BLS
Employment Report, Recession Watch, Inflation, and the Fed
By Victor
Sperandeo with the Curmudgeon
Disclaimer:
I do not trust or use any data from the U.S. government, including agencies (e.g.,
the BLS, BEA, etc.), affiliates or even the institutions that are potentially
influenced by the governments power.
Instead, I do my own deep due diligence for investment purposes
only. That involves analysis of original
source documentation with verification from credible sources.
Discussion:
A case in point are the three credit rating companies
(S&P, Moodys and Fitch) that in 2008 gave AAA ratings to pools of mortgage-backed
securities before they went bust. Can
anyone forget the mortgage meltdown?
A more
recent example of U.S. government deception was Fridays non farm payroll report. The BLS stated that there were 372,000 new
jobs created in June 2022 SEASONALLY ADJUSTED (SA) with an unemployment rate of
3.6%. But did anyone tell you that the
number of people in the labor force declined by 353,000?
Analysts are citing the strong jobs numbers to permit the
Fed to increase Fed Funds Rate 75 bps at their July 27th FOMC
meeting with further outsize rate hikes at subsequent meetings. The Fed Funds futures market projects a 92.4%
probability of a 75bps rate hike and a 7.6% probability of a full percentage
point increase (vs 0% one week ago).
Wow!
Analysis of June BLS Employment Report:
The total jobs created for the first half of 2022 reported as
Seasonally Adjusted was +2,740,000 or +456,000 average per month. In
contrast, the Non-Seasonally Adjusted (NSA) non-farm payroll data was +2,340,000. After deducting (the not seasonal adjusted) Birth
Death Model (BDM) of (682,000) for a net +1,658,000 total jobs added or a
net average of 276,000 average jobs created per month. Therefore, the headline
(SA) number of 1st half 2022 jobs created is 1.65 times the NSA
not including the BDM. Thats quite
a contrast!
The BLS employment data is seasonally adjusted to
show what they want the public to believe which provides the rationale for the
Fed to execute the monetary policy they desire.
The BLS reported on Friday (emphasis added): The
labor force participation rate was 62.2%, while the employment-population ratio
was 59.9%. Both measures remain below
their pre-pandemic February 2020 values.
The number of persons not in the labor force who currently want a job
was essentially unchanged at 5.7 million in June. This measure is above
its February 2020 level of 5.0 million. These individuals were not counted as
unemployed because they were not actively looking for work during the 4 weeks
preceding the survey or were unavailable to take a job.
However, the BLS does not openly state the total number of
people who are not counted as part of the labor force. You have to search
for the U.S. inactive labor force: seasonally unadjusted
monthly number May 2022.
In May 2022, the inactive labor force amounted to about 99.52
million people in the United States. Labor Force measures are based on the
civilian non-institutional population 16 years old and over. So, 99.52 million people are not working and
not counted due to the criteria the BLS creates!
Monthly number of inactive labor force of the United States
from May 2021 to May 2022 (in millions, not seasonally adjusted)
In summary, the BLS makes and changes the job number rules to
make the U.S. economy look better than it is.
The BLS is composed of 12 people, almost all academics, that effects the
lives of 334.8 million people living in the U.S.
ShadowStats John Williams Comments:
- Headline June
2022 Payroll Employment still held a half-million jobs shy of recovering Pre-Pandemic
levels.
- Payrolls also
held shy by about 3.9% (-3.9%) or by 6.1 (-6.1) million jobs of where they
would be, had the U.S. economy continued its relatively stable trends in
place before the externally driven Pandemic shut it down.
- How can the U.S.
Economy be fully Recovered and booming, as so heavily touted by the
Federal Reserve in its hiking of Interest Rates, given the headline
contraction in First-Quarter 2022 GDP, along with early indications for a
contraction in Second-Quarter 2022 GDP?
- In context of a
continuing shift of headline discouraged workers from headline U.6
unemployment into the nether world of long-term discouraged/ displaced
workers, who are not tracked by the Bureau of Labor Statistics (BLS),
but who are included in the ShadowStats Alternate Unemployment estimate,
the headline June 2022 U.3 Unemployment Rate held steady at 3.6% for the
fourth month, with the broader U.6 easing to 6.7% in June from 7.1% in
May, and with the still broader ShadowStats Unemployment Estimate holding
above 24%, notching lower to 24.3% in June, from 24.6% in in May, on
top of the U.6 decline.
Historical Quote and Analogy:
Permit me to quote someone who voiced similar skepticism. Josiah
Charles Stamp, 1st Baron Stamp (21 June 1880 16 April 1941) was an
English industrialist, economist, civil servant, statistician, writer, and
banker. He was a Director of the Bank of England and chairman of the London,
Midland and Scottish Railway.
Stamp said: "The government are very
keen on amassing statistics. They collect them, add them, raise them to the nth
power, take the cube root and prepare wonderful diagrams. But you must never
forget that every one of these figures comes in the first instance from the
chowky dar (village watchman in India), who just puts down what he damn
pleases." (Stamp recounting a story from Harold Cox who quotes an
anonymous English judge).
Upon close investigation of U.S. government published data,
Ive found Sir Stamps view to be 100% correct!
The CPI, for example, is 100% subjective, does not
measure anything accurately and can be manipulated to be anything the BLS
wishes it to be. The CPI is used politically to paint a picture of what the
U.S. government wants the public to see and believe?
.
Recession Watch:
The U.S. is in a recession according to the age old
definition of two consecutive declining quarters of GDP (unofficially as
2nd quarter GDP has yet to be reported). The NBER will determine
when it started, how deep it will be, and when it ends in about nine months
after it ends. That is purely for historic purposes and has nothing to do with
investing.
There are several other signs of a recession:
all time low in consumer confidence with nearly half of respondents saying
inflation is eroding their standard of living, super strong U.S. dollar
(flight to safety) which curtails bank lending, Dr
Copper is in a bear market (making a 17-month low on July 1st),
retail sales fell 0.3% in May and rose less in April than initially reported,
demand for real estate has fallen (due to higher mortgage rates) and
construction of new homes has declined, inverted yield curve (2 year yield >
10 year yield) is a classical signal for an imminent recession, M2 growth is
slowing to a snails pace (see below), VC and angel investments in start-ups
have declined to their lowest level since 2019 dropping 23% over the last three
months, commodities have reversed and are all now in intermediate term
downtrends. Theres more
.
If you believe the stock market is a leading economic
indicator (its a component of the Conference Boards Leading Economic Index
-LEI), take noteits down more than 20% in 2022 with all stock sectors
except energy showing a YTD decline. Finally, the LEI itself decreased by 0.4%
in May 2022 to 118.3 (2016 = 100), following a 0.4% decline in April 2022. The
LEI is now down 0.4% over the six-month period from November 2021 to May 2022.
.
Bidens Approval Ratings Continue to Drop:
The abysmal U.S. economic conditions have contributed to Joe
Bidens negative approval rating, which keeps hitting new lows. The RealClearPolitics poll average shows Joe Bidens
presidency reaching terminally unpopular levels, with a 38% approval
and 57% disapproval or a net -19.3% disapproval.
The latest national Monmouth poll is just a massacre.
Since April 2021, Bidens approval rating has held steady or gotten worse in
every single Monmouth poll, and he is now at 36 percent approval to 58 percent
disapproval, consistent with the general trend in which he continues to sink no
matter which pollster is asking the questions. Eighty-eight percent of voters
say the country is on the wrong track.
When Fed Chairman Jerome Powell admitted that inflation (he
refers to price increases rather than money supply growth), was not transitory
on 11/30/21, the esteemed Harris Poll showed Biden at 45% approve to 51%
disapprove (-6% net disapproval). The polls of Bidens performance have gone
straight down from there to the current worst rating of any President at this
time of term in office.
Does the Fed believe that if it pivots in September
and causes stock and bond market rallies (with a lower Fed Funds rate increase
than expected) that would help Biden and the Dems in the 2022 midterm
elections? If so, that would be a Keystone Copsstrategy.
.
Inflation and the Fed:
The Curmudgeon and I are 100% for bringing down the rate of
growth of price increases to help the economy and ailing U.S. public
(especially those on fixed incomes). But we believe it should be done without
assassinating the patient.
Powell has admitted he didnt understand inflation. Mr. Powell said in a 2021 congressional
hearing, M2 . . . does not really have important implications. It is
something we have to unlearn, I guess. He and other central bankers must
unlearn their disdain for monetary analysis before they make another
egregious error.
As weve repeatedly stated and documented in previous Curmudgeon
posts (many), inflation is always and everywhere a Monetary
Phenomenon. The Fed finally gets
that message. In the three months before June (when quantitative tightening
began), allowed M2 growth to plunge to an anemic annualized growth rate of
0.1%. When broad money growth falls to
near zero, nominal spending contracts and a recession begins, according
to a WSJ editorial by John Greenwood and
Professor Steve H. Hanke.
For sure, shortages and supply chain bottlenecks can also
raise prices, but those are for specific goods or commodities, not the general
continuous price increases the U.S. is now experiencing. As weve
explained many times, that was caused by the Feds ultra-easy free money
party, and U.S. federal government stimulus payments. Now it seems the Fed
wants to overcompensate with huge rate increases while the economy is showing
weakness almost everywhere.
It is extremely rare for the Fed to be raising rates,
especially by 75bps per month, when the U.S. is close to or already in a
recession.
Does the Powell led Fed realize that would cause a recession
to deepen?
Is the picture below anyone familiar to you?
.
Curmudgeon Closing Comment:
Economists expect that the CPI for June 2022, to be
released on July 13th, will hit a fresh 40+ year high of 8.8%,
according to a poll conducted by Reuters. [The monthly core index is forecast
to decline to 5.8% from 6.0% in May.] The CPI probably rose nearly 9% in June
from a year earlier, based on the median projection of economists in a Bloomberg
survey. If those forecasts are correct,
count on a 75 bps Fed Funds rate hike at the FOMC meeting on July 27th.
.
End Quote:
Another quote by Sir Josiah Stamp:
Banking was conceived in iniquity and was born in sin. The
bankers own the earth. Take it away from them, but leave them the power to
create money, and with the flick of the pen they will create enough deposits to
buy it back again. However, take away from them the power to create money and
all the great fortunes like mine will disappear and they ought to disappear,
for this would be a happier and better world to live in. But, if you wish to
remain the slaves of bankers and pay the cost of your own slavery, let them
continue to create money." Said to
be from an informal talk at the University of Texas in the 1920s.
..
Be well, stay healthy, try to find diversions to uplift your
spirits (Curmudgeon goes to live concerts and MLB games), wishing you peace of
mind, and till next time
The Curmudgeon
ajwdct@gmail.com
Follow the Curmudgeon on Twitter @ajwdct247
Curmudgeon is a retired investment professional. He has been involved in financial markets since 1968 (yes, he cut his teeth on the 1968-1974 bear market), became an SEC Registered Investment Advisor in 1995, and received the Chartered Financial Analyst designation from AIMR (now CFA Institute) in 1996. He managed hedged equity and alternative (non-correlated) investment accounts for clients from 1992-2005.
Victor Sperandeo is a historian, economist and financial innovator who has re-invented himself and the companies he's owned (since 1971) to profit in the ever changing and arcane world of markets, economies, and government policies. Victor started his Wall Street career in 1966 and began trading for a living in 1968. As President and CEO of Alpha Financial Technologies LLC, Sperandeo oversees the firm's research and development platform, which is used to create innovative solutions for different futures markets, risk parameters and other factors.
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