Posted on 07/06/2009 5:35:14 AM PDT by SeekAndFind
The June "Jobs" report issued by the Bureau of Labor Statistics (BLS) on July 2 caused shock and dismay. Payrolls declined by 467,000 jobs, more than the 345,000 lost in May, and much more than the 363,000 that economists had predicted. The only reason that the reported unemployment rate rose by only 0.1 percentage points (to 9.5%) in June was that many jobless people became discouraged and stopped looking for work.
As bad as the BLS report was, it should not have come as a surprise. The deteriorating employment situation could have been predicted as early as April 29, when the "Gross Domestic Product: First Quarter 2009 (Advance)" report was issued by the Bureau of Economic Analysis (BEA).
The BEA numbers (which were revised slightly on June 25) show an accelerating decline in "real nonresidential fixed investment". This measure decreased 37.3 percent in the first quarter of 2009, compared with a fall of 21.7 percent in the fourth quarter of 2008. Given that employment is a direct, linear function of private business investment (PBI), unemployment can be expected to rise much farther in the months ahead.
Here's why. Because a lot of PBI goes toward offsetting depreciation and increasing productivity, it takes a 5% year-over-year increase in PBI to produce a 1% increase in the number of jobs. Correspondingly, a 5% decrease in PBI will yield a 1% reduction in total employment.
The unemployment rate a year ago was 5.5%. Because the potential labor force is growing, we need employment to increase by 1% annually to keep the unemployment rate from going up. The 37.9% investment decline reported by the BEA can be expected to eventually produce a reduction in total employment of about 8.5%. Accordingly, we can expect unemployment to rise to about 14% within a year unless the downward slide of PBI is reversed.
The current 9.5% unemployment rate is causing great economic pain, and life with a 14% jobless rate would be much, much worse. Unfortunately, almost everything that the government has done or is proposing to do to right the economy is actually counterproductive.
Like the Bush administration before it, the Obama team is pinning its hope for economic recovery on "stimulus". Despite the fact that Bush's $168 billion stimulus package in early 2008 had no impact at all, Obama rammed a $787 billion stimulus bill through Congress in January. Now the administration is waiting anxiously for the "stimulus" to take effect. It should not hold its (collective) breath.
"Stimulus" is based upon the superstition that government borrowing and spending creates "demand". In reality, it does no such thing. "Stimulus" is like trying to raise the level of the Hudson River by dipping out a bucket of water, walking five feet downstream, and pouring it back in. The only difference between the Bush and Obama plans is that Obama's bucket is bigger (and will create more debt). Ironically, the July 2 jobs report prompted calls from leftist economists for Obama to go back to the river with an even bigger bucket.
While doing nothing to boost demand, Obama's "stimulus" will depress PBI, and therefore employment. This is because the "stimulus" plan requires selling an additional $787 billion in government bonds. The money to buy these bonds will have to come from somewhere, and much of it will come from people who would otherwise invest in starting or expanding businesses. Indeed, the bonds will have to be priced so that this risk-free investment is more attractive to investors than their other alternatives.
In the fourth quarter of 2008, the Federal government ran a deficit of $303 billion (and therefore had to sell $303 billion of new bonds) and business investment fell by 21.7%. In the first quarter of 2009, the Federal deficit was $650 billion and business investment fell by 37.3%. The economy is being forced to invest in Barack's Bailout Bonds rather than in businesses that create jobs.
Virtually everything the Obama administration wants to do will have the effect of increasing unemployment. As bad as joblessness is now, be prepared for it to get much, much worse.
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Louis Woodhill (louis@woodhill.com), an engineer and software entrepreneur, is on the Leadership Council of the Club for Growth. SE
He’s not alone. This little video might grab some attention:
http://www.financialarmageddon.com/2009/07/worth-paying-attention-to.html
“The June “Jobs” report issued by the Bureau of Labor Statistics (BLS) on July 2 caused shock and dismay”.
...uhhh, “shock”? “Dismay”? Not hardly. Wall Street took a turn last week NOT because of unem #’s. It simply gave Wall Street a chance to take some profits. If July 2nd was a shocker, Just wait until August, Sep, Oct, Nov!
How do they know?
I suspect they don't and use this as a fudge factor to keep the masses stupid.
Team 0(zero) will manufacture a distraction or two come the fall. You watch.
Sounds reasonable to me.
Reasonable regarding the analysis...
How far are the American people going to allow these economic morons to continue?
14 pct unemployment? Might be a good thing for the drain we’re circling to get bigger. At some point the govt loses too much in tax revenues, and then maybe they overplay their hand, we all go under, and the productive people finally start taking care of themselves instead of trying to piggyback the looters, parasites, illegals, criminals, foreign countries, the UN, and the US Congress.
Communists do not want people employed as that means they are independent and not controlled fully by the Government.
Creating several generations of totally dependent people will completely end our free nation. Just look at Russia. They were bred to be so lazy and dependent that they are moving back to Communism so someone else will take care of them.
Dear Mr. and Mrs. Taxpayer,
At some point, this becomes your fault as well as your problem.
Regards from Galt’s Gulch, bungalow 668.
He won’t have to.
One of the reasons I post at the hour I do (living in S. Utah) is that I start reading worldwide financial analysis papers at about 1:30am my time, and don’t finish until about 6:30am (right around now).
Just about everything I read indicates TSHTF in the fall, late September/early October. Is it for sure? I don’t know. But, that is the reason I have been soliciting advice from freepers on areas of Texas for me to move and buy a house by the end of this summer.
You can take that for the 2 cents that it’s worth.
The real story is the public reaction.....when the first appearance of food and other supply shortages begin....
Living on the Gulf Coast, we experience massive shortages prior to every hurricane....visualize something much worse...the manufaacturers and the truckers begin to fail.....the domino effect, once started will result in empty shelves and anyone in possession of a bag of groceries will be risking life and limb...
Imagine being stabbed for a roll of toilet paper or loaf of bread....can't happen? Think again....
Very interesting analysis. So the Second Quarter (Advance) number should be out in about 3 weeks. If that does show dramatic upward movement (and I don’t think it will), then the 14% unemployment becomes more likely....
hh
Why look for work when the government is promising to extend unemployment benefits for up to 3 years?
I sense that some very creative calculating will soon be done to guarantee that the unemployment rate does not reach double digits. Once we get to that point, Obama will be inexorably linked to Carter.
And btw, as a gentle reminder, let us not forget that he minimum wage is set to go UP on 7/24/09.
That will help employment, I’m sure! /sarc
The real story is the public reaction.....when the first appearance of food and other supply shortages begin....
Living on the Gulf Coast, we experience massive shortages prior to every hurricane....visualize something much worse...the manufaacturers and the truckers begin to fail.....the domino effect, once started will result in empty shelves and anyone in possession of a bag of groceries will be risking life and limb...
Imagine being stabbed for a roll of toilet paper or loaf of bread....can't happen? Think again....
...how many of us have been cut-off by the impatient driver demanding to be first out of the church parking lot....?????
Better keep that garden productive. As someone posted yesterday, there’ll be a lot of people “going Amish.”
hh
What’s this? Private business investment is way down? Gee, I never saw that coming, what with Obama & The ‘Rats creating such a wonderful, stimulating, confidence-inspiring, business-friendly climate.
Holy crap. Are you kidding? Did you really hear that?!%*?!!
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