Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
AI Tech Stocks State Going into the CRASH and Capitalising on the Metaverse - 25th Jan 22
Stock Market Relief Rally, Maybe? - 25th Jan 22
Why Gold’s Latest Rally Is Nothing to Get Excited About - 25th Jan 22
Gold Slides and Rebounds in 2022 - 25th Jan 22
Gold; a stellar picture - 25th Jan 22
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

U.S. Jobs Report and the Band Played On

Economics / US Economy May 07, 2014 - 09:30 AM GMT

By: Peter_Schiff

Economics

After three months of consistently disappointing jobs numbers, the markets were as keyed up for a good jobs report as a long suffering sailor awaiting shore leave in a tropical port. The just released April jobs report, which claimed that 288,000 jobs were created in the U.S. during the month, provided the apparent good news. But you don't have to go too far beneath the surface to find some troubling trends within the data. Even this minor excavation was too much for the media cheerleaders and Wall Street pitchmen to handle. 


The dominant narrative held that the prior reports had been so weak because the unusually cold weather (the 10th snowiest in the past 50 years) had prevented consumers from venturing outside to make purchases or employers from hiring workers. Time and again the winter was blamed for the disappointing jobs reports that came in over the 1st quarter. As a result, the consensus of economists predicted a rebound in April with 215,000 net new non-farm jobs. The 288,000 figure that greeted the markets last week - which helped bring down the unemployment rate to a post-crash low of just 6.3% - confirmed the weather hypothesis.

In reality, the desperation in which these tenuous data straws were grasped is a testament to our chronic economic weakness. Far more significant than the number of jobs that were created in April were the far greater number of jobs that were lost (806,000) because chronically unemployed Americans gave up on their fruitless quests to find work. This trend has been ongoing for years. The latest exodus of workers pushed the labor force participation rate down from 63.2% to 62.8%, an unusually sharp monthly drop. Apart from October and December 2013, also at 62.8%, the rate now is at the lowest level since March 1978. Each individual who drops out of the job market creates another lost taxpayer and another individual who is more likely to receive government support. But the media coverage of the jobs data treated this stunning development as a mere afterthought.

What should have been of particular concern, but was not even mentioned, was that more than 80% of the 288,000 jobs came from birth/death assumptions the government makes about the net number of new companies that formed during the month and the number of people those companies would have been expected to hire. For some reason the statisticians always assign a disproportionally high number of these assumed jobs to April and May. The rationale for this is likely buried deep within bureaucratic small print, so we have to take that number with a grain of salt. But what if only 100,000 new jobs were added as a result of birth/death assumptions, as was averaged in February and March? The Labor Department may have been just as convinced as everyone else that the cold weather had restrained hiring during the winter. As a result they may have been inspired to make this year's April assumption the biggest in the last six years.

The story even gets worse when you consider the types of jobs that are being added. As has been the case for years, the new hires are heavily weighted to the lower end of the spectrum, particularly in low-paying service sector and retail jobs. The drop in the labor participation rate would not be so alarming if those who remained working were finding jobs that could support families. But that is not what is happening. We are replacing good jobs with bad jobs and getting poorer with each passing month.

This trend was confirmed on May 1 when the Bureau of Economic Analysis released its March Personal Income and Outlays report. As is typical, the pundits reacted positively to the .9% increase in consumer spending. But they couldn't be bothered to look at the other side of the coin to determine how that increase was achieved. With personal income up only .5% for the same period, Americans financed their extra spending with a drop in savings, which dropped to 3.8%, the lowest level since just before the 2008 crisis (with the exception of January 2013 at 3.6%). Contrary to the rhetoric coming from spending-obsessed economists and politicians, savings constitute the foundation upon which economic health rests. 

More bad news arrived recently with the release of first quarter GDP numbers, which showed the economy "growing" at a glacial .1% annualized over the first quarter. The results stand in stark contrast to the optimistic forecasts that continue to hold sway on Wall Street. According to Bloomberg's April Survey, a consensus of economists expect the US GDP to expand 2.7% in 2014. But so far the horse has stumbled badly from the gate. Just to reach the consensus estimate for the year, the economy would have to average 3.5% annualized growth over the remaining three quarters of the year. The odds of that are slim to none, and Slim has just dropped out of the workforce.

However, as we have seen in recent years, GDP estimates are more likely to be revised downward than upward in subsequent data releases. So there is a very good chance that the first quarter estimates will be revised into negative territory. This means that we may be already half way to a recession (which is defined as two consecutive quarters of negative growth).

As they have done with the recent jobs reports, most economists pin the bad GDP number on the hard winter. This is a dangerous game to play. If GDP now fails to respond strongly to the return of warmer weather, the truth of a fundamentally weakening economy will become that much easier for everyone to see. But with asset bubbles forming across many sectors of the economy, the truth can be a serious hazard. Nothing pricks a bubble quicker than a loss of confidence.

After last year's stunning 29% rally in U.S. stocks, Wall Street virtually assured investors at the end of last year that the good times would continue. Instead, stocks are virtually flat for the year. If not for the super-charged mergers and acquisitions market, which according to the Wall Street Journal accounted for $638 billion of transactions thus far in 2014 (the highest level of activity in almost 20 years), and the rock bottom long term interest rates provided by the Federal Reserve, markets could be tanking. What's worse is the fact that the first five months of the calendar are usually the best for market performance (hence the Wall Street adage "sell in May and go away.") If this is how we have fared in the Spring, beware the Summer doldrums and the time this Autumn when the Fed is scheduled to end its QE program.

While the darkening skies may not be visible to Americans, the foreign exchange markets have taken notice. Today the U.S. dollar hit a five-year low against the British pound, a nearly three-year low against the Swiss franc (notwithstanding three days in March that traded slightly lower). The weakness in the dollar portends a weaker U.S. economy and a strong likelihood for more Quantitative Easing from the Federal Reserve. It also confirms that Europe's strategy of limited "austerity" did not deliver the catastrophe that many on the left, including Paul Krugman, had predicted.

And so while there are plenty of reasons to be cautious about America's economic future (the growing geo-political tensions in Ukraine for instance - explored in detail in my latest newsletter), Wall Street has found ways to ignore all of them. My advice to investors is to ignore the swelling crescendo coming from the paid musicians. Take a look at the sheet music instead. They may play it like a fanfare but it is written like a dirge.

Subscribe to Euro Pacific's Weekly Digest: Receive all commentaries by Peter Schiff, John Browne, and other Euro Pacific commentators delivered to your inbox every Monday!

Don't forget to sign up for our Global Investor Newsletter.

Regards,
Peter Schiff

Euro Pacific Capital
http://www.europac.net/

Peter Schiff Archive

© 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