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Why Last Month’s Employment Numbers Should Worry Investors

Economics / Employment Dec 10, 2013 - 12:54 PM GMT

By: Profit_Confidential

Economics

Michael Lombardi writes: Finally some good news in the U.S. jobs market?

The Bureau of Labor Statistics (BLS) reported Friday that, in November, 203,000 jobs were added to the U.S. jobs market. As a result, the unemployment rate went down to 7.0% from 7.3% in October. In addition to this, the BLS also revised the job numbers from October and September, saying 20,000 more jobs were created than previously reported. (Source: Bureau of Labor Statistics, December 6, 2013.)


Yes, the jobs market report for November is a step in the right direction. And, while I’m certain the politicians and the mainstream will have a field day with this news, the underlying statistics in the jobs market are not improving.

The underemployment rate, which includes people who have given up looking for work and those who have part-time jobs that want full-time jobs, still sits at 13.2%.

In addition, the number of long-term unemployed, those who are out of work for more than six months, made up 37.3% of all unemployed in November! There are 4.4 million long-term unemployed people in the U.S. and the longer they stay out of work, the harder it will be for them to get back into the market.

Finally, the majority of jobs created in the U.S. economy continue to be created in the low-wage-paying sectors.

The bottom line here is that the “official” unemployment numbers do not reflect what’s really going on in the jobs market. But the official rate is going in the right direction…and moving close to the point (6.5% unemployment) where the Federal Reserve said it would start pulling back on its money printing program.

As we all know, the stock market is terrified of the Fed pulling back on money printing. So an improving official unemployment rate has now become a bad thing for the stock market. A scary thought.

Michael’s Personal Notes:

On the surface, the recent U.S. GDP numbers looked great. I hear the U.S. economy grew at a revised annual pace of 3.6% in the third quarter of 2013—its fastest GDP growth rate since at least the financial crisis. (Source: Bureau of Economic Analysis, December 5, 2013.)

But when I look closer at the numbers released by the government, I discover the U.S. economy didn’t grow due to consumer spending, the most important factor of economic growth, but rather due to a lack of consumer spending!

Let me explain…

In the third quarter, real personal consumption expenditure (a measure of consumer spending) increased by only 1.4%. That’s down 30% from the second quarter!

So how did GDP rise so much in the third quarter while consumer spending pulled back?

U.S. GDP increased in the third quarter because businesses stockpiled more of their goods. In the third quarter, private inventories increased by $116.5 billion; in the second quarter, they increased by $56.6 billion; and, in the first quarter, they increased by $42.2 billion.

The way GDP is calculated, an increase in business inventories pushes up GDP growth! Now the kicker: almost 50% of the increase in U.S. GDP in the third quarter came from an increase in business inventories!

This worries me a lot.

Rapidly increasing business inventories is a major sign that consumer spending isn’t growing. Those who say there’s economic growth in the U.S. economy have to be very careful in their conclusion. Consumer spending is the backbone of U.S. economy. If it declines, we will have economic suffering across the board.

As some point, businesses will have to stop stockpiling the goods they produce and start laying off staff if those inventories are not taken down; they can’t just go on creating more and more inventory if that inventory isn’t moving.

The statistics I see and interpret tell me that consumer spending in the U.S. economy is in trouble. Obviously, this is not good for corporate earnings. But have no fear, dear reader. The stock market is continuing to rise, the “official” government statistics show that the unemployment picture is improving, and the U.S. GDP is improving. Now, if I could only believe those statistics…

This article Why Last Month’s Employment Numbers Should Worry Investors is originally publish at Profitconfidential

Michael Lombardi, MBA for Profit Confidential

http://www.profitconfidential.com

We publish Profit Confidential daily for our Lombardi Financial customers because we believe many of those reporting today’s financial news simply don’t know what they are telling you! Reporters are trained to tell you the news—not what it can mean for you! What you read in the popular news services, be it the daily newspapers, on the internet or TV, is the news from a “reporter’s opinion.” And there’s the big difference.

With Profit Confidential you are receiving the news with the opinions, commentaries and interpretations of seasoned financial analysts and economists. We analyze the actions of the stock market, precious metals, interest rates, real estate and other investments so we can tell you what we believe today’s financial news will mean for you tomorrow!

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Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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