Monday, July 11, 2011

notes on the week ended July 9th

State and Local Government Payrolls Are Shrinking

there is nothing good that can said about the dismal June employment report from the BLS on friday; there wasnt even a snowstorm or tornado outbreak to blame it on this past month...maybe we should just focus on the two private unemployment reports out earlier in the week; TrimTabs, an investment research firm which analyzes the Treasury's daily income tax deposits; reported the economy added 171,000 jobs in June; then ADP, which surveys only the private sector, reported an increase of 157,000 jobs from May to June....those two positive reports set everyone up to be crushed by the government report which came out friday; even oil prices had regained the level they were at previous to the release from the strategic reserve in hopes of a strong report, but the optimism all reversed when the unemployment report showed a statistically insignificant gain of only 18,000 jobs and a higher unemployment rate at 9.2%, which would have been even higher if a quarter million job seekers hadnt given up entirely last month; the labor force participation rate dropped to a 25 year low of 64.1%... in addition, may's dismal report of only 54K jobs gained was revised downward to 25K, and 15K was knocked off the previously reported april figure... breaking the establishment report down further, private payrolls were up 57,000, offset by a loss of 39K government jobs, of which nearly 13K were schoolteachers...indeed, private job creation during this recession has been in line with previous recessions; what has made this one measurably worse has been the loss of 577,000 state & local jobs since the start of the "recovery"…

other stats from the report continued the dismal litany; the broader measure, U6, which includes those working part time who want full time work, increased from 15.8% to 16.2%, and the employed to population ratio dropped to 58.2%... the average workweek was also cut by a tenth of an hour, and the average hourly earnings fell a penny to $19.41 (i dont know how that average is computed; it may well be inflated by a handful of people taking home 7 figure incomes, while the lions share of workers are barely making the minimum)

nonetheless, with most americans carrying a large mortgage, credit card &/or student loan debt, household balance sheets will continue to be under pressure with negative wage gains, which are even worse adjusted for inflation...we need rising wage raises across the board to get out of this balance sheet recession…lower wages such as we are seeing just digs a deeper debt hole for everyone...

something i've often mentioned in writing about these unemployment reports is that we need something on the order of 125,000 new jobs each month just to keep up with the net increases in the workforce as young people are added, & i've often tried to put that into perspective by explaining how many years it would take at a given rate for the economy to get back to full employment; but i've never felt my explanations were adequate...so i was pleased to see that david beckworth put together the adjacent chart that shows just that...what it shows is a target trendline wherein job growth would keep up with population growth, our current unemployment dip, and how many years it would take for us to reach full employment if the economy would start generating 200K, 300K, or 400K jobs per month (click to enlarge); you can see that even with good job growth of 200,000 per month it would take until 2023 to reach full employment, and even if the economy added 400,000 jobs a month, it would still take 3 years to employ everyone who would typically want to work full time...our average per month so far this year has been 126,000, so net on 6 months we've just been treading water...

all of which makes the ongoing negotiations between the tea party in the whitehouse and the tea party in congress on how much to cut from government programs even more perverse; how everyone can be talking contractionary fiscal policy in the midst of the most protracted period of high unemployment since the depression defies logic...you may have heard that obama has doubled down on the tea party demand that $2 trillion be cut from government spending over 10 years and that he now wants $4 trillion in cuts, including huge cuts to social security and medicare of which we have few details; there are some who think it was some kind of theater on obama's part, trying to paint the extremists into a corner; but i've seen nothing to suggest he doesnt believe the whole tea party anti-deficit line himself; he voted against raising the ceiling when he was in congress, all his economic advisors who wanted a larger stimulus have left the white house, & even joe biden's economic advisor jared bernstein has turned to blogging for more stimulus, which tells me he wasnt being heard when he was on the inside either...

one of the proposals for cutting government expenses which has surfaced & gotten some press is a change in the way COLA (the cost of living adjustment) is computed for social security and government employee's pay...it would change the government’s way of measuring inflation adjustments from the often quoted CPI (consumer price index) to a more obscure index called the chained consumer price index; according to the wall street journal, this change would save $300 billion in entitlement payments over ten years; the way this index is computed is that it assumes that as the normal items which a social security recipient purchases get more expensive, they will substitute a cheaper item in response...to quote an example from the BLS FAQ factsheet on this method: "If the price of pork increases while the price of beef does not, consumers might shift away from pork to beef." -- get it? and we can assume if the beef becomes too expensive, the index will be adjusted the next year for the price of the catfood seniors will be expected to switch to instead, and when gas gets too expensive, the old folks will most likely walk...

i dont know where this country is heading, but i have a sense that this country is being overtaken by a cultural revolution similar to what retarded china's growth for ten years during theirs...& it seems we're gonna lose a decade or two, just like china did during their cultural revolution, and by the time we come to our senses, the rest of the world will have passed us by...

there was quite a bit of discussion about a somewhat off the wall proposal to deal with the debt ceiling impasse by ron paul, that was picked up & advanced by dean baker, and generally supported by the liberal blogosphere: paul noted that of the $14.3 trillion in debt the treasury owes, $1.6 trillion of it has been purchased by the Fed during its two quantitative easing programs; the interest on that debt is paid to the Fed, who then turns around and remits its profits back to the treasury; since that's literally money the government owes to itself, mr. paul proposed that congress instruct the Fed to destroy those bonds, thereby reducing our debt by that amount..of course, after the economy began to recover, this would leave the Fed with no assets to sell to absorb the excess reserves it had created thru easing, which could be inflationary; dean baker suggested that as an alternative option, the Fed could raise the reserve requirements for banks, & by forcing them to hold more, which would achieve the same effect...

it seems that as soon as one can describe a plan for saving greece and salvaging the european union, the plans fall apart...last week the greeks agreed to impose severe austerity, give up most of their sovereignty, and sell most of their country off to the highest bidder (including 39 airports, 850 ports, railways, motorways, sewage works, a couple of energy companies, banks, defence groups, thousands of acres of land for development, casinos and Greece's national lottery), but on monday SP ruled that the french debt restructuring plan would still be considered a default...since the whole point of all the negotiations leading up to the plan was to avoid such a credit rating ruling, which would prohibit the ECB from buying greek debt, the question became will the plans be changed or will the central bank rules...there's now talk of calling it a "temporary default" as a sleight of hand workaround...while that was being discussed, Moody's downgraded portugal's debt to junk status, and fears of contagion spread to italy, whose interest rates across the board hit new highs, along with those of portugal & ireland...with european officials blaming the credit rating agencies, euro chairman juncker now wants a european agency, which presumably would produce more favorable ratings...and as borrowing costs for the PIIGS are rising faster than i can list them, it occurs to me i just can embed this table of links to bloomberg's timely updating of european bond interest rates, so you can see all the updated hockey stick graphs for each country for yourselves...

 

Greece 2 Year
5 Year
10 Year
Portugal
2 Year
5 Year
10 Year
Ireland
2 Year
5 Year
10 Year
Italy
2 Year
5 Year
10 Year

Spain

2 Year

5 Year

10 Year

Belgium
2 Year
5 Year
10 Year
France
2 Year
5 Year
10 Year

Germany

2 Year

5 Year

10 Year

the above is my weekly commentary that accompanied my sunday morning links mailing, which in turn was selected from my weekly blog post on the global glass onion…if you’d be interested in getting my weekly emailing of selected links that accompanies these commentaries, most coming from the aforementioned GGO posts, contact me

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