04 December 2009

November Non-Farm Payroll Report - It's Alive!

It's Alive! Well, Ben at least made the frog jump in response to repeated jolts of the dollar electric.

As you may have already heard, the US Non-Farm Payrolls Report for November came in better than expected with a loss of only 11,000 jobs, as compared to expectations of a loss of 111,000. And on cue, right after the Jobs Summit. The One is in Pennsylvania today claiming Economic Mission Accomplished. Now that's entertainment!

The economy has responded to Ben's monetary lightning. It has moved after an expansion of the monetary base that has not been seen since the early stage Great Depression, and a dollar devaluation which is still working its way through the system.

More importantly this sets the trend that the government wishes to sustain. Remember, we are not adding jobs, and especially permanent jobs that pay a solid living wage; we are losing jobs less quickly, and adding back marginal and temporary jobs for manufacturing jobs that continue to bleed out.

But for now that is enough for the markets it appears.

Most importantly it creates a definite bottom in the long term jobs trend.

The imaginary jobs report, aka the BLS Birth Death Model, is ticking along as a 'plug' in the numbers without a corresponding reaction to the underlying economy. The number did have an inordinate impact this month of November because of the slight seasonal adjustment. As you know the Birth Death model is added to the raw number prior to seasonality.

This chart makes the trends clear, but also shows the convergence between the raw and adjusted numbers in November. This is divergence is going to become a yawning gap as the BLS adjusts for seasonal hiring. There is a lot of temporary hiring for the holiday season in the US, and these jobs are eliminated in January. So the BLS adjusts the raw number significantly higher.

The improvement in the unemployment rate was largely due to people dropping off the radar of the government as their benefits run out. You can see this if you look at their estimate of the population of available workers. The number is shrinking, and the people drop into the 'discouraged' category.

This is revealed by what is called the "Labor Participation Rate." It dropped in November from 65.1% to 65%. Less people are working against a more stable measure of the population, civilian workers over the age of 16 that have not disappeared, at least as far as the government is concerned.

The question now is sustainability. The Fed and Treasury have jolted the corpse of the US economy back into a semblance of life. But can it sustain itself without a continuing printing of money to the point of hyperinflation?

Watch the median wage, and the actual spending numbers. This will tell us if the monster has a pulse of its own, and can be taken off the Fed's lightning. And if it is, what is it most likely to do once it gains momentum?

Deflation is rather unlikely unless there is an exogenous shock or a major policy error of tightening rates too quickly, almost deliberately. As this would be economic suicide we assume Ben will not jump off the ledge.

We also assume this will help Ben's nomination for a second term. And will make it highly difficult for Obama to wring another stimulus out of the Congress.

But, has the Bernanke Fed discovered the means to permanent prosperity for all? Is it enough to print money and through it from helicopters, if even to only a select few corporations? What are the unintended consequences yet to emerge?

The stage is being set for stagflation, if not a hyperinflation as John Williams puts forward fairly well in his latest special report from 2 December. We are still skeptical of that outcome.