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Notes to myself, possibly of interest to others.
-- Bill Northlich

Friday, February 10, 2012

Rosenberg - Observations on Jobs and the Economy

Despite the reported two million-plus jobs “created” over the past year, Federal government income tax revenues are down 1.5% (thanks to Zero Hedge for that little tidbit). Call it a wageless job recovery, I suppose. The equity market is on fire even with only 60% of companies beating their EPS estimates for Q4 and a mere 55% surpassing top line forecasts. Go try and figure these things out, because I have a headache just thinking about it.

To be sure, January’s jobs data may have ended up being decent even without the weather effect, but keep in mind that the number of jobs is still 5.6 million lower today than at the end of 2007, so we are still climbing our way out of a very deep hole four years later. Note that this is now month 48 in which employment has been below the pre-recession peak (exceeding the post-2001 stretch of malaise and making this the longest time period since the Depression in the 1930s) and payrolls have not managed to make a new high. That says something.

So many other indicators as well, such as manufacturing shipments, industrial production, real incomes, real retail sales, housing starts and home sales — all these macro indicators, remarkably, are still below where they were before the last recession began. That should help put things into a certain context — the economy is still healing four years after the initial detonation.

One final note. Not only are gasoline prices on the rise, therefore putting a cloud over the consumer spending outlook, but also keep in mind that Congress is still in a stalemate regarding the extended payroll tax and unemployment insurance benefits that expire at the end of this month. Estimates we have seen suggest that this will result in at least a 0.7 of a percentage point drag on overall GDP growth in 2012, if this withdrawal of fiscal stimulus is actually allowed to happen.

I keep hearing about the 8.3% unemployment rate and how it is at its lowest level since February 2009 and how it is playing out so well for President Obama’s re-election chances. Nobody seems to know that the U6 measure is still north of 15%, which includes both unemployment and underemployment.

The fact of the matter is that discouraged workers are dropping out of the labour force like flies, and so what is key is the ‘employment rate’ or the employment- to-population ratio — you can drop out of the labour force for a whole host of reasons, but you only drop out of the population base if you die or leave the country. You don’t have to survey people as to whether they are actively searching for work — the population count is not subject to opinions. And the employment rate at 58.5% has not budged for three months and remains very close to the depressed lows for the cycle.

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