is occurring within the ranks of shoppers and consumers that is causing the little economic growth occurring to be the "wrong kind of growth" and not healthy over the long term. These job numbers create a false illusion that mask over what is really happening as incomes grind to a halt and inflation nibbles at the buying power of the average American. In my opinion the wrong people are buying the wrong things. Auto sales, student loans, and healthcare spending have become key drivers in this economy, below are the reasons each concerns me.

*  Many of the new cars hitting the road are really leases which show up as a sale, and many of them are taking place because an automobile owner faced with a costly repair is oping for this alternative verses putting money they do not have into their current ride. This means those living on disability or student loans are buying an ego boosting vehicle that they cannot in reality afford, or need. Super low artificial interest rates are making this possible. Nearly 85% of new-car buyers in the second quarter signed up for a loan or lease to fund their purchase says credit bureau Experian. That’s the highest level since it began tracking this sector in 2006. That means that these consumers may be over-leveraged and not have money to purchase other goods.

*  Many people taking student loans have been using the money for their "living expenses" this includes cars, trips, vacations and more. The amount of these loans has expanded in an alarming way. All this has a very dark side that will effect the lives of these borrowers going forward. In many ways society is encouraging young people to take on this debt and to hock their futures. The picture going forward is somewhat bleak for those that have taken student loans, with the borrowers about twice as likely to be behind on student debt as for credit cards, car loans, and mortgages.

*  Because of the ACA or what is commonly called Obamacare, Americans are now spending more on healthcare and this shift leaves less money for other things. While it could be argued this creates jobs in healthcare it should also be pointed out that our healthcare system is inefficient and overall does a poor job. This means much of the money is wasted or when all is said and done creates little in the way of new wealth. In some ways it could be looked at as a tax and merely shifts spending.

Recently much of our economic growth was based on refinancing and Wall Street investing in housing across America on the misconception the economy was ready to roar. Now both these areas of growth have greatly slowed. My final two takeaways on this report, looking at one month of job figures can be very misleading and the other is that an increase in "job quantity" does not make up for the poor quality of the jobs people are being forced to accept.

 Footnote; This post dovetails with many of my recent writings, for more I might suggest reading the article below. Other related articles may be found in my blog archive, thanks for reading, your comments are encouraged.


  1. Nobody believes in the feds ability to create growth and they are in a corner to be able to prove it?

  2. In the first decade of the 20th bernays convince a country of 2/3 Germans to take up arms against its former countrymen! Now we live under an economics regime that captures our production to NOW send it to them!