Feb 042012
 
 February 4, 2012  Posted by at 7:13 pm Finance
Share on FacebookTweet about this on TwitterShare on Google+Share on LinkedInShare on TumblrFlattr the authorDigg thisShare on RedditPin on PinterestShare on StumbleUponEmail this to someone

 

altArthur Rothstein Blatz on Tap Summer 1939. Butte, Montana “Men lounging in front of the Arcade”

Friday’s NFP number brought us some altogether unprecedented BS from the BLS. Much has already been said about the filthy stench emanating from these “data points”, so I will just review the most important points here. First thing to note is that squeezing a record 1.2 million people out of the “labor force”(people who don’t waste time looking for jobs that don’t exist) is apparently a sure fire way to get the headline unemployment rate down to only 8.3%

ZeroHedge, as usual, does an excellent job deconstructing the self-contradictory nonsense that is known as the NFP jobs report.

Record 1.2 Million People Fall Out Of Labor Force In One Month, Labor Force Participation Rate Tumbles To Fresh 30 Year Low

“A month ago, we joked when we said that for Obama to get the unemployment rate to negative by election time, all he has to do is to crush the labor force participation rate to about 55%. Looks like the good folks at the BLS heard us: it appears that the people not in the labor force exploded by an unprecedented record 1.2 million.

 

No, that’s not a typo: 1.2 million people dropped out of the labor force in one month! So as the labor force increased from 153.9 million to 154.4 million, the non institutional population increased by 242.3 million meaning, those not in the labor force surged from 86.7 million to 87.9 million. Which means that the civilian labor force tumbled to a fresh 30 year low of 63.7% as the BLS is seriously planning on eliminating nearly half of the available labor pool from the unemployment calculation.

 

As for the quality of jobs, as withholding taxes roll over Year over year, it can only mean that the US is replacing high paying FIRE jobs with low paying construction and manufacturing.”

 

 

   

To make matters much worse, the number of long-term unemployed (27 weeks or longer) remains at a very high level of ~5.5 million and youth unemployment remains at 23%. And only 10% of the headline increase in jobs was due to additions for full-time employment, while a record 700,000 part-time workers were hired in January. ZeroHedge also follows up with a great analysis of the seasonal adjustment mechanism used by the BLS to turn manufacture millions of jobs out of thin air and turn a miss of expectations into a massive beat.

 

Explaining Yesterday’s Seasonally Adjusted Nonfarm Payroll “Beat”

 

“What is very notable is that in January, absent BLS smoothing calculation, which are nowhere in the labor force, but solely in the mind of a few BLS employees, the real economy lost 2,689,000 jobs, while net of the adjustment, it actually gained 243,000 jobs: a delta of 2,932,000 jobs based solely on statistical assumptions in an excel spreadsheet!

 

So how does this data fit in specifically in the context of the just passed NFP whopper of a number? Simple. The chart below shows the January seasonal adjustment for the past 4 years, since 2009. The number of jobs added for “seasonal” purposes to the NFP number were as follows: 2009 – 2,006,000; 2010 – 1,970,000; 2011 – 2,129,000, and the all important 2012: 2,146,000.  

 

Once again, this is the number added to the NFP unrevised baseline to get a “final” number which is then blasted to the media. The chart below shows the historical January adjustment, to the NFP data, as well as the 2012 reported adjustment, and also what the statistical adjustment would be for the NFP number to have the NFP number come in line with expectations of a 140,000 beat.

 

Here is the kicker: the market mood yesterday would have been far more somber if instead of a seasonal fudge-factored statistical addition of 2,146,000 jobs, the BLS had decided on a number that is merely the simple average of the statistical adjustment of the past 3 years, which comes down to 2,035,000. In fact, had the BLS used this seasonal adjustment, the final NFP headline number (SA) would have been +132,000, or a miss of expectations of 8,000 (the Seasonal Adjustment number to get to consensus January expectations would have to be +2,043,000 to the NFP number).

 

In other words, the difference between a + and – 2% move in the stock market is based on less than a 5% variation to the entire January seasonal adjustment, as had the BLS add just the simple average, the BLS report would have been a disappointing miss, and the market would have likely dropped (although with 5 momos in charge of the entire market, the thesis would have likely promptly shifted to “more QE coming” so who really knows).”

 

 

   

The combiniation of a horrendously exclusive “labor force” definition, extremely weak internals and a goal-seeked seasonal adjustment (significantly higher than recent average) make the NFP report the most highly manipulated and misleading piece of work to come oozing out of Obama’s Administration yet. And Karl Denninger does a few more calculations to determine that, not only was this not a very good employment report as claimed, but it was actually the worst since January of 2009!

 

Employment Report: Blatant And Outrageous Lies 

 

“Indeed, the total number of employed persons fell. A lot. To put a number on it, the total number of employed persons fell by 737,000 by actual count.

 

Now the cheerleaders will state that this is a common thing in January, and indeed it is. But the correct adjustment is to look at the population increase and subtract that back off as well. In other words, we take the loss of employment and add the population growth. When we do this we get a whopping 2.422 million in the wrong direction which was bested only by the -2.618 million in January of 2009 through the process of this downturn!

 

In fact other than January 2009 there has never been a single month in my table, which dates back to 1999, that put up a worse combined number. This “performance” rates a literal “second from utter despair and disaster”, and the employment rate shows it:”

 

 

   

This sort of aggravated manipulation/miscontruction will become commonplace in the months ahead of November’s elections and it does carry real consequences, beyond simply buying a few points with the market. Sports radio pundits are reporting that some 5 million (!) Americans are going to buy new televisions to watch The Superbowl, and jobs reports such as this one will give them unjustified comfort when making such horrible decisions.

Why put off a several hundred dollar purchase on credit when you are confident that there are plenty of jobs waiting for you or that your current job is safe? Why not take out a few loans from Sallie Mae and enroll in that graduate program when the economy is in full recovery mode? The people lured into consumer-friendly complacency by these faux reports and the media lackeys who shill for the status quo will have a very rude awakening when all their bills come due, and it turns out the jobs were never there to begin with.

Yet, there is also a growing section of disenfranchised Americans who will be forced to trust their own lying eyes and [lack of] paychecks over the juked statistics from federal agencies or Jim Cramer’s insufferable blather. Perhaps the biggest consequence of these manipulations will be to completely undermine confidence in the crony corporatist establishment. Still, it may take some more time for the harsh realities of Depression to set in across the all-consuming middle-class of America, which starkly contrasts with the situation in Europe.

Say what you will about the Eurocrats – they are power-hungry shysters who work through endless circuits of Summits and acronymous funds, turning their citizens into full-blown debt slaves just so they can keep the current crop of banksters and politicians in power, while the latter bumble, tumble and stumble towards any temporary “solution” to be had, no matter how useless, unjust or counter-productive it is – BUT they do produce much more legitimate economic and financial data than their American counterparts.

They still offer a hint of transparency to their citizens; something that has been utterly stripped away from the American populace over these increasingly painful years. There is no doubt that the peoples’ plight is much more acute in Europe right now, where many of those living in the periphery are struggling to make ends meet every hour of every waking day. Eurostat gives us the latest unemployment data for the EU-27 and the Eurozone (17), and it’s grim.

Unemployment Statistics

“Eurostat estimates that 23.816 million men and women in the EU-27, of whom 16.469 million were in the euro area (EA-17), were unemployed in December 2011. Compared with November 2011, the number of persons unemployed increased by 24 000 in the EU-27 and by 20 000 in the euro area. Compared with December 2010, unemployment increased by 923 000 in the EU-27 and by 751 000 in the euro area.

 

The euro area seasonally-adjusted unemployment rate was 10.4 % in December 2011, unchanged compared with November 2011; it was 10.0 % in December 2010. The EU-27 unemployment rate was 9.9 % in December 2011, also unchanged compared with November 2011; it was 9.5 % in December 2010.

 

Among the Member States, the lowest unemployment rates were recorded in Austria (4.1 %), the Netherlands (4.9 %)and Luxembourg (5.2 %), and the highest rates in Spain (22.9 %), Greece (19.2 % in October) and Lithuania (15.3 % in the third quarter of 2011).

 

________

 

In December 2011, 5.493 million young people (under 25) were unemployed in the EU-27, of which 3.290 in the euro area. Compared with December 2010, youth unemployment increased by 241 000 in the EU-27 and by 113 000 in the euro area. In December 2011, the youth unemployment rate was 22.1 % in the EU-27 and 21.3 % in the euro area. In December 2010 it was 21.0 % and 20.6 % respectively. The lowest rates were observed in Germany (7.8 %), Austria (8.2 %) and the Netherlands (8.6 %) and the highest in Spain (48.7 %), Greece (47.2 % in October) and Slovakia (35.6 %).”

 

 

 

   

These levels of youth unemployment are obviously a recipe for disaster, economically and socially. EU peripheral nations are tasked with growing themselves out of severe, structural deficits, but the figures above, among many others, tell us just how unrealistic that has been all along. Spain wants to cut its budget deficit nearly in half over two years when close to a quarter of its population, and almost half of those under 25, are not earning a regular income.

If the Troika and Mariano Rajoy get their way and spending on healthcare, education, etc. is gutted across Spanish regions, it will be even harder for any of these people to find employment, pay off various debts and consume at anything close to levels that sustain growth. The numbers put out by the EU may be more accurate than those pubished in America, but that’s little consolation to the men, women and children across the Continent who those numbers represent.

I’d like to get back to the BLS’ latest propaganda, though, and point out one other very important consequence of the report. It appears the rabid momentum chasers are once again picking up pennies in front of a gigantic steamroller, since everything in Europe is still as uncertain and unstable as it ever was and, on top of that, the bogus U.S. data may have just killed the one thing that investors have been taking to the bank for many months now – large asset purchases by the Fed.

I wouldn’t go so far as to say that some scale of QE3 has been “priced in”, but it is clear that the markets are now thoroughly addicted to credible promises of cheap, never-ending liquidity; or, as they would tell you in AA meetings, one sip is too much and one trillion sips are never enough. The problem for them now is that there is very little credibility left underlying the Fed’s “promises”, thanks to the complete joke of a jobs report produced by the incumbent politicians guiding the BLS.

With unemployment data suddenly showing massive improvement above expectations last month (and the non-manufacturing ISM reporting price increases across several commodities), the U.S. government has placed itself back in a position where there is simply no justification for any monetary easing. The Administration will continue to goose any and all economic data it can get its hands on going into elections, which will make it that much more difficult for the Fed to act, which, in turn, will make it very difficult for the market to keep up its appearances.

I believe it would be a mistake to assume that this fact has been lost on large money managers, as the following snippet from The Guardian Blog suggests.

 

Guardian Live Blog  

 

“The drop in the unemployment rate to 8.3% means it is at the lower end of the Federal Reserve’s forecast range – which could provide fuel to those in the Fed who want to hold back from further measures to boost the economy. Joshua Raymond, chief market strategist at City Index, said:

 

‘This is a really stellar set of numbers and has surprised many who had expected a slowing of jobs growth after the December holiday period.

 

The jobs figures paint quite a different picture to the tone of voice used by the Federal Reserve last week, which applied a somewhat dovish tone towards US growth expectations. This naturally poses the question what are the Fed seeing further down the path that the market isn’t right now?

 

And what’s more, a stronger than expected labour market goes directly against the rational to increase asset purchases through quantitative easing, and this may pose a somewhat negative impact in the medium term for those investors that had factored this into their trading.’

 

Within the figures private sector jobs rose 257,000 while government jobs fell by 14,000, compared to expectations of a 20,000 drop. The increase in non-farm payrolls is the biggest since April 2011.”

 

We could call it the mirror image of 2009-10, when all that mattered to the American political and financial elites was goosing the markets to manage perceptions of economic health and churn trading profits. As housing, jobs and manufacturing data naturally worsened (with exactly zero jobs created in August 2011, later revised slightly upwards) and the electioneering switch was flipped, the politicians have taken precedence over the bankers and are manipulating the source data with the belief that the markets will naturally play along.

What the politicians fail to understand is that the feedback between the real economy and the markets, to the extent it existed, has been irreversibly corrupted over the last few years through centralized intervention. You can goose all the data you want, but the increasingly fewer traders [or robots] that make up “the market” these days only want one thing – more monetization of debt. And, until now, most of them have been too clueless to figure out that unrestricted printing of money is not a guaranteed outcome in 2012.

This is something that TAE has consistently pointed out for quite some time now, while others have declared that money printing is the end all and be all of the system. Ultra-loose monetary policy and some form of printing will be a staple feature of our world for some time to come, but let’s remember that the financial system is not isolated from the sociopolitical system or vice versa. Both the probability and effectiveness of money printing will hinge on numerous variables, three of the most important being systemic deleveraging, social confidence/mood and political manuevering, and all three of those are coming to a head this year.

Home Forums Who Killed the Money Printer?

This topic contains 0 replies, has 0 voices, and was last updated by  ashvin 2 years, 6 months ago.

Viewing 9 posts - 1 through 9 (of 9 total)
Author Posts
Author Posts
February 4, 2012 at 7:13 pm #8642

ashvin

  Arthur Rothstein Blatz on Tap Summer 1939. Butte, Montana “Men lounging in front of the Arcade” Friday’s NFP number brought us some altogether
[See the full post at: Who Killed the Money Printer?]

February 6, 2012 at 12:18 pm #477

Raúl Ilargi Meijer

test

February 6, 2012 at 4:18 pm #482

mholter1

Is no one commenting?

February 6, 2012 at 5:18 pm #484

Happysurfer

Ok will Reply as a test and Congratulations on your new site – here’s to a wonderfully bright future :)

February 6, 2012 at 5:43 pm #485

ashvin

mholter1 post=73 wrote: Is no one commenting?

Well, I take it to mean that everyone agrees with every single point made in the article! ;)

I really think we all just have a bit of getting used to on this new forum.

February 6, 2012 at 11:53 pm #501

mrawlings

I would have expected at least a few of the regulars to have posted by now. I guess change makes people reticent. I suppose it will take a bit of time.

Kevin Phillips writes the following in a 2008 piece, “… a fundamental mismanagement of the U.S. economy rests on a framework of what can bluntly be described as lies, damn lies and statistics.”

Lies, Damn Lies and Government Inflation Statistics- http://www.huffingtonpost.com/kevin-phillips/lies-damn-lies-and-govern_b_113277.html

I suppose to those that think the highest good is a growing economy, a little statistical chicanery is a small price to pay to get Joe Sixpack to both buy stuff he might not otherwise, and possibly get his vote in the bargain. Win-win! as they like to say.

Question regarding this new set-up: will we at some point be able to assign pictures to our avatars?

February 7, 2012 at 4:30 pm #517

ashvin

mrawlings post=92 wrote: Question regarding this new set-up: will we at some point be able to assign pictures to our avatars?

Yes, can’t tell you when the avatars/profiles will start working though.

February 9, 2012 at 3:01 am #604

steve from virginia

First of all, there is no such thing as a ‘productive’ industrial economy or sector. All industrial sectors are REductive.

The finance economy is the REAL economy.

February 9, 2012 at 3:31 am #610

ben

word up, SFV.

Viewing 9 posts - 1 through 9 (of 9 total)

You must be logged in to reply to this topic.