By Andrew McCleese
Last week the monthly first time unemployment claims number rose “unexpectedly” to a seasonally adjusted 484,000 new recipients. There are many things wrong with this number other than the fact that establishment economists can never seem to anticipate what is obvious. The first problem with the 484,000 new claims number is that it was seasonally adjusted, the real number is higher. Seasonal adjustments came into being as a means to show stable employment figures around holidays such as Christmas and the vacation season. In the summer months the government has historically used the seasonal adjustment to account for periods in the production cycle of the auto industry where American manufacturers have shut down and not produced any vehicles and laid off huge numbers of workers. To adjust, the government takes out a certain number of people counted among the unemployed to account for the typical seasonal fluctuations. There is a major problem in using a seasonal adjustment this year, the car companies have not shut down this summer and there is no typical fluctuation. It is a knowing manipulation of the headline labor statistics (since the BLS did this as well for the U-3 statistic). This is nothing new of course. When including discouraged workers the broadest U-6 employment metric has unemployment figures north of 16% for some time now. When actually looking at people who never fall into an employment category, independent contractors, the unemployment number is around 22% (John William’s Shadow Statistics). Since contractors such as independent real estate agents, stock brokers, carpenters, etcetera, do not lose a job, they just lose income, they are not employed in the first place to BLS statisticians and are not counted in the ranks of the jobless when they stop getting contracts. Not getting paid and being unemployed is the same thing of course to real people who live outside the calculators of government pencil pushers.
Many people are starting to see that this is not a “recession” but a depression with jobs not coming back. Political constituents who must eat can not be fed on ideas such as “the new normal” or a “jobless recovery”. If politicians insist on calling this current economic stagnation a “recovery”, then it may be wise to compare this to other recoveries. This is not the 1930′s, the 80′s and this isn’t even the 1970′s. All of these economic downturns were similar in one regard – the jobs came back rather robustly. In July, 52,000 fewer people were employed on payrolls than in July 2009. The significance of this month is because July 2009 was supposedly when the U.S. economy climbed out of the recession yet we have fewer people now employed than this time last year, and that even includes all the Census jobs. Comparing the latest recession with previous ones does not reveal a similar pattern of recovery. In fact, the idea of a jobless recovery is a fairly new one. The idea that unemployment is a lagging indicator is thanks largely to the last two recoveries and this current recovery that never was. In these last three cases, only certain segments of the economy and asset classes recovered thanks to monetarist inflationary policies and political emoluments given to preferred firms of the Treasury and the Federal Reserve.
Additionally, a typical first quarter GDP growth was 7.5% and above. Our supposed recovery first quarter GDP was 5.7% while subsequent quarters have tailed off and been revised down and down again in many cases. Even if we take that 5.7% at face value, it was all government spending and inventory rebuilding. The problem is, which is evident by the recent trade gap numbers, is that neither the U.S. consumer nor the rest of the world is buying much of this inventory. Mainline economist are now revising their GDP forecasts downward again. The median range of GDP forecast was 4%-5% going into this year from the “happy days are here again” crowd. Then it was going to be 3%-4%, now you are hearing more 1%-2% annualized. The truth of the matter, which no euphemism can change, is that this is a depression. Even if you compare the current economic metrics to the worst depression in the public conscious, the Great Depression, you see similar trends. For instance, over a period of 40 quarters from the onset of the stock market crash in 1929 there were 20 quarters of GDP increases and even as much as a 10% GDP increase in 1934. This is not a “double dip” so fears about a double dip are not warranted, prepare for more legs (plural) down and long term uncertainty.
The biggest factor in an actual recovery is the return of jobs. Government can not keep stimulating due to obvious pressures on the currency and tax base not to mention the political suicide politicians will commit at the ballot box if Keynesianism is pursued much longer. Unfortunately demand remains low due to consumer debt leveraging and joblessness. An economy based 71% on consumption needs consumers. If the government can not consume, which it can not, and private citizens can not consume, which they can not, who will carry the baton? Certainly it can not be companies and corporations hesitant to expand in an environment of government created uncertainty, debt and excessive and evolving regulation. The problem of debt has reduced private sector spending and investment as households and corporations continue to pay down debt. Debt once carried privately has shifted publically. It is as close to a textbox example of a shell game one could find. Moving money from one pocket to the other does not make one rich and privatizing profits and socializing losses does not a free market make. So called corporate profits can not spur on a true recovery because revenue growth is still below historical trends and the margin of profits produced through cost cutting has reached the point of unsustainability for most. Corporations have become as lean as possible and there is no more fat to cut.
People always want solutions, until the solution is unpleasant. The fix for the US economy is quite simple really. Jobs will not come back until debt is alleviated. Debt can not be alleviated with a moral hazard and a permanent backstop. Debt can not be alleviated until the shell game ends and productive citizens and segments are not burdened with the debt and uncertainly of others. Debt can not be alleviated until the government gets the hell out of the way and allows the market to work.