Why I don't buy the 4.5% Unemployment Rate

Discussion in 'Economics' started by crgarcia, Jul 6, 2007.

  1. Why I don't buy the 4.5% Unemployment Rate
    Friday, July 06, 2007 | 07:13 AM
    in Data Analysis | Economy | Employment | Federal Reserve

    Where is the wage pressure?

    That's the question on my mind as we await today's NFP. Yesterday saw a stronger than expected ADP Report, which whacked bonds and sent yields back over the 5% level; The 10 year closed at 5.144%. A prime mover: growth in service industries, which accelerated to the fastest pace in 14 months in June.

    The Fed will be closely watching the data for signs that Average Earnings are rising, as a gauge of potential inflation.

    Which brings us back to our original point: If Unemployment is actually as low as its been reported by BLS, then there is no slack in the labor market. We have a situation where demand is outstripping supply. In the Oil market, that sends prices higher. In Agricultural commodities, the same thing occurs. Indeed, in every market I can think of, when Demand is greater than Supply, prices rise. That's Econ 101: prices should be rising robustly in that environment.

    Yet we see little evidence that wages and salaries are moving appreciably higher. Outside of bonuses and stock options, most wages have been pretty stagnant. For most of the past 4 years, they had been falling on a relative basis to inflation. Its only the past few quarters or so that hourly wages have risen at the rate of inflation or better.

    A sign of a slack labor market is sluggish wage gains. Which is pretty much what we have been seeing.

    The WSJ's Ahead of the Tape column looks at the same issue, and asks a different question:

    The Federal Reserve says measures of inflation have improved lately. But it's still worried that there's little slack in the economy, which could ultimately push prices and interest rates higher. A key measure of slack is the unemployment rate. When it gets very low, it can be a signal of labor shortages that create wage and price pressures.

    The labor market appears to have weakened a bit. Through May of this year, surveys of U.S. businesses show they added an average of 133,000 nonfarm jobs per month to their payrolls, according to the Labor Department, down from last year's average of 189,000.

    Yet even though job growth has been slowing, the unemployment rate isn't budging. It is expected to come in at a relatively low 4.5% for June, around the level it's been at for nine months. This is all the more striking because the survey of households that the Labor Department uses to calculate the unemployment rate shows especially paltry employment gains through May this year. Those paltry gains suggest the unemployment rate should be rising.

    His take is that since NFP gains have been on the low side, we should see unemployment tick up. My view is that all these Quarters of low unemployment should have sent wages skyrocketing, late 1990s style.

    Yet neither has happened. I cannot help but wonder why . . .

    Where's the wage pressure?


    chart courtesy of economagic


    A few other things to watch for:

    1) ADP data showed private sector job creation of 150k. That is the number of total NFP the economy needs to merely keep up with population growth and immigration each month. Watch for a celebration of mere population growth.

    2) The June number enjoys a healthy Birth Death adjustment. Bill King noted that "Last June the BLS created 166,000 (175k Prelim) Net B/D Model jobs out of thin air."

  2. I think all the #'s the US reports are BS! Inflation, unemployment, all BS. In college my stats professor talked about how to make stats lie. I still follow them closely because the market reacts, but I don't believe any stats reported from the US. I love the shit, oh if you strip out this and that core CPI, blah, blah inflation is really only 3% or less. BS! Try and buy milk, gas, and health care, and see where you stand after that.

    A month back I spent a month visiting family in Europe. I believe they report real #'s there. Unemployment down from 10% to 7%, inflation running higher than ours, etc.

    Besides the jobs added in the last few years, with the exception of real estate related ( which are all going poof! )have been low pay service jobs at Wallmart, etc.

    Ok enough of my ranting. It's Friday, enjoy the weekend. :)
  3. Ifr you want "a job", Wendy's and McD's have plenty available. If you are expecting to make over $25,000 a year, finding "a job" isn't going to be so easy.

    White collar jobs its the same, but on a different scale. Trying to get a job that pays what they did pre 9/11 is pretty much impossible, but if you are willing to take a 50% cut, and crap for benefits you can get a job.
  4. I careless what these numbers are. I know they are all BS. The only thing I want to know is how the market react to it. I do not anticipate it any more, it cost me a lot of money. I just hop on the boat where most people are, and get off when they get off.
  5. yeah im living proof of that . and I know with out a doubt i'll never get nearly what i was making before i lost my job almost a yr ago now . I feel its only going to get worse , much worse. jake

    I think you could see blood on the streets that we have seen across the world will be coming here soon too and it would not necasarrily be from foriergners either . I may not live to see it but still I only think its a matter of time . And yes we have seen some already , what I think will happen will be much more larger scale .Sooner or later people will say enough is enough . No society ever survived without a middle class I have heard . Maybe there right.
  6. S2007S


    The numbers arent accurate, every single month they announce job numbers they revise the figures from prior months. It happens every month with the revisions. To me it sounds like someone isnt doing something right to have the numbers revised month over month.

    Strip out food and energy, haha. Thats another joke. :p :p :p :p
  7. I'm the most cynical perma-bear there is but I must admit the job market is roaring.

    In SoFla there's low skill service jobs paying 12 bucks an hour. (that's what the help wanted at my local Hess is offering) You say "aren't there Haitian's working for 5 bucks?" Maybe in 2003 but not now. My illegal Peruvian maid asked me for $12.50 an hour cash a few months back. She's now had three raises in 18 months.

    This is the 1970's boys. Inflation is rampant........
  8. Right you make my point, $12.50 is low pay in my world. Boatloads of jobs that pay under 30k a year. Try and live on that in any place but the Mid West. Heck I heard starting wage at Wallmart is $10 an hour. Did you see the segment on CNBC the other day. Illegals in the Hamptons getting $17 plus an hour. You know those guys shack up 10 to a house in some NY getto neighborhood.

    You are getting a good deal on your maid BTW. In OC, CA to clean my Mom's house it's $45 for 3 hours worth of work, cash money. Believe me I seen what cheaper help does. They wash her wool jackets in the wash, without being asked, and f*ck them up! :p :D
  9. Since when is 30k a year the benchmark for low skill, used to be minimum wage jobs?

    Obviously there's ton's of folks making REAL money as well. Once upon a time a Lambo or Bentley were rare sights. Now I'll see several in an afternoon of errands.

    I escaped the screen for a couple of hours today by driving around yuppie style with a Blue Tooth jammed in my ear. Quiet residential streets were brimming with lawn guy's, rehabbers and the like. And as far as the much ballyhooed end of SoFla housing boom, cranes and dozens of construction workers congregate at literally a dozen sites on Lauderdale Beach. Yes, America is working and America is being paid for their work.

    Whether it lasts is doubtful but data other than Labor's corroborates the story....
  10. the jobs that are being created are low skilled in the service sector. those that answer the household survey necer admit they are unemployed because with the interent,everyone can have some sort of bs home business. i am very cynical but as a trdaer i go with the flow. however,i just think we were able to puch off a recession but it will happen within a year.the 10 year is going above 5.25 and oil keeps going up;it will evenutally way on the consumer and he will retrench. flight to safety- investors will opt for the safety of bonds yielding over 5%.
    #10     Jul 6, 2007