Posts Tagged ‘jobs market’
Just as the majority of Americans think the U.S. jobs market is improving, there’s a notion in the air that the U.S. housing market has rebounded and is healthy again. I don’t believe this to be true.
Just like the government’s official unemployment number is manipulated because it excludes people who have given up looking for work, when we took a closer look at the stats we hear about home prices, new home sales, and existing home sales, we didn’t like what we found in them.
Home prices increased to unprecedented levels in 2005. At social events back then, everyone talked about how much their home or vacation property had gone up in value and how they were getting deeper into the housing market. Few talked about the reckless lending activities of the banks that were the cause for the rise in home prices.
We now hear new homes are being sold at a new record pace. Buyers are apparently rushing to buy houses again, and the housing market is hot once more. Sadly, underlining the strong sales of homes, the number of cancelled sales orders compared to overall sales (commonly referred to as the cancellation rate) is going through the roof.
In 2013, D.R. Horton, Inc. (NYSE/DHI) had more cancelled orders than it did in 2012—7,751 cancelled contracts to buy homes compared to 6,657 in 2012. The cancellation rate for this homebuilder in 2013 was 24%. (Source: D.R Horton, Inc. web site, last accessed February 18, 2014.)
Other homebuilders are having the very same problem. KB Home (NYSE/KBH) reports its cancellation rate in 2013 reached 32%—that means one out … Read More
As I have been pointing out to my readers, the “official” unemployment numbers issued by the government are misleading because they do not include people who have given up looking for work and those people with part-time jobs who want full-time work.
In January, there were 3.6 million individuals in the U.S. economy who were long-term unemployed—out of work for more than six months. (Source: Bureau of Labor Statistics, February 7, 2014.)
Those who are working part-time in the U.S. economy because they can’t find full-time work stood at 7.3 million people in January.
Add these two numbers into the equation and the real unemployment rate, often called the underemployment rate, is over 12%. Meanwhile, the official unemployment rate from the Bureau of Labor Statistics sits at 6.6%—that’s the number you will hear politicians most often quote.
But if there’s a group of policymakers that looks past the “official” unemployment numbers, it’s the Federal Reserve.
At her speech before the Committee on Financial Services, U.S. House of Representatives in Washington, D.C. last week, Fed Chief Janet Yellen said, “Those out of a job for more than six months continue to make up an unusually large fraction of the unemployed, and the number of people who are working part time but would prefer a full-time job remains very high. These observations underscore the importance of considering more than the unemployment rate when evaluating the condition of the U.S. labor market.” (Source: “Semiannual Monetary Policy Report to the Congress,” Federal Reserve, February 11, 2014.)
Like all economists, Yellen knows that when an individual has a part-time job then their income isn’t as … Read More
Old Man Winter appears to be killing the retail sector and the economic renewal. Extreme cold and nasty weather has engulfed about 70% of the country, reaching as far south as Georgia, North Carolina, and Texas, which don’t traditionally experience winter weather.
All that nasty weather means less driving to the malls and shops, which, judging by the numbers, appears to have been the case over the last two months. And if consumers don’t spend, the retail sector hurts and this translates into softer gross domestic product (GDP) growth.
Retail sales contracted by 0.4% in January, which represented the second straight month of declines following a revised contraction of 0.1% in December, according to the U.S. Department of Commerce. The poor showings were attributed to the weather.
With consumers staying at home, we are hearing whispers that fourth-quarter GDP growth could be revised downward from its initial 3.2%.
And while it’s too early to call for the economy to weaken, continued bad weather could mean just that. Now there are, of course, other reasons for the lackluster retail sector metrics.
There’s still a sense that the jobs market continues to be fragile following the creation of a mere 74,000 jobs in December that was blamed on the weather. Yet January was only marginally better with the creation of 113,000 jobs, which was well below the 185,000 estimate.
The jobs numbers are horrible, and unless they start to improve, I expect consumers to continue to feel hesitant about spending in the retail sector.
As I wrote in a previous commentary, investing in the retail sector will be much more difficult this … Read More
On Friday, we learned that the U.S. economy added a lower-than-expected 113,000 jobs in January and the “official” unemployment rate had dropped to 6.6% from 6.7% in December. (Source: Bureau of Labor Statistics, February 7, 2014.)
How can we create so few jobs and have the unemployment rate improve? It’s because the way the government calculates the unemployment rate is skewed. (It gets me outright mad to listen to politicians tell us the jobs market is getting better, when in fact, it’s not.)
The most obvious problem with the government’s way of calculating the unemployment rate is that it excludes people who have given up looking for work and those who have part-time jobs but want full-time jobs. If we were to include those two groups, the underemployment rate (as it is referred to) sits at 12.7%—and it’s been above 12% for a very, very long time. (This is something you didn’t hear President Obama talk about in his State of the Union speech two weeks ago.)
Now if we look a little deeper, we discover a much bigger problem in America. People who have the ability to work are leaving the jobs market!
What I’m talking about is the catastrophic decline in labor force participation in the U.S. economy.
Take a look at the chart below. It illustrates the labor force participate rate.
You will note that from about 2002, which is the same year gold prices started moving up, the percentage of the U.S. population in the labor force started to collapse.
Labor force participation is simply the number of people who are employed plus those people looking … Read More
In New York last week, 1,500 people lined up for 50 apprenticeship positions as painters and decorators. These are union jobs, and only 500 applications are being accepted. Some hopefuls lined up in front of the District Council 9 office for days in extremely cold weather. If they are able to get the job, they will receive $17.20 an hour during the first year. After one year, they may get hired as a full-time employee. (Source: Eyewitness News, January 10, 2014.) This equates to about $37,000 per year considering one would work 40 hours a week.
Hold on a second: I thought the jobs market was strong in the U.S. economy? How come we are seeing such massive lines for a very small number of jobs?
What I just mentioned above is not an isolated event. I have reported other events like this in these pages before—a large number of people applying for very few jobs. It’s a fact that continues to be ignored: the U.S. jobs market remains bleak and the better-paying jobs are just not there.
In the entire year of 2013, the total non-farm payroll jobs market grew by 2.03 million jobs. But the majority of these positions were created in low-paying jobs.
Retail trade jobs in the U.S. economy increased by 358,400 last year—about 18% of all jobs created in 2013. The well-paying sectors of the jobs market, such as construction and manufacturing, didn’t see as much growth: construction jobs increased by 98,000 and manufacturing jobs in the U.S. economy increased by 63,000 in 2013. Together, the higher-paying jobs made up less than eight percent of … Read More
The Bureau of Labor Statistics (BLS) reported this morning that only 74,000 jobs were added to the U.S. economy in December. Most economists were expecting 200,000 jobs to be created in December—way off reality. The December increase in U.S. payrolls was the slowest pace in almost three years.
But it gets worse…
The underemployment rate, which I consider the “real” measure of the jobs market in the U.S. economy, was unchanged in December at 13.1%. The underemployment rate includes those people who have given up looking for work and those people who have part-time jobs but want full-time jobs.
The table below shows the official unemployment rate versus the underemployment rate for 2013.
U.S. Official Unemployment Rate vs. Underemployment
Rate, January-December 2013
|Month||Revised Official Unemployment Rate (U3)||Underemployment Rate (U6)|
|% Change Jan.-Dec.||-15.19%||-9.03%|
Data source: Federal Reserve Bank of St. Louis web site,
last accessed January 10, 2014.
What the above chart shows is that despite what we heard about the U.S. economy improving in 2013 and despite the Federal Reserve creating over $1.0 trillion in new money in 2013 to help the economy, the “real” unemployment rate declined by less than 10% in 2013, from 14.4% at the beginning of the year to 13.1% by the end of the year. The number of unemployed people in the U.S. stands at a still-staggering 10.4 million.
Of the 74,000 new … Read More
Quietly, without much fanfare or news, the bellwether 10-year U.S. Treasury hit a yield of 2.9% this past Friday—double what it yielded in June of 2012. (Source: Treasury.gov, last accessed December 20, 2013.)
Yes, the Federal Reserve only slightly pulled back on its money printing program and interest rates are already spiking.
And the standard 30-year mortgage rate hit 4.52% last week, up from 3.35% in November of 2012. Mortgage rates have increased by about a third in one year’s time. (Source: Freddie Mac web site, last accessed December 18, 2013.)
In the statement issued by the Federal Reserve last week, it said, “Beginning in January, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $35 billion per month rather than $40 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $40 billion per month rather than $45 billion per month.” (Source: Press Release, Federal Reserve, December 18, 2013.)
In other words, the Federal Reserve will continue to print $75.0 billion a month in new paper money as opposed to the $85.0 billion a month it used to print. If the Federal Reserve continues to print $75.0 billion a month through the year 2014, its balance sheet will grow by another $900 billion. Yes, by the end of 2014, we will be looking at a Federal Reserve balance sheet that shows close to $5.0 trillion in newly created money on it.
I’d like to end this year’s last editorial issue of Profit Confidential by communicating my most important message of the year.
All this printing of … Read More
Federal Reserve Chairman Ben Bernanke did something that many on Wall Street including myself did not believe he had the inclination to do: he began the tapering process in his final meeting as the head of the most powerful central bank in the world.
The Federal Reserve will cut its bond buying by $10.0 billion each month, which I believe is a sensible move at this point, given the economic renewal and jobs market growth.
Markets surged to new record-highs for the S&P 500 and Dow Jones Industrial Average, as now there’s a sense that the ongoing uncertainty of when the Federal Reserve will begin to taper has finally been removed, and traders like certainty.
In addition, by reducing the stimulus by just less than 12%, the Federal Reserve can also gauge the market reaction and any negative impact tapering may have on the economy.
The intense buying following the announcement was based on the premise that the economy was moving along pretty well, and this could fuel consumer spending and gross domestic product (GDP) growth. The market was also pleased to hear that the record-low near-zero interest rates could remain, even if the unemployment rate fell below 6.5%.
With Christmas in a few days, it was nice that Bernanke graciously began to rein in the easy money flow. Now a plan has been put into place and the incoming Federal Reserve Chair Janet Yellen will continue it based on how the economy and jobs market progress.
In the meantime, the news also means potentially more stock market gains for investors—albeit, at a slower pace than this past year.
Bernanke … Read More
It’s less than two weeks prior to the Christmas break, and with the New Year on the horizon, that means it’s time to sit down and really re-evaluate your portfolio.
Now, we could see Santa appear and deliver our Christmas goods (i.e. additional gains) into January. What a wonderful way that would be to begin the year? But I will discuss what’s to come in 2014 in my year-ahead outlook in three weeks’ time. At this point, I’m not positive, but I think it’s going to take some work to make money in the New Year (Santa’s not likely to drop that off under your tree).
The days of the Federal Reserve’s flow of easy money into the stock market, which we witnessed over the last four years, will be steadily fading away unless, of course, the new Federal Reserve Chair, Janet Yellen, decides to extend the bond buying longer than necessary. She does love the use of loose monetary policy to prime the economic engine, just as the exiting Federal Reserve Chair Ben Bernanke did for years.
Naturally, a lot of what the Federal Reserve does will circle around what’s happening in the economy.
The Federal Reserve wants jobs so consumers can go out and spend money, driving up the economic renewal. After all, consumer spending accounts for a whopping 70% of the country’s gross domestic product (GDP) growth. Now, imagine what it’s going to look like when Chinese consumers spend, which is exactly what the government is hoping for in that country. (Read “OECD Predicts China #1 Economy by 2016; Consumer Spending to Soar.”)
On … Read More
Finally some good news in the U.S. jobs market?
The Bureau of Labor Statistics (BLS) reported Friday that, in November, 203,000 jobs were added to the U.S. jobs market. As a result, the unemployment rate went down to 7.0% from 7.3% in October. In addition to this, the BLS also revised the job numbers from October and September, saying 20,000 more jobs were created than previously reported. (Source: Bureau of Labor Statistics, December 6, 2013.)
Yes, the jobs market report for November is a step in the right direction. And, while I’m certain the politicians and the mainstream will have a field day with this news, the underlying statistics in the jobs market are not improving.
The underemployment rate, which includes people who have given up looking for work and those who have part-time jobs that want full-time jobs, still sits at 13.2%.
In addition, the number of long-term unemployed, those who are out of work for more than six months, made up 37.3% of all unemployed in November! There are 4.4 million long-term unemployed people in the U.S. and the longer they stay out of work, the harder it will be for them to get back into the market.
Finally, the majority of jobs created in the U.S. economy continue to be created in the low-wage-paying sectors.
The bottom line here is that the “official” unemployment numbers do not reflect what’s really going on in the jobs market. But the official rate is going in the right direction…and moving close to the point (6.5% unemployment) where the Federal Reserve said it would start pulling back on its money … Read More
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