Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
US Housing Market Real Terms BUY / SELL Indicator - 16th July 19
Could Trump Really Win the 2020 US Presidential Election? - 16th July 19
Gold Stocks Forming Bullish Consolidation - 16th July 19
Will Fed Easing Turn Out Like 1995 or 2007? - 16th July 19
Red Rock Entertainment Investments: Around the world in a day with Supreme Jets - 16th July 19
Silver Has Already Gone from Weak to Strong Hands - 15th July 19
Top Equity Mutual Funds That Offer Best Returns - 15th July 19
Gold’s Breakout And The US Dollar - 15th July 19
Financial Markets, Iran, U.S. Global Hegemony - 15th July 19
U.S Bond Yields Point to a 40% Rise in SPX - 15th July 19
Corporate Earnings may Surprise the Stock Market – Watch Out! - 15th July 19
Stock Market Interest Rate Cut Prevails - 15th July 19
Dow Stock Market Trend Forecast Current State July 2019 Video - 15th July 19
Why Summer is the Best Time to be in the Entertainment Industry - 15th July 19
Mid-August Is A Critical Turning Point For US Stocks - 14th July 19
Fed’s Recessionary Indicators and Gold - 14th July 19
The Problem with Keynesian Economics - 14th July 19
Stocks Market Investors Worried About the Fed? Don't Be -- Here's Why - 13th July 19
Could Gold Launch Into A Parabolic Upside Rally? - 13th July 19
Stock Market SPX and Dow in BREAKOUT but this is the worrying part - 13th July 19
Key Stage 2 SATS Tests Results Grades and Scores GDS, EXS, WTS Explained - 13th July 19
INTEL Stock Investing in Qubits and AI Neural Network Processors - Video - 12th July 19
Gold Price Selloff Risk High - 12th July 19
State of the US Economy as Laffer Gets Laughable - 12th July 19
Dow Stock Market Trend Forecast Current State - 12th July 19
Stock Market Major Index Top In 3 to 5 Weeks? - 11th July 19
Platinum Price vs Gold Price - 11th July 19
What This Centi-Billionaire Fashion Magnate Can Teach You About Investing - 11th July 19
Stock Market Fundamentals are Weakening: 3000 on SPX Means Nothing - 11th July 19
This Tobacco Stock Is a Big Winner from E-Cigarette Bans - 11th July 19
Investing in Life Extending Pharma Stocks - 11th July 19
How to Pay for It All: An Option the Presidential Candidates Missed - 11th July 19
Mining Stocks Flash Powerful Signal for Gold and Silver Markets - 11th July 19
5 Surefire Ways to Get More Viewers for Your Video Series - 11th July 19
Gold Price Gann Angle Update - 10th July 19
Crude Oil Prices and the 2019 Hurricane Season - 10th July 19
Can Gold Recover from Friday’s Strong Payrolls Hit? - 10th July 19
Netflix’s Worst Nightmare Has Come True - 10th July 19
LIMITLESS - Improving Cognitive Function and Fighting Brain Ageing Right Now! - 10th July 19
US Dollar Strength Will Drive Markets Higher - 10th July 19
Government-Pumped Student Loan Bubble Sets Up Next Financial Crisis - 10th July 19
Stock Market SPX 3000 Dream is Pushed Away: Pullback of 5-10% is Coming - 10th July 19
July 2019 GBPUSD Market Update and Outlook - 10th July 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

Misguided Economists Say U.S. Unemployment Rate Has Peaked

Economics / Recession 2008 - 2010 Feb 12, 2010 - 04:01 AM GMT

By: Mike_Shedlock

Economics

Best Financial Markets Analysis ArticleEconomists are giddy once again, following news that weekly unemployment claims dropped to 440,000.

"In the week ending Feb. 6, the advance figure for seasonally adjusted initial claims was 440,000, a decrease of 43,000 from the previous week's revised figure of 483,000. The 4-week moving average was 468,500, a decrease of 1,000 from the previous week's revised average of 469,500."


Weekly Claims 2010-02-11


As good as the one week seasonally adjusted drop of 43,000 looks, the track record of the Department of Labor is to revise numbers up. Moreover, the four-week moving average did not budge. Finally, please remember that it will take a minimum of 100,000 to 120,000 jobs a month just to hold the unemployment rate steady.

Misguided Forecasts

With that backdrop, please consider U.S. Economy to Strengthen, Reducing Unemployment, Survey Says.

U.S. unemployment peaked in October and will retreat through 2011 as the economy strengthens, according to economists surveyed by Bloomberg News.

The world’s largest economy will grow 3 percent this year and next, more than anticipated a month ago, according to the median estimate of 62 economists polled this month. The jobless rate, which reached a 26-year high of 10.1 percent in October, will end the year at 9.5 percent.

Efforts to rebuild inventories, investments in new equipment and software and improving sales overseas will spur employment and household spending. Scant inflation will give Federal Reserve policy makers room to keep the target interest rate near zero through the third quarter, buying the economy enough time to reach a self-sustaining expansion.

“It’s a matter of time before strength in the economy effectively feeds on itself, with more employment leading to stronger spending, which in turn leads to more employment,” said James O’Sullivan, global chief economist at MF Global Ltd. in New York. “The key is going to be the business sector leading the way and consumer spending following.”

Seasonal Adjustment Madness

Economists are excited over BLS numbers that cannot be trusted. Heck, not only can they not be trusted, they are downright preposterous. Please consider BLS Seasonal Adjustments Gone Haywire; 11% Unemployment Coming by May?

Unadjusted Unemployment Minus Seasonally Adjusted Unemployment


Seasonal Adjustment Highlights

  • There is always a big BLS adjustment in January
  • There is always a reversion to the mean that overshoots to the downside between March and April
  • There is always a secondary rebound back above the 0.0% line in July, followed by a smaller overshoot to the downside in October.


The problem is in the increasing amplitude of these swings, in both directions. It really makes you wonder just what the hell the BLS is doing and why.

I have data charted all the way back to 1999. Prior to January 2009, the biggest January swing was .6 percent, in both 2004 and 2003. In 2008 the January swing was only .5 percent.

The amplitude of January swings in both 2009 and 2010 was .9 percent, way outside the data range for the last 10 years, by a factor of 50 percent (.3/.6).

Likewise, the prior swings in October peaked at -.4 percent on a couple of occasions but hit -.7% in October 2009.

Unless it's different this time (I figure it is not) a reversion to the mean that slightly overshoots in a May-June timeframe will lop off a whopping 1.3 percent off the posted seasonally adjusted rate of 9.7 percent just announced.

In other words, all things being equal (no job gains or losses), we could expect to see the unemployment rate approach 11% by May! Of course we have to factor in actual job growth (or lack thereof). We also have to factor in census bureau hiring.

Heaven knows what census hiring will do to the BLS algorithms. Your guess is as good as mine. However, whatever it does, census hiring will also revert to the mean.

Also remember that it takes 100,000 to 120,000 jobs per month just to hold unemployment rate steady. Think that's going to happen? If so (and again discounting census hiring), then you are living in Bizarro world along with everyone else who thinks the unemployment rate is going to come crashing down.

Small Businesses See No Reason To Hire

James O’Sullivan, global chief economist at MF Global Ltd says “The key is going to be the business sector leading the way and consumer spending following.”

With that in mind, let's see what small businesses say. Please consider NFIB Small Business Trends February 2010.

Plans for capital expenditures and inventory investment among small firms are at 35 year lows. Even large bank CEOs now admit loan demand is weak! “Stimulus” for this administration has not focused on supporting consumer spending nor been designed with a sense of urgency as central to policy formulation.

Instead, Congress is focusing on a health care bill that features crippling taxes and mandates for small firms, fully expecting to have it in place and implemented (10 years of taxes, seven years of “reform”) this year with unemployment at 10 percent and expected by many to rise. Lawmakers also allowed the minimum wage to rise by nearly 11 percent in July 2009, catapulting teen job loss to over 500,000 and an unemployment rate of 27 percent in the second half even though the economy started growing. This was double the loss in the first half when GDP growth was plummeting.

If the administration wants to count “jobs created and saved” it should also be accountable for “jobs destroyed or prevented.”

City, State, Municipality Cutbacks

I have no idea how economists miss what's right before their noses but cash-strapped cities, states and municipalities are hiking taxes and laying off workers. Tax hikes will devastate small businesses. They will also harm everyone for the benefit of union workers. The effects of such misguided policies have not yet been felt.

In case you missed it, note that Governor Christie Declares "New Jersey on Edge of Bankruptcy".

Pullbacks in state spending have only just begun. Watch what happens after the next election. It is very difficult for candidates to preach fiscal austerity now. It will be much easier to do so, the first year following a four-year gubernatorial election.

Also remember, the Fed is about ready (or so they claim), to halt agency and treasury purchases. The effects of that on the mortgage and housing market are also not factored in.

No V-Shaped Recovery

Economists still expect some sort of V-shaped recovery even though there is no driver for jobs. Small businesses have no reason to hire, and indeed are not hiring.

Even if by some miracle we do see 100,000+ jobs a month between now and May (discounting census hiring which may temporarily distort BLS numbers further), expect to see unemployment head towards 11% by mid-summer on simple reversion to the mean unwinding of preposterous BLS seasonal adjustments.

Participation Rate Pressures

Down the road, expect the participation rate to rise (those wanting jobs to start looking again). Here is the appropriate snip from Jobs Contract Yet Again; Unemployment Rate Drops To 9.7%

Persons Not in the Labor Force

About 2.5 million persons were marginally attached to the labor force in January, an increase of 409,000 from a year earlier. (The data are not seasonally adjusted.) These individuals were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey.

Headwinds for a rapid drop in the unemployment rate are enormous. Realistically, it simply is not going to happen.

By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Click Here To Scroll Thru My Recent Post List

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com .

© 2010 Mike Shedlock, All Rights Reserved.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules