Friday, June 7, 2013

What Barry Said

I've been reading Barry's blog for almost 10 years (dear God, has it been that long)?  Agree or disagree I always find his points well thought out and very well presented.  Today he makes a few very important points that should be repeated:

As we have discussed so very frequently, the monthly change in net jobs is the most over-emphasized, least important highly questionable data point you will find. NFP is a minor monthly rounding error a series subject to the oscillations of both the economy and the data assembly work performed by legions of BLS economists and statistical wonks. It is subject to corrections, revisions and re-benchmarking. It is produced by a model, as so astutely observed by Professor Box, that is wrong. However, it would be foolish not to recognize that the BLS model can be to the intelligent observer who understand context, quite useful.

OK -- I disagree with the birth/death model argument, but that's beside the point.  The monthly NFP data point -- and all of the hoopla that surrounds it in various forms -- is pure bullshit.  The numbers are revised on more than one occasion -- in some cases majorly so.  As I pointed out previously, the best employment model now is from the Atlanta Fed's Macroblog that highlights the very complex nature of this element of the economy.  It notes that employment is comprised of four different sets of statistics: leading indicators, employer behavior, overall confidence and utilization.  While leading indicators are doing well, all other metrics are in weak to moderately weak readings. Employers just aren't making the hires right now despite an increase in job openings advertisements and positions.  And our utilization is terrible.   And it is those readings that explain the basic problems of the jobs market right now. 

There are two more points that should be reiterated:

1) This is a post-credit crisis recovery which is progressing via a gradual improvement in balance sheets (a “beautiful de-leveraging” to quote Dalio), sub-par GDP growth, anemic job creation.

2) Secular changes in employment — huge improvements in productivity, baby boomers retiring, globalization — have all impacted the overall employment trends, mostly with a negative bias.

The first point has been made here ad nauseum -- but it needs to be repeated because there are a host of economic "commentators" who are, well, dumber than a post.  They continue to treat this recovery like a standard, "raise interest rates to slow inflation" recovery when in fact it's not.  Given the general economic backdrop, the economy is actually doing fairly well.

Also note that changes in US demography, business practices and overall globalization are having a tremendous impact.  Case in point.  Yesterday I had a late afternoon appointment, but thanks to my trusty I-Phone I was able to move two separate deals forward via text, email an phone.  This increase in productivity is economy wide and is lowering the need for labor in a big way.  Also to be considered as no small force is the retirement of the baby-boomers which is lowering overall workplace participation.

Let me add a further point.

4.) If some "analysts" are dumber than a post, Washington is proof positive that the lobotomy industry is alive and well somewhere on the east coast.

The fact that we're in the middle of a sequester with a decreasing deficit and 7%+ unemployment is beyond stupid.  When was the last time you heard anyone in Congress or the executive branch talk about the U6 unemployment rate, or the fact that we clearly have an employment problem in the US?  Me neither.  'Nuff said.

Anyway -- thanks to Barry for providing some great analysis over the years.