David Rosenberg's Explanation Why The Real Unemployment Rate (U-3) Is 12%

Pretty much precisely what noted earlier today: "A couple of behind-the-scene facts: from October to February, an epic 700k people have left the work force. If you actually adjust for the fact that the labour force participation rate has plunged this cycle to a 27-year low the unemployment would be sitting at 12% today. Moreover the employment-to-population ratio — the so-called “employment rate” — stagnated in February at 58.4% and is actually lower now than it was last fall when “double dip” was the flavour du jour."

The widespread reaction to the jobs report today is uniformly positive. I think a dose of reality is really needed here. It may as well come from this pen. The headline print of +192k was in line with published estimates but following the slate of ISMs and the ADP report, the “whispered” number was closer to +250k. Of course, there were the upward revisions to the back-data that showed net gains of +58k so one could easily respond that adjusted for these, the topline did indeed meet these “whispered” estimates. The employment diffusion index jumped to a 13-year high of 68.2% from 60.1% in January, but beware of peaks and troughs in this index (i.e. it would have been a mistake to extrapolate the 17% low in this job dispersion measure at the March 2009 market trough).

Here is what I think is important: because of the winter storms, we really have to average out the past two months. So the January-February average for payrolls is +128k. Allowing for a similar reading in March that we received in February would generate an average increase for the first quarter of around 150k. That is little changed from what employment gains averaged on a monthly basis in the fourth quarter. So while we are seeing positive job growth, it is not accelerating even though we are coming off the most intense impact of the fiscal and monetary easing that was unveiled late last year. In other words, we are disappointed with what is still a lacklustre trend in net job creation, particularly in view of the peak stimulus we are currently experiencing.

What if Q1 is the peak for job growth? If you remember, we ended up with sub-3% GDP growth in the fourth quarter, which is about half of what we should be seeing at this stage of the cycle. And if we are generating jobs at a similar rate in the current quarter, barring a re-acceleration in productivity, growth again will be below 3% at a time when the consensus is closer to 3.5%. But more to the point — what if this represents the peak for the year? Because if there is one thing we do know, it is that this quarter contains all the incremental policy easing impact on the macro data.

What was particularly discouraging was the fact that both the wage number and the workweek were flat. Nominal wages, in fact, have been stagnant in three of the past four months. Weekly average earnings have also been flat or negative in three of the past four months. How on earth can these statistics possibly be viewed as bullish for the economy? The year-over-year-trend in average weekly earnings in the past three months has softened from 2.6% to 2.5% to 2.3% today. At the same time, it is probably reasonable to assume that surging food and fuel costs will bring headline inflation to, and possibly through, 3% in coming months. In other words, the growing risk of falling personal income in real terms, even with the positive growth in payrolls, is a glaring yellow light as far as the consumer spending outlook is concerned.

Aggregate hours worked only managed to tick up 0.2% in February after a flat January. That is total labour input — bodies and hours. So assuming a trend-like productivity performance, we are talking yet again about sub-3% GDP growth, which by itself is okay but considering the peak impact of all the fiscal and monetary steroids being administered this quarter, it is actually disappointing.

Yes, the unemployment rate dipped again to a 22-month low of 8.9% from 9.0% in January and the nearby high of 9.8% in November. This reflected a 250k risein Household employment — the third increase in a row — and a flat participation rate. A couple of behind-the-scene facts: from October to February, an epic 700k people have left the work force. If you actually adjust for the fact that the labour force participation rate has plunged this cycle to a 27-year low the unemployment would be sitting at 12% today. Moreover the employment-to-population ratio — the so-called “employment rate” — stagnated in February at 58.4% and is actually lower now than it was last fall when “double dip” was the flavour du jour.

All that matters in these employment reports is what the jobs environment means for income, because workers generally spend in the real economy. With credit harder to come by, and with fiscal policy soon to become more focussed on austerity, it is the income that the labour delivers that will prove to be the critical determinant of the economic outlook. So while the “spin” may be over near-200k headline payroll gains, another dip in the headline unemployment rate, the organic income backdrop can really only be described as tentative, at best, especially in real terms as gasoline prices make their way to $4 a gallon by the time Memorial Day rolls around.

Why don't you put up or shut up about your use of the term "commie"??

That's a fair demand. In a previous post, I already explained that the idea that, if someone disagrees with bashing of Goldman, CEOs, etc, then he must be one of them (working for Goldman, be a CEO or another "rich") belongs to Marx. It was one of his claims to fame. You hear this expressed all the time on FR.

I have also explained --- at length on other threads -- and will be glad to do it again, that bashing the "financiers" has been the standard strategy, started also by Marx, and continued by Progressives (1890s through Wilson) and Rosevelt in this country, Hitler and Mussolinit (1920-1940s), Lenin and his followers (1890 to date).

This always made sense to those that wanted to undermine capitalism because finance is difficult to understand Indeed, what do they really produce, those financiers? What good does that do for the country? Seems like nothing. To the uninformed, it does look like nothing: they just manipulate the markets to satisfy their gre-e-e-ed (that evil thing only financiers have) and steal from productive members of society. Compare this to a rich owner of a steel factory. It's not as easy to send the dogs at him: you can see steel, you know that tanks and other things are made out of it. You know that he is rich but still useful to the country. So it is always convenient to sick the dogs on the "financiers."

That is the sole reason a regular recession has become Great Depression. Like today, he used people's frustration and made it look that it was "financiers" and the "speculators" who created the crisis.

The same is done today. Everyone is mad at the banks for "taking our money." But banks never asked for the bailout and tried to refuse it. That's a secret here on FR. Just look at thread after thread about Goldman Sacks, which vigorously fought against taking the money --- everyone is mad at them. Not a word about Detroit CEOs: it is they who made several trips to Congress and even blackmailed it (give us money or there'll be social unrest). Go ahead, count the number of threads raging about car-makers, who really begged for the bailout. Ah, but they are not in finance, they produce products to which we can relate, it is not as easy to anger the ignorant against them.

But facts don't matter any more. They don't matter because there has been too much propaganda and even conservatives swallowed it. In Germany, too, it was common sense that financiers --- Jewish financiers (are there any other?) --- started WW I, created 1929 crash, etc. Some people were trying to argue against this nonsense. They too were called capitalist pigs or Jew-sympathizers -- sort of the way I am treated when I question the unsupported accusations.

I would gladly discuss facts, but I am not allowed to do that. One is not even allowed to question posts that are completely empty of facts but full of accusations. And those posts often quickly reveal that the poster does not understand the words he is using (finance and economics are complex) and does not even know what Fed or Goldman do while bashing them. I asked for reasons behind accusations, but none follow. I am supposed to get in line with the prevailing thinking --- or else I must be Goldman's owner.

This is not a discussion, this is hysteria. The same hysteria, against the same "villains," that existed in 1930s here as well as Germany and Italy.

If you have specific questions or remarks, I only happy to discuss them. But you should not buy into hysteria until you really know the facts. And. if you are really a conservative and care about core American principles, you should stand up against the defamation of innocent people that are routinely accused without a shred of evidence.

Boy, have you got that right.

Real freedom, Real capitalism isn’t filled with fraud.

Goodness, if we can see this much, how much more are they hiding?

What is really in Fort Knox? What do the FED’s balance sheet REALLY look like? Why are they STILL fighting showing what happened to the TRAP money?

Kleptocracy, is what we have. Without a moral foundation, without a fear of God, corruption has seeped into this country and the unconnected are having their merge wealth stolen from them by the system of fractional reserve banking.

Thievesssssssssss.. filthy little thievessssss, they stole it from us, our country!

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