If one hasn't noticed, the "job-full-less-whatever" report is
becoming less and less important, and the American public has
become as familiar with the labor force participation rate as it is
with bacon and eggs, although the edible latter is easier to
understand due to our animalistic instincts.
I recently came across the intriguing revelation that the jobs
report "is a rear view indicator of the economy." Nooo! Really? The
last time I looked, all statistics were about the past, and much
like crime statistics, absolute numbers examined in a vacuum don't
tell us much about the future. However, when the numbers are
processed within a certain context, such as the supposition of
employment being influenced by the maniacally monumental band-aid
without healing properties named QE, there's something to be
derived. If the number is not improving markedly when it should as
compared to non-QE times, then statistics are very useful. As a
matter of fact, if crime is increasing while more police officers
are hired and police presence in the community increases, something
From a micro-term stock market perspective, here's how the jobs
report plays out. There are forecasts, and then bets are placed
that the actual number will be above, below or on the mark. Once
the data is published, we're off to the races, and often times, bad
news behaves as good news, and vice-versa, which is dependent on
the bet flow. If anyone doesn't get this, please exit the casino
immediately and take your chips, because you're looking for
something that isn't there.
It has come to my attention that a new refrain is being played
by some Fed members in yet another attempt to drive the spotlight
away from the institution's inefficiencies. Philadelphia Federal
Reserve Bank President Charles Plosser
with us that:
Labor force participation rates can also decline for
In addition, he added that:
We are seeing a mismatch of skills in the workforce and the
jobs that are being created.
Considering that the Fed has over 16,000 employees, why didn't
anyone see the demographic and skills discrepancies until recently?
And why did they insist on QE and low rates when that policy does
not make babies or deliver diplomas, the purported perpetrators?
And if demographics and STEM (training in science, technology,
engineering, and math) issues were known, why engage in QE galore
knowing full well that it couldn't possibly work? In addition, and
please slap me silly, where are the results of over $1 trillion in
student debt, especially when a 4-year degree only takes … 4
This is why I would love to have some of these people on the
witness stand under oath, with the perjury penalty being that the
individual would be sent to an atoll in the Pacific so they could
deliver endless speeches to a coral reef - forever. Ah, the
always-denied simple pleasures in life!
On the lack of STEM trained workers, here's an
, indicating that there will be one STEM job created for every 1.55
persons with an applicable degree, and
for every two students that U.S. colleges graduate with STEM
degrees, only one is hired in a STEM job.
In addition, there's a wage issue that the illustrious minds in
charge appear to miss, and I shall provide the reminder that
according to economics 101 (the field of specialty of these
so-called experts), low supply and high demand, causes prices to
As Costa indicated in the previously cited article, "average
wages in the computer and mathematical occupations for workers
with at least a bachelor's degree" barely moved from 2000 to 2011
when studied in 2012 dollars (i.e., in constant dollars). Using
Current Population Survey data he found that average hourly wages
had moved from $37.27 in 2000 to $39.24 in 2011, an average
annual increase of about 18 cents an hour.
An increase of 18 cents translates into $1.44 per 8-hour
workday, and that may be why Starbucks (
) is doing so well. Like Clara Peller would put it, "Where's the
beef?" Explanations abound for the reduction in the labor force
participation rate to the lowest level in 36 years, but there's
probably one that is as simple as the fact that pigs can't fly
because they don't have wings: Not enough jobs. Wow, why didn't I
think of that? Can I get the Nobel Prize for Gumption?
But wait, because there's yet another plausible explanation! The
origin of the word "employ" is "from "the Anglo-French
empleier, emploier, emplier
to entangle," which is turn means "to involve in a perplexing or
troublesome situation." Now we know why it is so hard to get out of
this employment funk. Nobody wants to be entangled, and that's an
economic theory that hasn't been explored. Maybe we can get our
politicians to reallocate funds from the shrimp treadmill study to
entangled shrimp research.
But not all hope is lost, and "
Atlanta Fed Tool Suggests Full Employment Could Be
Reached In Six Months
." Yes, you read that right, and they even have a trademarked app
for that, named the
, a product from the Center for Human Capital Studies at the
Federal Reserve of Atlanta. I'm not certain as to what they are
actually studying, but it isn't human. As an example, and to
illustrate the calculator's silliness, if one projects unemployment
to reach 4% in 24 months, while the labor force participation rate
shrinks another 2.8% to 60%, (due to demographics because I doubt
that people will stop moving to fishing streams), we only need to
lose - yes, lose - 20,156 jobs per month. If the participation rate
drops to 55%, we need to eliminate 497,970 jobs per month to reach
4% unemployment. What are we waiting for? We cannot deny ourselves
the opportunity to break out the champagne to celebrate, and also
help the French economy. The Fed's dilemma is that they don't know
what to make of it, as if they ever knew.
Let's look at additional statistics, namely the Job Openings and
Labor Turnover Survey [JOLTS], which unfortunately was only started
in December of 2000.
Since January of 2006, and prior to the well-known economic
debacle, population and the labor force have grown 8.74% and 4.13%
respectively, but job openings have declined 5.62%, and that cannot
be explained by demographics or STEM a whopping eight years later.
The suggestion that people are leaving the workforce to pursue bird
watching has absolutely nothing to do with the fact that there are
Furthermore, while there were 41 people for every job in 2001,
there are now 62 people for each position, which is an increase of
50%, even after the improvement since 2009. But if all else
remained equal, and the labor force participation rate returned to
2001 levels, there would be 85 people for every job, not 62.
Another look at the statistics tells us that the growth of
employment vs. labor force is even, but employment growth vs.
civilian population growth shows a deficit of 7%, and that group of
"excessive" people not only needs to be fed, clothed and housed,
but also lacks spending power.
Although it is only one major piece of the puzzle, let's refresh
the macro picture. Exporting jobs overseas, an ingenious and myopic
short-term strategy that came back to bite the hand that fed the
corporate world, took its toll over time. When the lure of cheap
labor became so enticing, did they think about the other side of
the equation and who would buy their products on a sustainable
basis? After all, the main source of consumerism that drives the
global engine hasn't changed. Do you see how we have close to a 30
million job deficit since 1990, and it is growing? There's no magic
massaging here. The following picture, which I would use to
instruct young people - no PhD required - is the way to summarize
the American condition that has slowly developed for over two
But credit must be given where credit is due, and the St. Louis
the employment-to-population ratio [EP], a "key input in a standard
growth accounting framework," which stands at 58.9 as compared to
63.4 in December of 2006. Here's their conclusion, which goes to
that 7% of "excessive" people mentioned above:
Until the growth of the EP ratio strengthens, the pace of the
economy's growth will remain quite modest. That is, assuming
population growth remains constant, if labor productivity growth
doesn't accelerate, neither will economic growth.
The other factor is consumer sentiment, and one my favorite
surveys, yet less popular, is the
IBD/TIPP Economic Optimism Index
because it provides a quick visual, unlike other sentiment
readings, and, what do you know? Negative it is and hasn't improved
(click to enlarge)
It's not very complex, and eventually the next generation, which
is composed of today's teenagers, will deliver the stabilizing
effect - in a decade or so - and give birth to another macro boom,
because they will not have a recollection of what just happened.
Until then, we'll just bob and weave, trying to avoid incoming
punches, which is an extremely effective boxing technique.
Ironically, Janet Yellen
to Congress that reducing the Fed's balance sheet
would probably take somewhere in the neighborhood of five to
eight years to get it back to pre-crisis levels."
I'm right there with you, Ms. Yellen, but it could be longer,
because you'll be tempted to unleash a perpetual QE-Turbo as the
econometrics don't measure up.
Markets have been erratic at best, with the Fed and ECB
providing no clues as to what is going on, which in itself points
to them as being clueless. But having thought about it, long and
hard, I must rephrase. The Fed and ECB may not be entirely
clueless. They're simply trying to remain relevant by convincing
earthlings that they actually can influence and tweak the economic
engine, because that is what they have been mandated to do. Can you
imagine if they pulled the politicians to the side and confess that
central banks are powerless? Pink slip, please.
The ECB is closer to negative rates, which is not a good sign,
as everything economic is becoming questionable. The euro (
) was sinking and the market was rising, which is not how it was
playing a while back. Other unusual developments are the dollar and
oil rising in tandem, and copper looking north while interest rates
subside. See, the more I know, the more I need to know, and, more
importantly, adjust. While there's always a ray of hope that the
light at the end of the tunnel is not an oncoming train that is
about to run us over, there's a prevailing state of denial of what
the reality truly is. People want to believe that the worst must be
over, with historical references constantly being used. But history
that covers a few decades is hardly a guide.
Then there's talk of a typical S&P 500 (
) head and shoulders formation (chart above), but these eyes see
the Hunchback of Notre Dame, which continues to sway. Without a
doubt, subjectivity reigns supreme in technical analysis, and
that's why markets function - a difference of opinion. Someone
recently inquired about my philosophical approach to markets. I'm
it for the game, not the money, because when the game is understood
and reasonably well-played, while staying humble, the money
I have no positions in any stocks mentioned, and no plans to
initiate any positions within the next 72 hours. I wrote this
article myself, and it expresses my own opinions. I am not
receiving compensation for it. I have no business relationship with
any company whose stock is mentioned in this article.
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