Employment rolls expand by 257,000 in January
The Labor Department’s employment report is a lagging indicator. It shows what we already should know—that economic activity has recently been expanding or declining. Aggregate employment and aggregate economic activity are almost perfectly correlated, but the evidence for employment gains takes longer to reach us than for GDP gains; if economic activity has been increasing, i.e., if GDP has been going up, then employment will almost always have also been going up, though the indications of rising GDP generally precede those of rising employment. It takes longer to report the hiring of an employee than to report the sale of a widget.
The 257,000 number is a decline from November and December’s numbers, which were 423,000 and 329,000, respectively, after revisions. Though it would never be spun in such a manner on the long-only news outlets (Bloomberg, The Wall Street Journal, i.e., basically any mainstream business media), the numbers point to a declining level of gains. From November’s 423,000 to December’s 329,000 is a drop of 94,000, or about a 22% reduction in monthly gains. From December’s 329,000 to January’s 257,000 is a drop of 72,000, also a 22% reduction in additional jobs. If the trend of dropping about 22% each month continues, the gains to employment in February will barely tip 200,000, which is a perfectly meaningless observation to make, except that it does a fine job of helping flip the idea that January’s numbers were great on its ear. Employment gains will turn negative by the end of the year if current trends continue.
The unemployment rate increased an insignificant amount, by .1%, to 5.7% from 5.6%, due, as the long-only news outlets put it, to people being encouraged to look for work because of the strengthening employment picture. Of course, nobody knows why unemployment ticked up. More plausibly, and Occam’s Razorishly, it had to do with the failure of the expanding job market to accommodate the labor pool growth. Through immigration and indigenous population growth, there are about 300,000 or so people added to the pool of potential laborers each month. If the number of jobs doesn’t expand by about that much, the unemployment rate is apt to climb, presuming that a significant proportion of the new entrants to the labor pool desire work.
Three deeply conflicted government economic prognosticators agree—2015 and on will be just great.
2015 starts off with a forecast sure to send shivers down even the most difficult-to-spook investors. Like a triple witch’s curse, all three government economic forecasters predict that happy days are here again, with the White House, Congressional Budget Office and Federal Reserve predicting that the US economy will keep growing above a 3% rate indefinitely, while unemployment will shortly decline to at or below 5% and stay there.
I believe they are mainly correct about the remainder of this year, unless some fat-tail geopolitical event, like Russia moving to bring East Germany back into its fold (true headline), whipsaws things. My guess is that things will peak by mid-year unless world growth (particularly China) picks back up. Then things won’t get much worse for awhile, but they won’t get any better. Unemployment will hit about 5% and stall its improvement. Unemployment is at about 5.6% right now, and GDP grew by about 2.5% in 2014.
If things are to get better and better as the government oracles predict, some of the economic stats, like durable goods orders last week, or manufacturing growth this week, had better decide to play along.
US manufacturing growth slowed the most in a year; Chinese manufacturing contracted
The Institute for Supply Management’s manufacturing index fell to 53.5 last month for the US, from December’s 55.1. Anything above 50 indicates growth.
HSBC’s purchasing managers index for China was indicating contraction again last month, at 49.7, up slightly from December’s 49.6. As with the US manufacturing index, anything above 50 is considered expansion, anything below is contraction. Thus Chinese manufacturing has gone much further than slow its explosive growth; over the last two months it has actually contracted. Which explains a good deal about the commodities slump. The official report of the Chinese Federation of Logistics and Purchasing, a state-sanctioned report that focuses more on state owned and operated enterprises, showed manufacturing activity fell to a 28 month low in January. China’s GDP grew at only 7.4% last year, the slowest in a quarter century.
It seems to me that the question of whether the government’s Panglossian forecasts will prove true or not depends on whether China has the depression that it is due for, and it is well overdue for a depression given its moment in the developmental cycle, or if it sloughs off the troubles and goes back to minting millionaires from former PRC Communist Party peasants.
Consumer spending declines by most since 2009, along with consumer price rises as muted as in 2009
Consumer spending declined in December by 0.3 %, which was the biggest decline since September of 2009, and came off relatively huge gains of 0.5% in November and 0.3% in October.
The Fed’s favorite index of consumer prices, the Personal Consumption Expenditures index, showed gains for last year of only 0.7%, the slowest rate of gain since October of 2009. Excluding volatile food and energy prices, prices were unchanged for the second straight month.
Of course, there is more than just a correlation between consumer prices barely increasing or not at all, and consumer spending declining. If the overall price level declines, then the overall spending level will decline with it, ceteris paribus. If a hundred gallons of gas that was consumed monthly goes from $4/gallon to $2/gallon, but the same quantity of gas must be purchased, it will appear as if the quantity of consumer demand has declined by half, when no such thing has occurred. It is a sometimes tricky thing to tease the value of money from the value of the goods and services it is intended to represent, particularly in a regime of freely floating exchange rates. Of course it is this same trickiness upon which the Fed depends for creating its monetary illusions.
Factory orders fall for the fifth straight month
Factory orders fell in December by 3.4%, helping make business spending on equipment the weakest since mid-2009. Orders fell in December after having fallen a revised 1.7% in November.
Passenger vehicle sales hit new highs
The domestic US vehicle market is expected to show sales in January that increased about 8.5% by number of cars sold. If the numbers hold for the year, the sales pace will be the best in ten years. Toyota, GM, Ford and Chrysler all had double-digit sales increases.
China loosens the monetary reins
The People’s Bank of China announced it would lower its reserve ratio by 0.5 %, bring the ratio down to 19.5% for most banks, while some rural banks will get bigger reductions. The reserve ratio is the percentage of deposited money that banks must keep on hand in order to meet withdrawal demand. By reducing the ratio, more money is made available for making loans. The PBOC expects at least four more cuts in 2015 in an attempt to spur activity in an economy whose growth is rapidly slowing. China is mired in a deep deflation, with prices declining in December by 3.3% over the year earlier period, the 34th straight month of price declines. If this were happening in the US, the Fed Reserve would be in a panic.
Thus is China the latest combatant to join the currency war fray. Loosening monetary policy domestically tends to decrease the value of a currency internationally. In truth, the deflationary spiral which China has entered and is trying to combat with its loosening monetary policy is its own fault for having tried to neutralize the monetary effects of the massive trade surpluses it has had with US for decades. Throughout the eighties, nineties, and early 2000’s, the Chinese yuan either declined in value or stayed the same relative to the US dollar (China’s official peg was above 8 yuan/dollar from 1995 to 2005, after having declined in value from about 1 yuan per dollar in the early eighties), which is precisely the opposite of what the economic tides wished for it to do. Massive misallocations of capital ensued, in China with the building of ghost towns; in the US with the building of ghost suburbs.
Trade surpluses are most naturally resolved through currency fluctuations, where the surplus country’s currency appreciates in value relative to the country with a deficit. China refused to allow its currency to appreciate, presumably so that it could capture more of the gains from trade for itself. It is now paying the price. The economic tides can’t be denied, only sometimes temporarily delayed or deflected. Deflation delayed is not deflation denied. The Chinese relented in their currency peg and allowed the yuan to decline a bit in the middle part of the 21st century’s first decade, but it has been too little, too late.
Now, with the latest loosening of monetary policy, China will likely see a further increase in borrowing, which was already at record levels for the 2009-2013 period, as China tried to mitigate the effects of the international financial crisis.
There is no way to tell by exactly what magnitude, but China’s slowdown has got to be at least partially responsible for the glut of oil that caused the crash in oil prices. China had been growing so rapidly before that world oil producers could safely assume any excess supply would be quickly mopped up to fuel China’s burgeoning love affair with the car. Not so fast. Growth rates of the sort China has experienced are simply not sustainable, and so long as they continue past the point of viability, production overshoots demand. Economic contraction ultimately ensues, which can be either mild or severe, depending on how far supply outpaced demand. Falling prices, which China has experienced for almost three years, closely correlate to demand contraction and/or money supply contraction.
And Now, News from the social cesspool
Another China story
Two cult members in China were executed for their role in the beating death of a young woman at a McDonald’s restaurant. The two were members of something called the Church of Almighty God, a Christian cult with the quite odd view that Christ came back to earth as a Chinese peasant woman who will save its followers from the apocalypse. The cult pledges to slay the “Great Red Dragon”, an allusion to the Chinese Communist Party, which has held the reins of power in China for sixty-five years. The CCP began cracking down on the cult after this latest incident.
The woman was beaten after refusing the advances of a mob of about thirty or so of the cult members gathered at the restaurant to recruit members.
News from Portlandia
Strippers in Oregon are demanding better working conditions. And it’s fairly clear that a Yahoo! Report on the matter didn’t intend to be humorous, but still was, from the report:
Around the country, strippers have stepped up their fight for better working conditions. Some are suing. Others have filed complaints with state regulators. A handful have unionized. But the effort in Oregon to work directly with the Legislature — with the support of lobbyists — is unique.
Did they really say that it was unique to Oregon that strippers work with lobbyists and legislatures? Everyone knows that strippers and lobbyists go together like pimps and crack ho’s.
Ideally, they want to see strip clubs comply with mandatory health and safety standards — clean stages, structurally sound poles, adequate security. But that could be a tough sell in the Legislature.
It surely sucks when a stripper slithers around a structurally unsound pole. But is a pole even a necessary accouterment for stripping? Can’t you just take your clothes off? Seductively, I mean. Not like you’re going to bed to sleep, but for something else.
And from The New York Times, the international oracle of the gender confused, a glossary of terms used to refer to gender orientation, something every high –priced human resources professional at a too-big-to-fail bank should know:
SEX Classification as male or female or, rarely, intersex (not exclusively male or female). Sex is usually assigned based on external anatomy but is determined by characteristics like chromosomes, hormones and reproductive organs.
GENDER Roles, behaviors and activities that a given society considers appropriate for males or females. “Sex” and “gender” are often mistakenly used interchangeably.
GENDER IDENTITY Internal, deeply held sense of one’s gender.
GENDER NONCONFORMING Expressing gender outside of conventions (clothes, behavior) typically associated with masculinity or femininity. Not all nonconformists are transgender.
TRANSGENDER Umbrella term for any gender identity that differs from the one associated with the sex assigned at birth.
TRANS* Short for transgender, with the asterisk meant to indicate the wide range of identities beyond the norm.
GENDERQUEER A gender identity that falls outside of the male/female binary. A third gender.
PANGENDER Having a fluid identity. Might be expressed as both male and female, or shift from one gender to the other. Under the umbrella term genderqueer.
CISGENDER Possessing the gender identity commonly associated with one’s biological sex. “Cis-” is a Latin prefix meaning “on the same side as.”
TRANNSEXUAL Out-of-favor term for those who alter their bodies hormonally or surgically to align with their internal gender identity.
SEXUAL ORIENTATION Romantic, physical attraction, be it homosexual, heterosexual, bisexual, asexual, polysexual, pansexual.
Whether you are genderqueer or pangender (the latter being a subset of the former) or just a boring old cisgender, just be comforted in the knowledge that your gender orientation is really only important to you and to whomever is the object of your desire. Please don’t parade down the street informing me of which gender identity is yours and which you find desirable. Neither I nor anyone else cares.
Widespread acceptance of the notion that there are multiple (beyond two) gender identities says something about the culture, perhaps that life is too easy for sanity to prevail. There is a direct and positive correlation between cultural wealth and cultural stupidity and psychoses. We have got, therefore, to be stupendously wealthy.