'OK' Jobs Report Calls For a Return To the Basics
Wall Street responded with giddy enthusiasm to Friday's "Employment Situation" report from the Bureau of Labor Statistics (BLS). The Dow was up by 207.50 points on the day. However, the May jobs numbers themselves were "OK" at best.
Certainly, a month during which the "headline" (U-3) unemployment rate goes up by 0.1 percentage point, the broader U-6 rate falls by 0.1 percentage point, and the broadest-of-them-all "SGS Alternate" unemployment rate remains at its record high of 23.0% provides little reason to party like it was 1999.
The BLS said that the economy added 312,000 full time equivalent* (FTE) jobs during May. While this was a lot better than the 72,000/month average gain during the previous 6 months, it certainly did not provide much evidence that the labor market is improving.
To put the numbers in perspective, May ranked #13 among the 47 months of President Obama's so-called "economic recovery, with an FTE job gain that was less than half of that of the best month thus far (April 2010, when FTE jobs increased by 645,000**).
Also, now 15.7 million jobs away from FTE full employment, America has lost ground amounting to 1.4 million FTE jobs since the (supposed) end of the recession in June 2009.
By the way, it is necessary to look at the number of FTE jobs, rather than at reported total employment, because the prospect of Obamacare has produced a massive shift toward part-time workers. While replacing one full-time worker with two part-timers reduces the reported unemployment rate, it doesn't do much for working people.
Since the previous employment peak in November 2007, FTE employment has declined by 4.1 million. This reflects a loss of 5.5 million full-time jobs, and a gain of 2.8 million part-time jobs.
Under the circumstances, the reported 2.7 million decline in total employment since November 2007 vastly understates the severity of America's jobs crisis. It has now been five and a half years since FTE employment peaked, and we have 4.1 million fewer FTE jobs today than we had back then, while America's working age population has gone up by 12.4 million.
Friday's BLS report elicited a few scattered cheers from deranged Obama acolytes (e.g., Michael Tomasky published a piece in The Daily Beast entitled, "Obama's Economic Triumph"), but make no mistake. The employment situation is horrible, and it shows no signs of getting better. The members of yet another college graduating class have just tucked their diplomas under their arms and headed back home to live in their parents' basements.
While the Friday's jobs report sucked if you are a worker, it was great if you are a capitalist. Not only did the Dow rise by 1.6% on the day, but the Real Dow, which is the Dow divided by the price of gold, also shot up by a massive 3.8%, assisted by a 2.3% decline in gold prices.
Ironies abounded in Friday's market movements. If the analysts are correct, and the Dow went up by 200+ points because the BLS report was not good enough to prompt an early end to QE3, then the financial markets must believe that a continuation of QE3 will raise the value of the dollar.
The real value of gold does not change suddenly, if indeed it changes at all. When the price of gold in dollars falls by 2.3% in one day, all that has happened is that the value of the dollar has gone up by 2.3%. While this is actually a good thing, it is a bit worrisome that the Federal Reserve doesn't seem to be noticing that QE3 is having this effect.
This having been said, the announced purpose of QE3 was to improve the labor market. So, let's compare our eight months of data on QE3 with the eight months before QE3, and assess the results.
During the eight months before QE3, the Fed's total assets fell by $121.6 billion, while the number of FTE jobs increased by 1,159,000. During the first eight months of QE3, the Fed's balance sheet expanded by $578.9 billion, and FTE employment rose by 1,173,000.
By comparing the two eight-months periods, we can see that it took a mere $50 million of incremental Fed balance sheet expansion to produce one additional FTE job. Hey, who says that quantitative easing doesn't work?
President Obama tried $862 billion of fiscal stimulus, and it didn't work. Ben Bernanke has tried $578.9 billion in monetary stimulus since September 2012 alone, and this hasn't worked either.
Perhaps it's time to go back to the age-old formula of stable money, lower taxes, and reasonable regulations. In other words, perhaps it's time to go back to Ronald Reagan.
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*FTE jobs = full-time jobs + 0.5 part-time jobs
**Januarys must be excluded from the rankings of the best months for jobs gains because the BLS sometimes makes large adjustments to the Household Survey numbers during that month.
