by John Galt
September 6, 2009
Every eye was focused on Friday for the unemployment report and what did we find out? That the revisions to the prior two months was worse than they thought and the rate worsened to 9.7% which tells everyone according to the Department of Propaganda (CNBC) that we are still enduring the less bad phase of the recession and for the millions of unemployed they should invest in stocks now because after their unemployment runs out they will need that 1% dividend payment to survive on. Of course we all know reality is different from that as the Obamanation was on vacation and thus anything that happened last week in the markets does not count and requires a do-over so those evil capitalists will quit making his reign look bad.
The markets entered into what can only be called another ‘interesting’ pattern on the weekly S&P 500 chart.
While no two patterns are 100% identical this could be an omen to what is in store for the markets once all of those Gulfstreams are parked and the real market movers return to work on Monday night. The one certainty that can be taken away from this week’s market action; the validation that the bulls were looking for in the fundamentals in our economy are not there and will not be there six months from now. Mohamed El-Arian the CEO from PIMCO said it best on the Friday September 4th edition of CNBC’s Squawk Box where he reminded the hosts that without any credit creation and expansion to the consumers the risk of a major double dip recession rise and the current government sponsored temporary stimulus would falter rapidly. For those who enjoy history, odds are we will see it again this week and throughout the month.
One chart speaks volumes….
Yup, all those millions of folks who have seen their payroll cut, exhausted benefits or working part time instead of full time are certainly ready to buy LCD televisions, cars and homes to turn this economy around. Thus why I call that my reality chart because in all honesty, until we see a sustained downward trend in that chart then there is no way this economy will enjoy a long term period of economic growth. The claims that it is different this time might well be reflected in the 9.7% unemployment rate, but the table graphed above tells all.
Another disturbing revelation with Friday’s data was the larger than expected revisions for June (final revision) and July (2nd revision) as displayed in the following charts:
As you can see, the revisions are not as drastic as they were during the peak of the crisis but still the trend is for massive revisions which create initial distortions which sadly build up then destroy confidence in our economic reports. This is best illustrated via the fallacy known as the “Birth/Death Model” which creates jobs out of thin air and companies that realistically never existed to reflect the perceived job creation under way. The problem is that during recessions it under estimates the job losses and vice versa during periods of economic growth. The real question that we will not find an answer to for a while is just how does this model hold up during an economic depression.
Let’s look at the difference if you eliminate the jobs created by the model in the monthly data:
As you can see, without the model jobs created this past month’s report would be substantially worse and the exaggerations created by this model are best illustrated by the Construction portion of the report:
Rest assured that in reality there was not a net creation of Construction jobs unless AZ, CA, FL, GA, NC, TN, AL, KY, OH, MI, etc. were just ignored as part of the job calculations by this computer or drunken geek.
The final graphs are straight from the BLS Table B-7 Diffusion Indexes of Employment Change and reflect that we really are not seeing any indication of recovery in the economy as a whole and especially not within the manufacturing sector.
That trend is hardly indicative of any “recovery” beginning nor should it be used as inspiration to expect a massive consumer lead recovery in the next quarter or two. The manufacturing graph of the same is even worse:
From the BLS B7 Table:
NOTE: Figures are the percent of industries with employment increasing plus one-half of the industries with unchanged employ- ment, where 50 percent indicates an equal balance between industries with increasing and decreasing employment
That final table posted above should tell you the reality. The industries that must emerge from the depths are not growing or expanding and without those sectors, there is no possibility of a sustained economic recovery. Despite the protestations of the media that the employment numbers are not”forward looking” sometimes if you look back at the numbers as they are released each month you can project just how much longer this downturn may have to go and just how severe this crisis really is.