Strong U.S. Jobs Report Masks Deeper Economic Problems

By the Curmudgeon with Victor Sperandeo


Analysis of the Jobs Report:


The Labor Department reported on Friday that employers added 321,000 jobs in November, a much stronger number than economists had predicted and the 10th consecutive month of net job gains above 200,000.  Average hourly earnings for ordinary workers was double the anticipated 0.2%.  The jobless rate itself stayed at 5.8%.


However, some of the worrisome signs that have haunted the monthly jobs report for years have not gone away.  For example, the proportion of people in the labor force (AKA the labor participation rate) was unchanged last month and is stuck near multi-decade lows, an indication that few of the workers who gave up the search for work during the lean years are likely to be hired anytime soon.


In addition, about 6.9 million Americans are working part time because they cannot find full-time positions. The broadest measure of unemployment, which includes these workers, dropped to 11.3%, down 0.1% from October.


In November, the average workweek for all employees rose modestly, to 34.6 hours. A longer workweek is a good sign in an economy beset with part-time jobs. But it also means that gains in average weekly pay in the past year stem from more hours at stagnant wages.


Worse, the averages mask deep wells of weakness. Supervisors and managers got most of the pay raises and extra hours in November.


For production and nonsupervisory workers who make up the vast majority of the work force, average hourly pay rose by only 4 cents, to $20.74, and the average workweek was unchanged, at 33.8 hours.


Even that overstates the day-to-day reality and prospects of many workers. Fully a quarter of the jobs created in November were in retail and in leisure and hospitality, fields that in general do not offer enough pay or hours to make a living.


For example, average hourly pay for non-supervisors in retail jobs was $14.49.  For those in leisure and hospitality, it was $14.10. Other large fields, including fast food and home care, pay far less than that.


NY Times (Dec 4, 2014):  Unsteady Incomes Keep Millions Behind on Bills


We thought it ironic that a day before the stronger than expected jobs report was announced, the NY Times ran this article as the lead story in its Business section.


The data show “a clear upward trend in income volatility,” according to a report from U.S. Financial Diaries, which on Dec 3, 2014 released the first results of an in-depth study of low- and moderate-income families.


In the diaries’ research, nearly all of the 235 households studied experienced a drop in monthly income of at least 25% in a single year. The main culprits were reduced work hours, health problems and shifts in household size, like a needy relative coming to stay.


Talia Frye, director of Brighton Family Center, a nonprofit agency in Newport, KY said the availability of full-time work had shrunk sharply since the 2008 financial crisis hit. “They might even be able to get a 12-, 13-, 14-dollar-an-hour job at an Amazon, or an eBay,” she said. “It’s income; it’s just not sustainable income.”


Nearly seven million people working part time in the U.S. would prefer full-time jobs, but can’t find them.


While their numbers are down from the peak a couple of years ago, these involuntary part-timers still account for 4.5% of the labor force, compared to an average of 2.7% before the recession.


Victor's Comment and Analysis of American's Unsteady Incomes:


Why do the American people continue to vote themselves into a "slavery like state," promoted by politicians that use the people's hard work to extract an overwhelming amount of total taxes to help keep themselves in power? 


Two profound answers come to mind:                                                                                                          


1. U.S. "founding father" Thomas Jefferson in the Declaration of Independence:  "...all experience hath shown that mankind are more disposed to suffer, while evils are sufferable, than to right themselves by abolishing the forms to which they are accustomed."


2.  Historian Alexis de Tocqueville: "The American Republic will endure until the day Congress discovers that it can bribe the public with the public's money."                                        


These quotes deserve deep reflection and suggest a more ethical point about the right to life, liberty and the pursuit of happiness.  A moral question, rarely asked to our leaders is this:


Is the money earned by "the people" their money or does it belong to the government?


Should Congressional Representatives or Presidents determine how much taxes to take and spend, and thereby allow the people to keep what is left over? 


If you objectively observe the "bills" Congress passes, almost none allow for the accumulation of capital. Borrowing and spending is rewarded, while savings are punished through the tax code.            


The people are being left with less money to even survive.  When the government proposes a raise in minimum wages* they look like they are generous with other people’s money.  Ask yourself why are wages flat and declining, while the labor participation rate is at 35 year lows?


* When the minimum wage goes up from $7.25/hr. to the suggested $15.00/hr. (or annually from $15,080 to $31,200, based on an annual 40 hour work week) who pays? The employers, the consumers, or the employees who never are hired and or are fired?


From Economics 101:  jobs and wages are a function of supply and demand, like almost all goods and services.  For many years -or even decades- it's small business (not large corporations) that hire most of the new workers in America.  They compete for employees by bidding for the best with higher wages. If new small businesses are declining, then so are wages and jobs.


A Sept 7, 2014 LA Times article sheds light on the decline in small business formation.  Titled “A drop-off in start-ups: Where are all the entrepreneurs?" it states: "The number of start-ups has fallen nearly 28% from 1977 to 2011, according to the Census Bureau. By other measures — as a share of all businesses or relative to the size of the working-age population — it has fallen in half."


There are many articles and research showing a decline in the startup of small entities which do most of the hiring. The main reasons are the inability to access capital due to the "Sarbanes Oxley" and "Dodd Frank” laws.  Also outrageous regulations, higher taxes (which lowers drastically the marginally rate of return on capital to Angel Investors), and now the ACA (Obamacare) increase in health insurance premiums which is effectively a new health care tax.


Many other problems exist to inhibit new businesses and hiring new workers. Naturally big business is for these laws as it lowers competition from smaller, more nimble companies.


As for the recent job growth numbers: if you assume they are true (i.e. not fudged), a great deal of the growth is likely due to seasonal adjustments and to the decline in gas prices.  Retailers believe more money will be spent because of that, and are stocking their shelves for a better holiday season.


As the ACA mandates health insurance for employees working 30 hours or more per week, many employees hire part time workers.  Therefore, many have to get two jobs and pay for their own health insurance.


As a result, many people are opting out of health insurance as the rates are rising and choosing to spend the premiums on other more satisfying products and still use the "emergency room" as a backup. So things look better than they really are in the short run, in my view.


The additional cause of the plight of average worker is well stated by David Stockman in a blog post:


"While ZIRP and QE encourages waves of excess speculation and malinvestment, it does so at the expense of investment in labor. Businesses become speculators in their own stocks and products rather than in costly and uncertain investments in labor. The value of labor falls in the marketplace. Mass incomes fall. Consumption falls.  Demand trends weaken, putting downward pressure on the prices of consumption goods. That causes a vicious cycle in business where executives perpetually look for ways to shrink costs, exacerbating the economic decline of middle class working people. The “middle class” can increasingly no longer afford to buy the products of those who employ them. Thus we get the spectacle of things like Wal-Mart holding charity food drives to benefit its workers, who don’t make enough money to feed their families."


The people in the U.S. have been conned on many passed laws from both parties. Unless freedom is restored in lieu of bribery as de Tocqueville forecast, and people cause change as Jefferson demonstrates, the US workers will continue to suffer the loss of their liberty and there destiny.


In the mind of a Statist, as in today's politicians, we turn to the best mind for tactical Communism Mr. Vladimir Lenin who put it this way: "It is true that liberty is precious; so precious that it must be carefully rationed."


In my view the U.S. government has obtained control of the people by passing law after law that puts less money in their pocket, discourages business formation and does little or nothing to increase real economic growth.


Till next time......


The Curmudgeon


Follow the Curmudgeon on Twitter @ajwdct247

Curmudgeon is a retired investment professional.  He has been involved in financial markets since 1968 (yes, he cut his teeth on the 1968-1974 bear market), became an SEC Registered Investment Advisor in 1995, and received the Chartered Financial Analyst designation from AIMR (now CFA Institute) in 1996.  He managed hedged equity and alternative (non-correlated) investment accounts for clients from 1992-2005.

Victor Sperandeo is a historian, economist and financial innovator who has re-invented himself and the companies he's owned (since 1971) to profit in the ever changing and arcane world of markets, economies and government policies.  Victor started his Wall Street career in 1966 and began trading for a living in 1968. As President and CEO of Alpha Financial Technologies LLC, Sperandeo oversees the firm's research and development platform, which is used to create innovative solutions for different futures markets, risk parameters and other factors.

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