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Friday, January 08, 2010


changes in employment

some excellent twitter comments of late from deepfoo analytics regarding perceptions and reality regarding unemployment.

combined EUC and NSA continuing claims higher now than it has been for most of the year. SA's assuming people got seasonal work

People who are using the SA continuing claims numbers only are fooling themselves. EUC program over last year, up +2.88 million

EUC/CC data issue less a markets one & more a risk that admin will do nothing based on imprving #s, when they are getting worse

to be sure, the unemployment situation is far from the accelerating freefall of a year ago -- there is a technical recovery underway resulting from the combination of significant government stimulus, a monster inventory correction cycle following a "full-stop" in production in 4q2008, and what trader mark of fund my mutual fund cannily noted as

1 in 7 Americans not bothering to make a home payment anymore, the "self stimulus" plan should help spending incl retail

investors and financial media do not mention this stimulus period. Many Americans sit in homes without making mortgage.

what this is perhaps not, however, is a durable credit expansion and self-sustaining recovery. there is obviously a cycle afoot whereby job cuts reduce nominal incomes, incomes then reduce asset prices, which thereby make loans riskier and fuels credit contraction, which leads then to more job cuts, lower incomes and lower asset prices and so forth.

perhaps the best hope for breaking this cycle from here is a business-led investment recovery, as viewed by accrued interest.

Its not impossible. Business spending can and does occur in the absence of strong consumer demand. We know that businesses have spent very little on capital replenishment.

[T]he drop off [in non-residential investment] is much more severe this recession than in 2001 or 1991. In fact, fixed investment as a percentage of GDP (9.5%) is at its lowest point since the early 1960s (although about the same as the 1990-1991 recession.) Since 1960, the average capital spending level as percentage of GDP is 11%. In order to get capital spending up to 11%, businesses would have to increase capex by 16%! Again, this could add considerably to GDP without a serious ramp-up in consumer spending. In fact, I'm modeling that fixed investment adds something like 1.1% to GDP in 2010.

Bottom line: I think GDP grows above 4% on average in 1Q and 2Q 2010, then drops off a bit into the mid 3's for the second half.

this (or any) kind of expansion has to translate at some point into job recoveries if incomes (and not just profits) are going to be bolstered and the housing market slowly recover -- and that is the key operation, as without a housing market recovery (or at least stabilization) of some kind loan performance at banks will continue to deteriorate and send hundreds if not thousands more banks to the FDIC. moreover disposable incomes will continue to erode and final end-user demand -- to which the corporate sector is mostly a leveraged passthrough -- will decline, undermining any recovery effort.

in short, if we're going to avoid a double dip that will remove all doubt that we are in a depression, this business-led recovery that creates household income has to come off in spite of massive excess capacity. (and probably more, such as principal reductions for underwater debtors handcuffed to further government recapitalization of banks damaged thereby.) wall street is clearly pricing in not only that recovery but (to judge by the stock market, if it is in any way linked to the fundamental economic backdrop at all) that the profits of the recovery will be retained for the benefit of the capital structure and therefore shareholders. that likely won't suffice for a durable recovery.

so if employment growth is key to stabilizing and repairing the economy, getting the proper picture of employment is critical. zero hedge and paper economy both take up the issue of the unemployed falling off continuing claims rolls as their benefits expire. much has been made of the slow improvement in initial jobless claims, but that is still quite far from improving employment. adding unadjusted (so as to nullify the seasonal adjustments which, as deepfoo notes, are very likely inappropriate under these circumstances) continuing claims with extended claims we can see that the ranks of the unemployed receiving benefits are near all-time highs, over 10.6mm in december.

and that isn't the total. there's a difficult-to-assess number who have fallen outside the boundaries of these benefit programs as well, whose incomes have gone missing. henry blodget relays the new york times:

About six million Americans receiving food stamps report they have no other income, according to an analysis of state data collected by The New York Times. In declarations that states verify and the federal government audits, they described themselves as unemployed and receiving no cash aid — no welfare, no unemployment insurance, and no pensions, child support or disability pay.

Their numbers were rising before the recession as tougher welfare laws made it harder for poor people to get cash aid, but they have soared by about 50 percent over the past two years. About one in 50 Americans now lives in a household with a reported income that consists of nothing but a food-stamp card.

that's a further two million people who have been pushed outside the margin by the depression. and there's more. many older workers have been pushed into retirement sooner than they would have expected or liked, and are taking a hand in bringing forward by several years the inflection point whereupon social security has become a cash flow drag upon the federal government finances. there are also legions of newly-minted workers fresh from school with very few job prospects and no claim on any benefit.

i've tended to look at EMRATIO (which is seasonally adjusted, bear in mind) to get a better picture of the problem than tracking the unemployment rate. as a ratio of total employment to total population, it isn't perfect -- but it does avoid some of the sampling pitfalls that come with trying to count what isn't there. EMRATIO is still collapsing hard, returning to levels not seen since before women really started to enter the workforce, and shows that some 5% of the population which was working in 2007 today is not. in a country of 310mm people, that's 15.5 million. and still growing rapidly.

and that's still not all. as calculated risk highlights again this month, employed part time for economic reasons is at stunning highs of over 9.2mm. there are some 5mm people here who have had their wages and hours cut, in most cases severely, from two years ago which the economy would have to re-employ to bring incomes back to former levels.

others have also commented on the immensity of this problem for a society that hasn't sustained growth of 3mm jobs in a year for over a generation. even in the unsustainable bubble economy of the 1990s -- the fastest payroll growth rate period in living memory -- the united states averaged about 2.8mm. indeed its questionable as to whether a new layer of structural, or permanent, unemployment has been created. and i myself (with apologies to accrued interest) am doubtful that the inventory correction cycle will extend into a lengthy business-led recovery with the kind of damage being wrought to the job-creating small business engine of this country by the contraction of the banks. ed harrison helpfully points out that recalculation may mean persistent unemployment as malinvestment is unwound and the labor force retrained, but of course that creative reorganization of resources can trigger deep depressions following massive misallocations such as we saw over the last several years.

fearsome as it is, at least having a robust picture of changes in employment beyond the headline unemployment rate reported by the BLS will help discern whether job growth is helping to get us out of the trap.



the US is looking at permanently higher levels of unemployment (structural) with China being the 'factory floor' of the world,supported by the artifically low renmibi ie they export THEIR unemployment

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Another data point is the latest CBO deficit report, which estimates that payroll taxes are down 1.9% compared to the first three months of FY 2009. (Withholding is off 8.5%, but it is complicated by Making Work Pay and other factors--primarily the lack of capital gains and the dimunition of dividend and interest income. Payroll taxes are a pretty steady percentage of income (and until last year had never fallen in nominal terms). So the employment situation is very bad if this number is still going down.

You make a good point about all of the hidden stimulus occurring right now--people not paying their mortgages, people refinancing at sub-5% rates. But the government stimulus is not really very effective because so much of it is directed towards simply maintaining the status quo--like extending unemployment benefits or Medicaid payments to the states. These two items have skyrocketed, but all they really do is keep people where they are. (Not saying they should cease, I'm just saying they're not very stimulative.) That's right, the federal government can run a $1.6 trillion deficit and it's not really stimulative because it's not new money.

The situation is analogous to a college student with limited income who receives $100 unexpectedly from a favorite uncle--that's stimulative . . . But the money mom and dad give him every month for rent and food--that's not.

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I work in a very small, very odd corner of the world, but I see something that I haven't seen yet work its way into the conversation. If "employment" means a full-time job and a W2(which is how most econ dev efforts are judged), then we are certainly headed for prolonged, structural unemployment.

But the world of getting paid money for the provision of services is rapidly leaving that definition behind. 2009 is the first year since 2000 that I've filed a W2. Everything else has been 1099s. And I'm far from alone in this work-style, to coin a phrase.

Then you have to consider the "corporate diaspora" - laid-off white collar workers who will never have a "job" again. These folks are now consultants filing (what?) 1099s.

Lastly, in this day of ubiquitous, immediate data, for the love of Pete, can't we find a better way to measure employment than calling a microscopic sample of people and asking them a set of narrowly defined questions?

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OH just keep the checks comming .The gov. cause this problem they can live with it.
Please have my check in my account by Wednesday
Thank you

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