-->Reuters
Data revision confirms weak U.S. jobs picture
Friday October 3, 2:47 pm ET
WASHINGTON, Oct 3 (Reuters) -
A warning by the U.S. Labor Department that it expects to revise down past employment data pours cold water on the view of some economists who believed the jobs market had been improving for some time, analysts said on Friday.
Statisticians at the Labor Department said they expect to revise down U.S. payroll employment by about 145,000 for the March 2003 reference month -- effectively showing even greater weakness in the sluggish labor market than previously thought.
The downward adjustment surprised Wall Street, which had been rife with speculation this week that Labor would adjust the figures up, bringing payrolls more in line with another survey which has shown a recent improvement in the job market.
"The expectation was that this revision would be positive, that we would be looking at a number in excess of 300,000," said Anthony Chan, chief economist at Banc One Investment Advisors.
An upward revision would have brought the so-called establishment survey, a poll of businesses that has shown a loss of 1.0 million jobs since the recession ended in November 2001, more in line with a smaller household survey of employment which has shown a 1.4 million job gain.
Both surveys are part of the department's closely watched monthly employment report. Markets tend to focus on the payrolls count from the establishment survey, while the unemployment rate is derived from the household survey.
The discrepancy between the two surveys has been a hot topic of late, even though veteran economists believe much of the discrepancy can be explained away by differences between the methods used in the two surveys and monthly volatility.
Chan, who believes the larger establishment survey provides a more accurate picture of the job market, said the downward revision douses the argument that Labor was underestimating the job recovery with its establishment survey.
"That gives more credence to the view that the weakness in the establishment non-farm payrolls is real," Chan said.
James Glassman, senior U.S. economist at J.P. Morgan Chase Securities in New York, said the revision is equivalent to about 12,000 fewer jobs a month than originally thought in the March 2002 to March 2003 period.
"Whichever survey you look at, employment has been pretty flat in the last two years, and there is no mystery why -- the economy has not grown (fast enough)," said Glassman.
Like many economists, he argues the discrepancies between the two surveys can be largely explained by the different methods used. Unlike the establishment survey, the household survey includes farm workers, the self-employed, unpaid family workers, private household workers and people on unpaid leave among the employed, possibly boosting its count.
"When you make adjustments to compare apples to apples, the differences between the two surveys are really quite small," Glassman said.
The so-called"benchmark revision" is an annual exercise by the Labor Department, designed to adjust historical data using more exact records that have come in since the preliminary results were released.
The benchmark change will be instituted when a final measure of the revision is revealed in February. In the past, it had taken the department until June to make the changes.
Labor said the 0.1 percent adjustment this year was small by historical standards, with benchmark revisions averaging 0.3 percent in the past 10 years.
<ul> ~ Hamilton Weekly</ul>
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-->September 26, 2003
Employment Disaster
by Kurt Richebächer
There has been much talk to the effect that America has just had its slightest recession in the whole postwar period. That is measured in real GDP growth, being bolstered by many statistical tricks. Measured, however, by job losses, which certainly are the far more important gauge, it is already Americas worst recession by far.
In June it was declared that the recession had ended in November 2001. Yet in the 20 months since, payroll employment has declined by a total of about 1 million jobs, or about 8%. In not one of the seven or eight postwar recoveries has there been any employment decline. Immediate strong job growth has been the regular characteristic of all business cycle recoveries. On average, payroll jobs increased 3.8% in the 20 months following the end of recession.
What's more, no letup in job losses is in sight. During the second quarter, widely hailed for its better-than-expected GDP growth, the household measure of employment slumped by 260,000. However, this figure concealed an even greater number of workers - 556,000 - who statistically quit the workforce because they have given up looking for nonexisting jobs.
This rapidly growing group of people no longer count as unemployed. What American job statistics really measure are not changes in unemployment, but changes in job seekers. Including the frustrated job seekers, the U.S. unemployment rate is hardly lower than in Europe. Certainly, it is rising much faster.
In addition, the Labor Department is employing month for month the same two practices that camouflage the horrible reality. In July, for example, it reported a decline in payrolls by 44,000, while job losses for June were revised upward from 30,000 to 72,000. For May, the retrospective upward revision was even from 17,000 to 70,000. As such upward revisions of job losses in the prior month have become a regular feature, this practice has the convenient effect of producing correspondingly lower new numbers every month. The same happens, at more moderate scale, with weekly reported claims.
There is still more spinning involved. The government adds every month some 30,000-50,000 imaginary workers to the job total. It is based on the assumption that in an economic recovery a lot of people start their own business. In normal recoveries, they have done so, indeed.
All it needs to activate this statistical job creation is a unilateral decision by the government that the economy is in recovery. Once a year, the statisticians reconcile their assumption with reality by a revision. When they did this in May of this year, 400,000 new jobs that had been reported earlier simply vanished. Such revisions, of course, take place outside the monthly reported job losses. Together, we presume, these statistical casuistries have reduced the reported job losses in the past two years by well over 100,000 per month.
It rather abruptly became the consensus view that in America the great recovery from protracted, sluggish growth is finally on its way. Record-low interest rates, runaway money and credit growth, new big tax cuts, record-high cash-outs by consumers through mortgage refinancing, increasing house and stock prices, and rising profits are cited as the compelling reasons for this optimism.
We are more than skeptical about the true impact of all these influences on the economy primarily for one reason: Most of them, if not all of them, have been at work for some time already, but with grossly disappointing overall effects on the whole economy, and now some of these influences are weakening or even reversing.
Think of the sharp rise in long-term interest rates that is most assuredly stopping the mortgage-refinancing bubble dead in its tracks. That, in our view, will not only abort any recovery but will also mean the economy's relapse into new recession.
As for fiscal policy, it clearly gave its biggest boost to the economy between the fourth quarter of 2000 and the second quarter of 2002. That is a period of six quarters during which the federal budget gyrated from a quarterly surplus of $306.1 billion to a deficit of $526 billion, both at annual rate. This year, the deficit is supposed to hit $455 billion. Most probably, it will come out much higher. But this follows a deficit in the last year of $257.5 billion. The fiscal stimulus is waning, not increasing.
In any case, actual, historical experience in the 1970-80s with large-scale government deficit spending has been anything but encouraging. It created more inflation than economic growth. Over time, rising deficits were rather recognized as impediments to economic growth. Japan's recent experience makes frightening reading. Since 1997, government debt has skyrocketed from 92% to 150% of GDP, rising every year by more than 10% of GDP. Yet nominal GDP keeps shrinking.
As to monetary policy, we have very much the same doubts about its efficacy in generating economic growth under current economic and financial conditions. It is the traditional American consensus view that monetary policy is omnipotent if properly handled. In this view, any recession, or worse, always has its decisive cause in the failure of the central bank to ease its reins fast enough. In this view whatever happened in the economy during the prior boom is irrelevant.
This time, both monetary and fiscal policies in America have acted with unprecedented speed and vigor. To people's general surprise, the economy's rate of growth abruptly slumped during 2000 from 3.7% in the first half to 0.8% in the second.
Starting on Jan. 3, 2001, the Fed slashed its short-term rate in unusually quick succession. Within just 12 months, its federal funds rate was down from 5.98 to 1.82.
Assessing the development, the first thing that struck us as most unusual was that this sudden, sharp economic downturn occurred against the backdrop of most rampant money and credit growth. Total nonfederal, nonfinancial credit grew by $1,144.3 billion in 2000, after $1,102.6 billion in the year before. This compared with nominal GDP growth during the year by $437.2 billion. The first important conclusion to draw therefore was that this sudden economic downturn had obviously nothing to do with money or credit tightness.
Ever since, nonfinancial credit growth has sharply accelerated. In the fourth quarter of 2002, it hit a record of $1,612.8 billion, at annual rate, followed in the first quarter of 2003 by $1,338.3 billion. This coincided with simultaneous nominal growth of $388.4 billion and real GDP growth of $224.4 billion, both also at annual rate. For each dollar added to real GDP, there were thus six dollars added to the indebtedness of the nonfinancial sector.
P.S. During the 1960-70s, by the way, there was on average about 1.5 dollars of debt added for each dollar of additional GDP. Just extrapolate this escalating relationship between the use of debt and economic activity. And think of it: the GDP growth of today is tomorrow a thing of the past, while the debts incurred remain. Plainly, Greenspan's policy has collapsed into uncontrolled money and debt creation that has rapidly diminishing returns on economic activity.
As we noted in these pages last week, the late economist Hyman P. Mynsky would call this a Ponzi economy where debt payments on outstanding and soaring indebtedness are no longer met out of current income but through new borrowing. Soaring unpaid interests become capitalized.
Editor's note: Former Fed Chairman Paul Volcker once said:"Sometimes I think that the job of central bankers is to prove Kurt Richebächer wrong." A regular contributor to The Wall Street Journal, Strategic Investment and several other respected financial publications, Dr. Richebächer's insightful analysis stems from the Austrian School of economics. France's Le Figaro magazine has done a feature story on him as"the man who predicted the Asian crisis."
In the September issue of his newsletter, Dr. Richebächer aggressively dissected the data economists are interpreting as a miracle 'recovery' - including a critical look at defense spending and its aggregate effect on the revised GDP numbers for Q2. His conclusion: the recovery is hokum. If you are not already a subscriber, you can't afford to miss this special report: Greenspan Is Robbing You Blind! http://www.agora-inc.com/reports/RCH/RighteousGains
A version of this essay was originally published in The Daily Reckoning, a free daily email service brought to you by the authors of"Financial Reckoning Day: Surviving The Soft Depression of The 21st Century" (John Wiley & Sons).
See: Financial Reckoning Day http://www.amazon.com/exec/obidos/ASIN/0471449733/dailyreckonin-20
Regards,
Kurt Richebächer
The Daily Reckoning
Dr. Kurt Richebächer's articles appear regularly in The Wall Street Journal, Strategic Investment and other respected financial publications. France's Le Figaro magazine has also done a feature story on him as"the man who predicted the Asian crisis." Dr. Richebächer continues to warn readers about the follies of the Fed's current easy-money policies.
A version of this essay was first published in the free daily e-mail: The Daily Reckoning
« Opinions expressed at SafeHaven are those of the individual authors and do not necessarily represent the opinion of SafeHaven or its management. »
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