Post by Moses on Mar 19, 2004 12:57:53 GMT -5
The closer you look at the numbers, the more you realize unemployment is higher than the headlines tell you. And despite what the experts say, inflation is out there, and we’re feeling it already.
By Bill Fleckenstein
Given my contention over the last year that our economic "recovery" would not be self-sustaining -- because it would be incapable of generating jobs -- I'd like to spend a minute on the February employment report. This report, released March 5, is the third consecutive employment report that has disappointed nearly everyone. And it puts an exclamation point behind the idea that we are not creating jobs in this country.
A look under the hood is not pretty
In fact, if you take a peek beneath the surface of the employment report, it's far worse than the headline number. (The supporting data are available here.) Using the seasonally adjusted total unemployment rate of 5.6% and adding to it "discouraged" workers, the rate grows to 5.9%. Factor in other groups of people who are underutilized in the work force, you can ratchet the number all the way up to 9.6%. And, for the sake of comprehensiveness, if you use the non-seasonally adjusted numbers, that rate would swell to 10.9%. So, those are the numbers, and I'll leave readers to draw their own conclusions.
(See table of unemployment figures in separate post)
The inescapable conclusions for me, therefore, are:
What's particularly scary is how pathetic job growth has been, despite all the interest-rate cuts (nominal rates are near zero, and real rates are essentially below zero), the two Bush tax cuts and now the refunds from the last cut. Despite it all, we still can't get enough jobs created.
Of course, we're not creating jobs, not just because of outsourcing (which is an issue) but due to the real problem -- the core of what's behind much of our troubles today. That’s the misallocation of capital that occurred in the late 1990s mania, and the response to it. That has created wild times in housing and drunkenness in borrowing.
The Fed's inflation awareness: running on empty
Speaking of the body that's landed us in this predicament, it is remarkable to watch the Federal Reserve governors still fret about deflation. I guess they haven't pulled up to the gas pump lately on their way to work. Or read this recent Wall Street Journal story, "Companies Fight Rising Steel Prices." It illustrates how a declining currency winds up costing you money in ways that may surprise you.
As a lead-in to the story, let me state the obvious: While America's central bankers discuss falling prices, America's consumers are dealing with exactly the opposite problem. Apparently, the "experts" have forgotten that it takes a while for price increases to penetrate the inflation indices in a major way. Prices are already up in many areas, and this only portends more inflation in the immediate future.
Now to share a few useful observations from the article, in the name of provoking thought: "Indeed, a handful of companies -- among them makers of mattresses and gym equipment -- already have or are preparing to ask shoppers to pay more to cover their rising steel costs. But most other manufacturers are trying to push steel-price jumps of up to 30% to 50% to other companies along the supply chain, creating tension between steel producers, their biggest customers and numerous smaller suppliers between them."
The story notes that a declining currency (the real culprit) takes money out of your wallet, even if you don't buy high-end European goods: "With the weak dollar discouraging imported steel, steelmakers have successfully passed on price increases to many of their customers."
And that's how it works. This is a global environment, as everyone is so fond of saying. When foreigners' prices go up, domestic manufacturers can raise their prices, just like the steel companies are doing.
It's been a long time since we've had to grapple with any serious inflation problems. Mostly, we've seen garden-variety 3% to 4% inflation, though the government and the Fed claim it's been less. It sure <i>feels</i> higher than that. I don't pretend to know exactly what the real rate is, but it's not the government's headline number. In any case, while some middlemen have absorbed price hikes, as the Journal story notes, it's important to understand that going forward, we'll see less absorbed and more passed on to us.
See his examples of this in his article
Housing and Mortgage Bankers
....I am just shocked at the aggressive trolling that finance companies are doing to try to get people to take out money against their houses, or to buy houses. I think the credit structure in this country is as bad as it's ever been -- by some huge factor. That, of course, doesn't mean that something bad is about to happen. But if something bad does happen, it could get really ugly, and fast.
More detail about these concerns in his article
Bill Fleckenstein is president of Fleckenstein Capital, which manages a hedge fund based in Seattle. He also writes a daily Market Rap column on his Fleckensteincapital.com site.
By Bill Fleckenstein
Given my contention over the last year that our economic "recovery" would not be self-sustaining -- because it would be incapable of generating jobs -- I'd like to spend a minute on the February employment report. This report, released March 5, is the third consecutive employment report that has disappointed nearly everyone. And it puts an exclamation point behind the idea that we are not creating jobs in this country.
A look under the hood is not pretty
In fact, if you take a peek beneath the surface of the employment report, it's far worse than the headline number. (The supporting data are available here.) Using the seasonally adjusted total unemployment rate of 5.6% and adding to it "discouraged" workers, the rate grows to 5.9%. Factor in other groups of people who are underutilized in the work force, you can ratchet the number all the way up to 9.6%. And, for the sake of comprehensiveness, if you use the non-seasonally adjusted numbers, that rate would swell to 10.9%. So, those are the numbers, and I'll leave readers to draw their own conclusions.
(See table of unemployment figures in separate post)
The inescapable conclusions for me, therefore, are:
- True unemployment in this country is not 5.6% but something a fair bit higher.
- There are many people who are under-employed.
- There’s a big block of people who have given up.
What's particularly scary is how pathetic job growth has been, despite all the interest-rate cuts (nominal rates are near zero, and real rates are essentially below zero), the two Bush tax cuts and now the refunds from the last cut. Despite it all, we still can't get enough jobs created.
Of course, we're not creating jobs, not just because of outsourcing (which is an issue) but due to the real problem -- the core of what's behind much of our troubles today. That’s the misallocation of capital that occurred in the late 1990s mania, and the response to it. That has created wild times in housing and drunkenness in borrowing.
The Fed's inflation awareness: running on empty
Speaking of the body that's landed us in this predicament, it is remarkable to watch the Federal Reserve governors still fret about deflation. I guess they haven't pulled up to the gas pump lately on their way to work. Or read this recent Wall Street Journal story, "Companies Fight Rising Steel Prices." It illustrates how a declining currency winds up costing you money in ways that may surprise you.
As a lead-in to the story, let me state the obvious: While America's central bankers discuss falling prices, America's consumers are dealing with exactly the opposite problem. Apparently, the "experts" have forgotten that it takes a while for price increases to penetrate the inflation indices in a major way. Prices are already up in many areas, and this only portends more inflation in the immediate future.
Now to share a few useful observations from the article, in the name of provoking thought: "Indeed, a handful of companies -- among them makers of mattresses and gym equipment -- already have or are preparing to ask shoppers to pay more to cover their rising steel costs. But most other manufacturers are trying to push steel-price jumps of up to 30% to 50% to other companies along the supply chain, creating tension between steel producers, their biggest customers and numerous smaller suppliers between them."
The story notes that a declining currency (the real culprit) takes money out of your wallet, even if you don't buy high-end European goods: "With the weak dollar discouraging imported steel, steelmakers have successfully passed on price increases to many of their customers."
And that's how it works. This is a global environment, as everyone is so fond of saying. When foreigners' prices go up, domestic manufacturers can raise their prices, just like the steel companies are doing.
It's been a long time since we've had to grapple with any serious inflation problems. Mostly, we've seen garden-variety 3% to 4% inflation, though the government and the Fed claim it's been less. It sure <i>feels</i> higher than that. I don't pretend to know exactly what the real rate is, but it's not the government's headline number. In any case, while some middlemen have absorbed price hikes, as the Journal story notes, it's important to understand that going forward, we'll see less absorbed and more passed on to us.
See his examples of this in his article
Housing and Mortgage Bankers
....I am just shocked at the aggressive trolling that finance companies are doing to try to get people to take out money against their houses, or to buy houses. I think the credit structure in this country is as bad as it's ever been -- by some huge factor. That, of course, doesn't mean that something bad is about to happen. But if something bad does happen, it could get really ugly, and fast.
More detail about these concerns in his article
Bill Fleckenstein is president of Fleckenstein Capital, which manages a hedge fund based in Seattle. He also writes a daily Market Rap column on his Fleckensteincapital.com site.