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Behind the Dismal Employment Numbers, Rogue Wave Coming

In the Treasury Update that I posted yesterday in the Wall Street Examiner Professional Edition I warned that regardless of what the government numbers would show, the jobs situation was deteriorating badly. Based on real time Federal withholding tax data, there have been virtually no job gains since last year.

Here’s an excerpt from the July 7 Professional Edition Treasury update:

Month to date withholding taxes as of the end of June were down 4.6% from last year. Some of that was due to a calendar anomaly of a payment date for a biweekly and semimonthly pay period last year coming on June 1. That resulted in June receipts last year being inflated, making this June look worse than it was. A 4.6% drop would imply an economic collapse. In actuality it’s more of a stall, although I expect it to spiral down from here.

As shown on the chart below, tax receipts over 2 week rolling periods have again opened a lead versus last year, although the monthly averages are about even. In view of the fact that tax receipts were consistently running well ahead of the same point last year from February through May, the sharp drop in June suggested that the US economy may already be in recession. That becomes a little clearer when looking at the comparison in real terms, adjusted for wage increases (though small) as shown on the next page. Given the ending of POMO and government spending cuts ahead, I expect this comparison to soon go negative.

Federal Withholding Tax Chart - Click to enlarge

Real % Change in Withholding Chart- Click to enlarge
Chart data through July 5

(6/24/11) Normal seasonality shows a flat period through Q3, with a final low in September/October. If this graph drops below last year’s level from here, then the economy probably is in free fall. That would be very bad news for the levels of debt the Treasury must float in the months ahead.

I have not been able to isolate a strong correlation between this data and the government’s headline employment numbers. Regardless of what the Labor Department releases say on Friday, a zero gain in withholding over the past month is clear evidence that there are no more people working today than there were a year ago, at least in terms of paying jobs. If the numbers come in positive I would only guess that there are plenty of “self employed” people out there, not subject to withholding, who aren’t earning any money at all, let alone a decent living.

I was a little surprised that the propaganda machine at the BLS (Bureau of Liar Statistics) was willing to admit this fact today, but I must have had brain-lock, because it should have been obvious that it would want to trumpet bad news. The gummit has $66 billion in new long term paper to sell next week, and the name of the game is to get those yields down by whatever means necessary. I have observed repeatedly through the years that the government would sacrifice the stock market on the altar of the Treasury market whenever necessary, and it proved that again on Friday.

By now, you have heard all the gory details of Friday’s employment report.

  • Nonfarm payrolls up by just 18,000 (seasonally manipulated) against a consensus of 125,000
  • Job gains in May revised down
  • Unemployment up to 9.2% (again seasonally manipulated)
  • Average hourly earnings flat.
  • Average workweek down, with factory workweek down sharply
  • Household survey showed employment down 443,000 (seasonally manipulated)

All of those numbers were truly terrible. But they don’t begin to tell the whole story.

Other horrendous numbers include the U6 unemployment rate (which includes discouraged workers and others not counted in the headline number) which rose to 16.4% (actual not seasonally manipulated) from 15.4% in June. Admittedly, this number always goes up in June, BUT the 1% jump was the biggest since 2001. Total employment, not seasonally manipulated, rose by 101,000 in June according to the household survey. Of course this number  includes self employed real estate sales people,  eBayers, and “professional” bloggers, none of whom actually earn a living even though they are employed full time. Even with these people included as employed, this was by far the worst reading for any June since 2001. The average gain in June for the previous 10 years was 784,000. The worst year before this one was 2010 when the gain was 385,000.

Not seasonally manipulated actual nonfarm payrolls rose by 376,000, which is somewhat above the 10 year average. But this figure is manipulated by the business birth-death adjustment and is almost certainly wrong, or at least misleading, because it includes both part time and full time employment in addition to the birth-death adjustment.

Here’s what I feel is the most important government number released today, one that I haven’t seen reported anywhere else. The total number of persons employed full time, according to the household survey, had its worst June performance in 43 years. And it’s that good because the government only started collecting this data 43 years ago. Total full time employment has increased in every single June since then. This year’s increase was reported to be 637,000. That sounds impressive until you consider that the worst prior year was at the bottom of the first leg of this depression in 2009 when full time employment rose by 931,000 in June. The average gain in June for the 42 years prior to this was 2.3 MILLION. The AVERAGE!

Total full time workers in June was 113.3 million, the lowest number of full time workers since June of 1999.

Total Full Time Employed Chart - Click to enlarge

Do you want to get even more depressed? How’s this? The employment to population ratio was unchanged from May at 58.2%, its lowest June level since 1984!

Employment/Population Ratio Chart- Click to enlarge

Since 2001, this measure has always increased in June by two to four tenths of a percent. Not this year. The government has been keeping this statistic since 1948. This is the first year, EVER, in the past 63 years, when the employment/population ratio did not increase in June. The employment to population ratio is now as low as it was during the 1940s, 50s, and 60s, when far fewer women were in the labor force. And don’t give me that “baby boomers are retiring” crap. The vast majority of baby boomers are still employed. Most boomers haven’t hit retirement age, and of those who have, relatively few have willingly retired. That’s not a significant factor contributing  to these numbers.

Long Term Chart Employment-Population Ratio- Click to enlarge

How could all of those phd egonomists and Wall Street paid government shills have been so wrong, when all they needed to do was follow the government’s own daily budget data to see what was going on? Even without that data, it was apparent from the long term charts of the not seasonally manipulated data that there had been no material improvement in these trends, and therefore no reason to expect real improvement in the current numbers. Yet somehow these brilliant strategists continue to misunderstand and misrepresent the facts.  Unfortunately, that includes the members of the FOMC and Dr. Bernankenstein  himself, among the worst offenders.

Other numbers have also been screaming of trouble. I have reported in the Professional Edition Treasury updates since February that government stimulus spending has been collapsing versus last year. The entire illusion of recovery was based on that spending and Fed propping. Without those cash flows, the house of mirrors shatters. On Thursday I reported that the combined drop in tax refunds and government outlays in June had reached $30 billion on a monthly basis versus June 2010.  I have also reported that since February that the banks were socking away virtually all of the QE2 cash from the Fed back in the Fed’s vault rather than redeploying it in the economy. That was another factor behind the economic stall. This trend will only get worse now that the Fed has ended its propping of the financial markets. Additional budget cuts will exacerbate the downtrend. The economy will spiral down into a black hole.

We’ll need to watch the Treasury market technical indicators closely for any sign that the fear trade driving cash from stocks to Treasuries is reviving. Or will both sink with the ship? We’ve seen this rogue wave coming for a long time. Brace yourself, because it’s about to hit us.


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  1. Lee Adler

    Thanks for the kind words. You bring up a good point.

    It’s a little complicated to calculate and apply the adjustment correctly and I wish I had done it, but thought about it too late after the articles were posted here and elsewhere.

    If it were included, then the year to year comparison looks just a little better than dead flat. I had discussed in the earlier articles I wrote on this that the effect of the tax cut could be seen immediately in January with the plunge in revenue, but then the economy grew strongly was showing gains in the spring (thanks in part to tax refunds, stimulus and the payroll tax cut.) If you include the adjustment for that, then the year over year comparison would still be positive by about 2% but the plunge in June would be unaffected. It still indicates a stall. The point of the article is still valid even without the adjustment. The effects of all the propping have worn off. Now what? And what happens when the cut expires at the end of the year if they don’t extend it. Wups!

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