Lombardi: Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

The Truth Behind Today’s U.S. Job Numbers Report

Friday, October 5th, 2012
By for Profit Confidential

Bankrupt businessmanWow! President Obama must be thrilled this morning! For the first since he has been President, the U.S. unemployment rate has come down under eight percent.

Sure, on the surface it looks like the unemployment rate has improved, but we all know the job numbers take out people who have given up looking for work. The real numbers, as I’m about to show you, paint a very different picture. So don’t jump into the pits and start buying stocks just yet!

The unemployment rate in the U.S. economy was above eight percent for 43 straight months and now, all of a sudden, it decreased to 7.8% in September. (Source: Bureau of Labor, October 5, 2012.)

Don’t be surprised to read about stock advisors suggesting that you buy even more stock and don’t expect mainstream media to give you the real details about the unemployment rate report.

Here’s the real story: 12.1 million Americans who are ready, willing and able to work do not have jobs in the U.S. economy.

So what’s changed since August for the unemployment picture?

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The unemployment rate for the people who are considered long-time unemployed did not change. They make up more than 40% of the unemployed in the U.S. economy. These workers have been unemployed for 27 weeks or more.

Looking at the new unemployment rate, we see that the number of part-time employed people in the U.S. economy increased in September to 8.6 million, compared to 8.0 million in August. They are not working part-time by choice; they simply can’t find full-time jobs. In addition, there are another 1.7 million people who have not looked for jobs for the last four weeks.

Now the real kicker…

The underemployment rate, which includes people who have given up looking for work and people who have part-time jobs who want full-time jobs, remains unchanged from August. It currently stands at 14.7%, which is slightly higher than it was in May of this year.

The real unemployment rate in the overall U.S. economy has not changed. In fact, it is now more vulnerable than before. What I want to see is the underemployment rate going down. This number is very troublesome and should not be overlooked, as it currently indicates that the real employment situation has not improved despite trillions of dollars in newly borrowed and newly printed money.

Michael’s Personal Notes:

Inflation is going to be a bigger concern than it already is for the U.S. economy. And I am sure you have already experienced it—when it comes to food products, for example, the size of the container has decreased, while the price hasn’t changed.

The official government numbers tell us that inflation is not a concern; that we are not experiencing any inflation and it’s all under control. As a matter of fact, the Consumer Price Index (CPI), issued by the U.S. Bureau of Labor, shows that there was actually a decline in inflation in May, no change in June and July, and an increase of 0.6% in August. (Source: Bureau of Labor, October 5, 2012.)

We all know the CPI doesn’t reflect real inflation or prices that really matter to the consumers. Food prices and gas prices are increasing rapidly and they are not properly reflected in the CPI numbers.

I drive a sports car that really doesn’t have a big gas tank. Earlier this week, when I filled up my car, I bought two car washes with my fill-up (because I get a discount when I buy the car washes with gas). My final bill was over $170.00! And the cars washes were not expensive, about $12.00 each. If this isn’t inflation, I don’t know what is.

I’m not the only one complaining about gas prices. Gas stations in California are shutting down on record-high gas prices. In San Francisco, gas prices are at the highest level since 2007. (Source: Businessweek, October 4, 2012). These gas stations are shutting down, because their profitability is decreasing—the gas is available, but not for cheap. For gas stations in San Francisco, it’s costing them $4.90 per gallon just to buy gas and they then need to mark up that price to actually make a profit. It wasn’t too long ago when you could get a gallon of gas for fewer than $2.00.

The underlying issue is inflation—the prices of goods are increasing, because our dollar is depreciating faster than ever before. When we import oil from foreign countries—and we still do a lot of that every day—it is taking more U.S. dollars to buy a barrel of oil. This is because the greenback has depreciated so much against other world currencies (except for the euro).

While the CPI doesn’t really show the entire inflation picture, we know that the purchasing power of $1.00 in 1980 equates to $2.80 in 2012. What does this mean? It means that inflation has deteriorated the value of the greenback. Now, with multiple rounds of quantitative easing, inflation is going to be a bigger problem. It will affect consumer spending.

Consumer spending will be the ultimate victim of this inflation. And if consumer spending is hurt, the U.S. economy will not go very far, as more than 70% of U.S. gross domestic product (GDP) is made up of consumer spending. Real disposable income, as I wrote this week, is declining. It’s a lethal combination for American consumers: declining real disposable income and inflation.

Where the Market Stands; Where it’s Headed:

There’s a term in economics called “reversion to the mean.” The stock market can rise all it wants to on the premise that freshly printed money will make its way back to the market. But eventually the stock market will move to the point where it best reflects what is going on with the economy and the companies that trade in it—i.e. the reversion to the mean.

Today’s U.S. jobs report was another total bust. Forget what they tell you about the official unemployment rate, because those numbers are skewed. The real rate, the underemployment rate that includes people who have given up looking for work and people who have part-time jobs but who want full-time jobs, sits at a ridiculously high 14.7%—unchanged from the previous month. The economy is not getting better for the majority of Americans. And this will soon be reflected in the earnings of major American companies.

What He Said:

“The U.S. lowered interest rates in 2004 to their lowest level in 46 years. And what did Americans do with their access to easy money? They borrowed and borrowed some more, investing the borrowed money into real estate. Looking ahead, perhaps the Fed’s actions (of bringing interest rates so low to entice consumers to borrow more than they can afford) will one day be regarded as one of the most costly errors committed by it or any other banking system in the last 75 years.” Michael Lombardi in Profit Confidential, July 21, 2005. Long before anyone was thinking of a banking crisis, Michael was warning that the coming real estate bust would wreak havoc with the banking system.

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  • Casey

    I'd like to know how much you're paying for gas. Let's factor in you're paying $6/gallon, that means you have a gas tank that holds 24 gallons. So how can you say that you don't really have a big gas tank?? Most cars have what, like 15? Let's paint a clear picture about how much the cost of gas really is. The US average is not higher than $4/gallon.

  • Fran Perry

    Mr. Lombardi…I wish you and others would mention…why a lot of jobs have not opened up…look at the real reason…it is the taxpayers that pay the salaries of most people employed..even the men that work on the highway are paid by the taxpayers monies…and we cannot just depend on the middle class and the poor to pay these salaries…so, when the rich take their fair share of the responsibility of paying for the salaries of the people…that is when the jobs will open up a lot more…you all leave that comment out…I know everything that the taxpayers monies pay..look at the homes of the governors…etc..the taxpayers monies pay for their million dollars homes..oh, well..I have been praying over a recipe of paslms that are working..but, it will be easier once the rich are paying their taxes..just think all they do is to invest their monies…they don't work hard as the middle class and the poor.

  • Paul Guerra

    You missed Obama's 7PM news head line tactic. Up until last week on Thursdays when the jobless numbers come out the BLS would always revise the previous weeks jobless count upward. This makes the current numbers look (or sound) better. Even though the jobless numbers were growing from about 350,000 to almost over 390,000 the Thursday headlines shouted that jobless claims were down even though they were trending up. Pretty deceiving don't you think? The 7PM news would shout jobless claims are going down every Thursday night when actually they were going up. Even Fox News fell for that one.

    Now the latest trick was that Jobless claims were down last week to the lowest level in years. The trick last week was the BLS left out the state with the largest unemployment claims of any state, namely California. The report was for 49 states not 50 states no wonder claims declined.

    I would like to see what the unemployment claims would be if we included all of Obama's 57 states. I believe he said there were 57 states didn't he.

  • tobyspeeks

    Who puts "MBA" after their name? Someone desperate for attention, that's who.

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Michael Lombardi - Economist, Financial AdvisorMichael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Some of the stock recommendations in Michael's various financial newsletters have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland. Follow Michael and the latest from Profit Confidential on Twitter or Add Michael Lombardi to your Google+ circles