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Should We Wallow in the Rising Stock Market?

Should We Wallow in the Rising Stock Market?.

by David John Marotta & Megan Russell | 01-19-2014

sad puppya

Keynesian economists have cited the rising U.S. stock market as evidence that the economy is picking up steam. Then they’ve been surprised by the unemployment and lack of hiring. The stock market, despite record highs, is not correlated to the performance of the overall economy.

The misery index is an economic indicator of unemployment plus inflation. Together these two measurements represent significant economic hardship for the country. The misery index was used frequently during the Nixon, Ford and Carter years as a scorecard to show how government policy can harm working people.

In December, the official unemployment rate decreased to 6.7% . But this was not really good news .

In contrast, officially reported unemployment numbers decrease when enough time passes to discourage the unemployed from looking for work. A decrease is not necessarily beneficial; an increase is clearly detrimental.

In the United States, we need to add a minimum of 127,000 jobs per month just to account for our annual population increase . Last month, only 74,000 jobs were added, the lowest increase since January 2011. Of those, 55,000 were added in the retail sector during the holidays. With so many unemployed experienced workers, many recent college graduates are left chasing too few rookie positions.

The purported decrease in unemployment largely reflects how the government measures it. The unemployment rate only describes people who are currently working or looking for work.

Labor force participation rate 2013/12

During particularly bad times, the unemployment rate frequently decreases by the number of people dropping out of the jobs market entirely . In December, the job participation rate fell to 62.8%, its lowest level in 35 years. According to Heidi Shierholz of the Economic Policy Institute , if these missing workers were included in the calculation, the unemployment rate would be 10.2%.

Unemployment has never been measured very accurately . Calculations do not count those who have just entered the labor force and haven’t found a job yet, who have been searching for employment so long they have given up the search , who work part time but are actively seeking full-time work and who are actively seeking employment but were not included in the monthly jobs survey.

Unemployment in its truest definition, meaning the portion of people who do not have any job, is 37.2%. This number obviously includes some people who are not or never plan to seek employment. But it does describe how many people are not able to, do not want to or cannot find a way to work. Policies that remove the barriers to employment, thus decreasing this number, are obviously beneficial.

In contrast, officially reported unemployment numbers decrease when enough time passes to discourage the unemployed from looking for work. A decrease is not necessarily beneficial; an increase is clearly detrimental.

So how could our stock market be at such record highs while so many are unemployed? Given current government policies, it is specifically by avoiding U.S. workers that companies are keeping their profits strong. Obamacare punishes large companies for each full-time worker and provides strong incentives for small businesses to stay below 50 full-time-equivalent employees. Automation and outsourcing are making U.S. companies more profitable at the expense of U.S. employment.

Inflation, the other half of the misery index, assists stock prices as well. Every month, the Federal Reserve has been injecting $85 billion into the money supply. This devaluation of the currency causes inflation that naturally pushes all prices, including stock prices, higher.

The broadest measure of inflation is the Consumer Price Index. But since 1997, the government has manipulated the raw data and significantly underreported inflation. Now they use a “hedonic deprecator.” If the quality of a commodity increases more than its price, the quality increase is counted as deflation. And because consumers use “creative substitution,” switching from an expensive good to a similar but cheaper good, the government argues that only a portion of price increases should be counted as inflation.

ShadowStats Inflation

These tricks, along with a host of other dubious accounting schemes, underreport inflation by about 3%. Today, inflation is officially 1.24%. According to Shadow Stats , which computes the old way, it is closer to 4.5%.

Think of that 4.5% of actual inflation as a tax on anyone who is storing their money in dollars. And since 1997 that 3% annual underreporting has had the effect of cutting Social Security benefits by a cumulative 40%.

Today, the misery index would be 7.54 using official numbers. Using Shierholz’s measurement including discouraged workers (10.2%) and the historical method of calculating inflation (4.5%), the current misery index is closer to 14.7, worse even than during the Ford administration.

The younger and more economically disadvantaged members of society feel the misery most acutely. But the economics is much more complex than adding laws to help them directly. Longer unemployment benefits or subsidized government-run health care contribute to systemic government policies that discourage production and employment.

Meanwhile, the stock market can occasionally benefit from the misery index. It does not correlate to an economic recovery but is a powerful financial asset for those wise enough to remain invested and diversified during all kinds of economic movements.

Photo by Fiona McAllister used here under Flickr Creative Commons.

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The New Normal Paradox: All The Job Gains With Half The Hiring? | Zero Hedge

The New Normal Paradox: All The Job Gains With Half The Hiring? | Zero Hedge.

While everyone obsesses over the monthly payrolls report, which on a trailing 12 month basis is once indicating the creation of roughly 2 million jobs each year, or roughly where it was before the crisis (red line chart below), one aspect that is largely ignored is the amount of hiring.

Why is hiring important?

Because that is the actual process by which those without a job end up with a job. And as we just learned today after the latest JOLTS release, which showed that there were over 4 million job openings (4,001 to be precisely) for the first time since 2008, a far more important number is the update on Hires which at 4.5 million barely changed from last month, but more importantly, is barely a fraction of where it should be based on the number of job gains reported by the BLS monthly. The chart below confirms this stunning discrepancy: a surge in jobs with barely half the pre-recession hiring?

 

How does one explain this discrepancy in which the US economy supposedly is growing at its historic peak pace while hiring is at half the peak pace? Simple: the gains in nonfarm payrolls are due a decline in layoffs and other separations, not an increase in hirings: i.e., normal labor demand driven growth.

Which means that anyone hoping for a brisk increase in wages, i.e. worker leverage, is in for a prolonged shock.

The chart above simply shows that the leverage is and continues to be with the employers – instead of letting people go (or workers quitting at their volition) at anything close to a traditional pace, employers have a huge bargaining chip – a job. Because if a worker does not want to perform a job, tough: there are about 3 people willing to fight for every job opening. It also means that those who lose their job will find it doubly more difficult time to reenter the workforce as there simply is not enough hiring.

Which means that wage deflation, at least among prevailing jobs, will continue leading to declining real disposable income, a declining in personal savings and the continued use of “student loans” (since credit card deleveraging continues) to fund everyday lifestyles, at least until such time as the hiring trend has normalized.

The really bad news: while such a normalization will eventually happen, according to our back of the envelope calculations, it will take place some time in… 2020.

Canada Job Grant ads cost $2.5M for non-existent program – Politics – CBC News

Canada Job Grant ads cost $2.5M for non-existent program – Politics – CBC News.

Jobs plan or ad campaign?

Jobs plan or ad campaign? 4:13

Canada Job Grant ad

Canada Job Grant ad 0:34

The federal government blanketed the internet with ads and bought pricey TV spots during playoff hockey as part a $2.5-million publicity blitz to promote a skills training program that doesn’t yet exist, CBC News has learned.

 

TV commercials for the Canada Job Grant often ran twice per game last May during the widely watched Hockey Night in Canada NHL playoff broadcasts on CBC. There were ads on radio, as well.

 

“The Canada Job Grant will result in one important thing – a new or better job,” said the reassuring voice-over in the TV ads.

 

The problem: The program was never launched and is still on hold. The job grants were announced in the 2013 federal budget, but it called for an agreement with the provinces, which have so far refused to buy in.

 

Employment and Social Development Canada spent between $2.5 million and $2.6 million on the ad campaign. That figure excludes radio ads funded by the Finance Department.

“Spending millions of dollars to advertise a program that doesn’t even exist is like flushing tax dollars down the toilet,” Liberal finance critic Scott Brison said.

 

$11-million publicity push

 

CBC News has also learned that that advertising cash came from an $11-million fund set aside last year for Employment and Social Development Canada to promote the government as a job creator.

Before the Canada Job Grant TV ad went to air, the government paidEnvironics Research Group almost $70,000 to conduct market research. Focus groups saw a near-final version of the commercial.

 

Environics concluded: “The main message was consistently seen as positive and one that inspired hope…. In light of seeing the new ad for the Canada Job Grant, most now believe the Government of Canada is on the right track regarding skills training and the job market in Canada.”

“Their own research suggests that people get a positive impression of the ads,” Queens University political science professor, Jonathan Rose said. “Whether that means they convey accurate information is another story.”

 

A government commissioned survey done post-campaign showed only two per cent of the 292 people polled who saw or heard the ad also caught the disclaimer that the program didn’t yet exist. It also found only 18 per cent of viewers understood tax dollars paid for the advertising.

 

Ads ruled misleading

 

After receiving numerous viewer complaints, Advertising Standards Canada, the advertising industry’s self-regulating body, ruled the TV commercial was misleading because the job grant program hadn’t been approved.

 

“The commercial omitted relevant information,” ASC concluded in a report. The report didn’t name the government because the ad campaign was already over.

Economic Action Plan adsThe federal government has spent millions on advertisements about its economic programs. (Government of Canada)

 

The proposed job grants would give workers $15,000 each for training, with the provinces kicking in one-third of the cost. But provinces have yet to sign on, complaining the proposed program claws back $300 million in federal funds now used to help disadvantaged workers.

 

“We do not believe, the way the program is designed, that it will work,” Ontario’s Kathleen Wynne said at a premiers meeting last July.

 

Quebec threatened to opt out. There’s no word yet on when an agreement might be reached.

Asked to comment on the ad campaign, a spokesperson for Employment and Social Development Canada said, “The government of Canada’s top priorities are creating jobs, economic growth and long-term prosperity.”

 

Harper blasted Liberals over ads

 

In his first question as opposition leader, in 2002, Stephen Harper took the then Liberal government to task over their advertising spending and the emerging sponsorship scandal.

 

“Will the prime minister stop the waste and abuse right now and order a freeze of all discretionary government advertising?” he asked in the House of Commons on May 21, 2002.

 

During its peak, the Liberal government spent $111 million on advertising, in 2002-2003. Harper’s current Conservatives doled out $136.3 million in 2009-2010, their biggest advertising budget yet on record.

If you have more information about this story or any other tips, please email investigations@cbc.ca.

 

Baby boomers not to blame for youth unemployment – Canada – CBC News

Baby boomers not to blame for youth unemployment – Canada – CBC News.

Policy makers in North America and Europe have used the lump labour theory to argue in favour of curbing immigration and validating early retirement programs.Policy makers in North America and Europe have used the lump labour theory to argue in favour of curbing immigration and validating early retirement programs.

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A commonly held opinion is that older workers who stay on the job past the usual retirement dates and baby boomers just hanging on to their jobs are somehow denying young people entry to the workforce. But researchers say that’s not true.

U.S. research economist April Yanyuan Wu says there’s no evidence to support the view that retaining older workers hurts younger ones by reducing the number of jobs, and she co-authored a paper on the subject last year.

Wu, with the Center for Retirement Research at Boston, challenges the co-called “lump labour” theory, which can be traced to Henry Mayhew’s 1851 London Labour and the London Poor collection of research material.

The Victorian-era social researcher and journalist argued that cutting the number of hours employees worked would reduce unemployment.

Taking inspiration from this long-held simple premise that there are a fixed number of jobs available, some policy makers in North America and Europe have used this theory to argue in favour of curbing immigration and validating early retirement programs.

But most economists tend to frown on what they call the labour lump fallacy.

Wu points to what was happening in the 1960s and ’70s when women entered the workforce in greater numbers. There weren’t fewer jobs for men. The economy simply expanded.

Canadian labour force researcher Rosemary Venne says career patterns have changed dramatically since the post-Second World War era and the birth of the baby boom generation.

Venne, who has written papers on demographic effects on the labour force and careers with Canadian economist and demographer David Foot, says young people of today are taking “longer to launch into adulthood,” but it’s not simply a numbers game of pitting one generation against another.

Always higher youth unemployment

“I don’t see it,” she says. “One of the reasons why youth are having trouble getting established — and they always have trouble; there’s always higher youth unemployment — is they’re not as job ready as young people were maybe 20 or 30 years ago, because career patterns have changed, organizational hierarchies have changed, they’ve flattened. There are not as many entry level positions.

“So the fixed career ladder of the 1950s and ’60s has really given way to more varied career patterns where people don’t stay in a workplace.”

Organizations don’t hire the army of entry-level labour they use to and have fewer layers in the corporate hierarchy, says Venne, who teaches at the University of Saskatchewan’s Edwards School of Business. More companies are using technology, direct data entry and robotics.

Period of youth a ‘complex life stage’

“The stage of youth has become a more complex life stage. It used to be a stage that you were job-ready after high school. You jumped into a job and you left home pretty young,” Venne says, but home-leaving ages have really increased over the years.

Here are a couple of Canadian “launch” stats:

  • In 2006, 60 per cent of young people from the ages of 20 to 24 were still living at home.
  • In 1986, that figure was less than 50 per cent (49.3 per cent).

Clearly, 15- to 24-year-olds in Western society face different challenges than their parents at that age.

In 2010, Venne released her paper titled “Longer to launch: Demographic changes in life-course transitions.” In it, she writes that many stages of life are lengthening, including the period when young people are dependent on parents.

“They’ve got a lot choices in education, and jumping into that is going to delay the launch into a career,” she says. “It’s a reflection of new realities, changing career patterns, longer life expectancy. You just need flexibility.”

She says, in some ways, parents are providing that by supporting adult children still living at home, “and sometimes paying for their education.”

Their children are not only staying in the nest and starting jobs later, but also marrying and having a family of their own later, so it’s a given that they’re relying on their parents a little bit longer.

 

 

 

Case of the Missing Recovery: Paul Craig Roberts

Case of the Missing Recovery: Paul Craig Roberts 

No Jobs For Americans

Paul Craig Roberts

The alleged recovery took a direct hit from Friday’s payroll jobs report. The Bureau of Labor Statistics reported that the economy created 74,000 net new jobs in December.

Wholesale and retail trade accounted for 70,700 of these jobs or 95.5%. It is likely that the December wholesale and retail hires were temporary for the Christmas shopping season, which doesn’t seem to have been very exuberant, especially in light of Macy’s decision to close five stores and lay off 2,500 employees. It is a good bet that these December hires have already been laid off.

A job gain of 74,000, even if it is real, is about half of what is needed to keep the unemployment rate even with population growth. Yet the Bureau of Labor Statistics reports that the unemployment rate fell from 7.0% to 6.7%. Clearly, this decline in unemployment was not caused by the reported 74,000 jobs gain. The unemployment rate fell, because Americans unable to find jobs ceased looking for employment and, thereby, ceased to be counted as unemployed.

In America the unemployment rate is a deception just like everything else. The rate of American unemployment fell, because people can’t find jobs. The fewer the jobs, the lower the unemployment rate.

I noticed today that the financial media presstitutes were a bit hesitant to hype the drop in the rate of unemployment when there was no jobs growth to account for it. The Wall Street and bank economists did their best to disbelieve the jobs report as did some of the bought-and-paid-for academic economists. Too many interests have a stake in the non-existent recovery declared 4.5 years ago to be able to admit that it is not really there.

I have been examining the monthly jobs reports for a decade or longer. I must say that I am struck by the December report. Normally, a mainstay of jobs gain is the category “education and health services,” with “ambulatory health care services” adding thousands of jobs. In December the net contribution of “education and health services” was zero, with “ambulatory health care services” losing 4,100 jobs and health care losing 6,000 jobs. If memory serves, this is a first. Perhaps it reflects adverse impacts of the ripoff known as Obamacare, possibly the worst piece of domestic legislation passed in decades.

I was also struck by the report that the gain in employment of waitresses and bartenders, normally a large percentage of the job gain, was down to 9,400 jobs, which were offset by declines elsewhere, such as the layoff of local school teachers.

Aren’t Washington’s priorities wonderful? $1,000 billion per year in Quantitative Easing, essentially subsidies for 6 banks “too big to fail,” and nothing for school teachers. It should warm every Republican’s heart.

A tiny bright spot in the payroll jobs report is 9,000 new manufacturing jobs. The US manufacturing workforce has declined so dramatically since jobs offshoring became the policy of American corporations that 9,000 jobs hardly register on the scale. Fabricated metal products, which I think is roofing metal, accounted for 56% of the manufacturing jobs. Roofing metal is not an export. Employment in the production of manufactured products that could be exported, such as “computer and electronic equipment,” and “electronic instruments” declined by 2,400 and 3,500 respectively.

Clearly, this is not a payroll jobs report that provides cover for the looting of the prospects of ordinary Americans by the financial and offshoring elites. One can wonder how the BLS civil servants who produced it can avoid retribution. It will be interesting to see what occurs in the January payroll jobs report.

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