(F)Rebasing

Obviously there is a pretty bad discrepancy between those numbers in this morning's edition of blowing sunshine up your skirt from the Ministry of Truth.

current employment report

Given the size of the country, it SHOULD take 600k jobs to move the rate that much so obviously there's a problem here. How did this happen? Dig a bit deeper and you'll see that they simply defined 504k out of the labor force from December to January and rounding did the rest. Wave a wand and define those people out of existence. If they don't exist, they can't be unemployed now can they?

If you look at the chart, you'll see that they did the same thing in December from November. In that case only 260k unemployed people disappeared from the statistics. There is a clear and systemic effort to deceive the public about the state of the economy and it's getting worse.

latest household data

But there's is an even bigger deception in the numbers that helps to reveal the systemic fraud of the numbers. Last month the B(L)S claimed that their establishment survey measured 130,712k employed:

December 2010 employment report

But THIS month they show 130,265k employed and claim that it is an increase of 36k, rather than the massive drop of 447k that it actually is. They did this by altering history. Now, the record shows that 130,229k were working in December and the rest of those people have disappeared down the memory hole. It wouldn't be a concern if the revisions were random but the pattern is very consistent - almost perfectly so. Report good news now and back away later. This is the same game played with corporate earnings to deceive investors. Loudly trumpet "good" current results. Then quietly go back later and revise them down. Then use the revised numbers to show "growth" with the next fraudulent set of numbers.

The B(L)S calls this rebasing. Corporations call it a "one time charge" but it's the same scam. The objective in both cases is to mislead the public. It's nothing more than fraud with the goal of getting the public to buy the hopium of the confidence game. That's why I think that freebasing is a more appropriate name.

Lies, Damn Lies and Statistics

This morning, the Bureau of Labor Statistics release triggered news report to put up a huge headline:

431,000 Jobs Added in May

That sound impressive on the surface but the reality is much less than it seems. When you dig down into the numbers you can see just just how little really is there. First, the Census Bureau hired 411,000 temporary workers who were counted as part of the 431,000. The BLS claims 41,000 private-sector jobs were created, with the discrepancy likely coming from net layoffs at state and local levels of government.

Let's drill down a bit farther and take a look at the Birth-Death model that we have written about before. When we look there, note that the "model" has added 215,000 private-sector jobs for May. By backing out this estimate, we can conclude that the actual survey measured a net loss of 174,000 jobs in the real economy.

We can also dissect the Unemployment Rate in the same fashion. This statistic is based on the Household Survey, where the jobs created number is based on the Establishment Survey of employers. The Household Survey again shows that the number of people with jobs shrank in May - in this case the measured loss was 35,000 jobs. That is not as bad as the Establishment survey but still pointing in the wrong direction. The only way the BLS was able to report a lower unemployment rate was because they reduced the Labor Force by 322,000 workers, even while the pool of employable citizens rose by 170,000 people. Basically. BLS arbitrarily said 600,000 people ceased to exist for purposes of their calculations this month - so they could report a lower unemployment rate.

This is clearly a piece of propaganda designed to keep the ignorant public "confident" and spending despite reality. Like much else that comes from government, BLS reports have become riddled with accounting tricks that amount to fraud in order to paint a rosy picture. Don't be taken in.

The Great Reversal

It's been a while since I've had the time to add to the blog. Thanks to everyone for their patience and hopefully it was worth the wait.

Sometimes changes occur occur quickly and other times they seem to happen in geologic time. The later are usually referred to as secular changes and the former as cyclical, at varying degrees of trend. The distinction is somewhat arbitrary and depends on the perspective of the observer. Being admittedly human ourselves, we will generally refer to a trend playing out over a generation or longer as secular but many brilliant minds will refer to even longer-term trends as cyclical - such as the Kondratieff Wave Cycle. With that definition in mind let's move on to the subject of today's blog entry.

The Big Shift

Over the last two generations we have seen an enormous shift in social attitudes and structure, with women and especially married women entering the job market. This shows up in many ways in the labor statistics but the most stable measurement and the one least subject to manipulation is the employment to population ratio, which measures those working to the total non-institutional adult population. Forty years ago in late 1969 58.1% of all adults in the US were employed. For over a generation, more working women swelled that number - which reached a peak of 65.7% in April 2000, the very peak month of the tech bubble. Last month, September 2009 saw the employment to population ratio fall back to 58.8%. This essentially means that the busts which followed the serial bubbles have wiped out the effects a multi-decade secular social trend.

This does not at all imply that women have withdrawn from the workforce en masse. It simply demonstrates the power of the economic decline which we are currently experiencing and suggests that the decline is simply a continuation of the one which began in 2000 and was interrupted by the final desperate act of housing bubble. Facts give the lie to our government's attempt to put a happy face on the situation. To illustrate the size of the reversal, let's look at a 60-year chart of the employment-population ratio:

Does that clear things up a bit?

B(L)S

This weekend we would like to take a look back at the economic contraction that the talking heads would have you believe is already over. Of course there is no way that it true. The extreme deficit spending we referred to in Federal Funhouse could result in a short euphoria before the creditors pull the plug - just like maxing out your credit cards before declaring bankruptcy. But the real economy is in horrible shape and nowhere is this more apparent than in the labor market.

Today's critical data comes from the Bureau of Labor Statistics (BLS). Their unemployment data released Friday was loudly trumpeted as good news when all it really said is we're bleeding to death a little slower. Others have commented on and analyzed this data so we'd like to take a longer view of things - examining the size of the pool of blood on the ground as it were.

We're going to use the BLS monthly data for the last two years. Note that at the end of 2007, the potential labor pool (civilian non-institutional population) was 231.9 million and last month it was 235.9 million - an increase of 4 million potential workers. But the numbers for the labor force have lagged badly behind. At the end of 2007 it stood at 153.1 million and by July 2009, that had only increased to 154.5. Population growth would suggest that number should have been 155.5 million, with two thirds of the added adult population contributing to the labor force. Since the Labor Force is the basis for calculating the unemployment rate, clearly the current numbers are understated. As a mental exercise, let's see what happens if a million workers aren't shuffled off into statistical never-never land. That would be another million unemployed with an unemployment rate of 10.1%. I suspect that a lot of statistical games will go into keeping that number in the single digits as long as possible.

Further, the labor force participation rate (percentage of adult population in the labor force) has been falling since the late 1990s. This indicates that the recovery from the post-tech bubble crash never made it back to the highs of that period and the current further decline indicates that people think the economy is so bad they've quit looking for work. This allows the BLS to conveniently eliminate them from the unemployed category though they are still just as jobless. The bottom line is that the economy has to generate nearly 10 million jobs just to get us back to that lower high of the mid 2000s but it is still destroying jobs even as the population continues to grow.

Consumer Co-dependency

It appears that the abused average American has finally had enough. Target reported that Christmas sales were very weak and lowered their revenue growth numbers for December quite a bit. Add in the margin pressure from discounting and earnings in that sector should be a mess. The problems seem to be widespread and for once, stocks actually seem to be reacting to obvious fundamental problems. This should really be no surprise at all but sadly, equities have ignored fundamentals for so long that it's a shock when reality intrudes on the feeding frenzy.

Here at Financial Jenga, we've been documenting the many pressures facing consumers for some time now. Housing and mortgage debt were covered in Where to Start? We wrote about the deteriorating employment situation and failure of government statistics to reflect it in Behind the Numbers. The collapse of personal savings and explosion of total household debt was the theme of First Principles. Why is anyone surprised that a consumer sector with no savings, huge debts and fewer jobs would decide that reducing spending the the right course? "When you're in a hole, quit digging" is just common sense.

Of course, common sense has been in short supply for years. Americans have been able to get away with all sorts of foolishness and the banks and other lenders have been their enablers. It is simply human nature to slip into wishful thinking that there really IS a free lunch out there somewhere. Mark Twain once described a banker as "a fellow who lends you his umbrella when the sun is shining and wants it back the minute it begins to rain." Former uber-banker and CEO of Citigroup, Chuck Prince pretty much confirmed Twain's characterization back in July when he said:

When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing.

Apparently, Chuck has stopped dancing and wants his umbrella back - except that he's no longer CEO. The reason he's not CEO now is because he waited too long to grab the umbrella and it looks as if he was right that "things will be complicated."

Banks are always willing to lend when they think there's little risk. That doesn't mean they are right in their risk assessment. Consumers have proven willing to borrow as long as they think they can make the payments. They are often overconfident on that front. The confidence of both is being pressured by the weak job market. Banker's willingness to lend is also falling with the value of the loan collateral - especially housing. Consumer confidence faces additional challenges due to higher food and energy prices. They were both wrong to be confident because they confused cyclical and secular economic forces. They also failed to recognize that their own behavior was the cause of the spike in asset prices. They borrowed and lent money used to buy the assets and prices quite naturally rose. Then they all congratulated each other on how smart they all were to "get in on a rising market." Now the prices are falling and the debt will still be the same size.

Consumers have a co-dependent relationship with their bankers - who have enabled destructive behavior for years. It appears that both sides are ready to walk away now that the relationship serves the needs of neither side.

Behind the Numbers

Today we hear that 4,000 fewer people had jobs in the USA in August than in July. Don't believe that - the losses are much worse than just 4k.

The numbers of losses have just gotten too big for the statistical "adjustments" to hide. The actual employer survey data showed job losses throughout the second quarter and minimal gains in the first quarter. The Birth/Death Model added 120k jobs in August. That is the assumed net addition from startup businesses, less the losses from existing firms folding. Does anybody actually believe that number should be positive instead of negative given the number of small business failures? The actual employer survey showed 124k losses. The reality is likely to be worse than that once the actual net jobs from business startups and failures is measured.

The household survey has been flashing danger even longer. No jobs created since November of last year. August household survey shows 316k jobs lost. The unemployment number stayed flat because they just took nearly 600k people out of the workforce for no apparent reason. The household survey captures people not considered employees - sole proprietors and independent contractors mostly. That would describe a lot of building subcontractors, realtors, mortgage brokers, etc. With what's happening in the housing sector, you should expect large discrepencies for a while as many such people lose their jobs.

August Employment Report

BLS Birth/Death Model