Gallup Poll Corroborates Higher Unemployment

http://www.cnbc.com/id/35535193

A Gallup poll released this morning corroborates the calculation of unemployment that I’ve been using and publishing since the beginning of the recession – that unemployment and underemployment are closer to 20%, as opposed to the official government figure of 16.5%. 

In findings that appear to paint a darker employment picture than official U.S. data, Gallup estimated that about 30 million Americans are underemployed, meaning either jobless or able to find only part-time work.

… The poll’s estimate of U.S. underemployment is higher than official statistics. The Labor Department says 16.5 percent of American workers were without employment or worked part-time for economic reasons in January against Gallup’s 19.9 percent.

… Gallup surveyed more than 20,000 U.S. adults from Jan. 2 to 31. The results have a 1 percentage point margin of error.

My own calculation of underemployment, which the Labor Department calls “U6,” is 20.8% – within the Gallup poll margin of error.  My calculation holds the labor force at a fixed percentage of the population, as opposed to the government method of assuming that the unemployed can simply drop out of the labor force at a time when employment is most desperately needed – a tactic employed every time the economy sinks into recession in a bid to prop up consumer confidence. 

Here’s my calculation again, along with a chart of the results:

Unemployment Chart

Unemployment Calculation

With weekly first-time jobless claims continuing to run in the 450-500,000 range, it’s not likely that we’ll see any meaningful improvement in unemployment, at least not real unemployment – the kind the government doesn’t report.

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513 Million Americans by 2123

It’s been a while since I’ve updated my quarterly chart of the U.S. population growth rate.  Here it is.  (Source:  U.S. Census Bureau)

Quarterly US Pop Growth Rate

As you can see, the saw-tooth pattern of the growth rate, likely due to seasonal variation in immigration patterns, has (unfortunately) continued under the Obama administration. 

The good news is that the rate of population growth is slowly declining at a linear rate.  (See the trend line on the chart.)  The bad news is that the rate of decline is so slow that, if it continues at the same linear rate, the U.S. population will finally peak at just over 513 million people around the year 2123 – 113 years from now. 

This is the world our great-grandchildren will inherit – a country with two thirds more people than we have today – double the population of 1993.  There will be 111 million additional workers competing for jobs.  Unemployment will routinely be above 10%, even in the best of times.  There will be 205 million additional energy consumers.  205 million more people flocking to the parks and beaches.  205 million more commuters packing onto our roads. 

What will it feel like?  Well, imagine taking everyone who lives west of the Mississippi (including Hawaii and Alaska) and then forcing them to move east of the Mississippi.  In addition, take two thirds of the entire population of Canada and move them to the U.S. east of the Mississippi River too.  Now, imagine what life would be like if you’re someone living in the eastern U.S.  That’s exactly what life will be like for all Americans in a little over a hundred years. 

If this isn’t the kind of future you envision for your great-grandchildren, then call or write you congressmen today to express your concern about our out-of-control rate of both legal and illegal immigration.

Some Good News Buried in Bad December Trade Deficit

http://www.census.gov/foreign-trade/Press-Release/current_press_release/ft900.pdf

The foreign trade division of the Census Bureau released the December trade figures this morning.  Defying analyst expectations for a small decline in the trade deficit, it soared by over 10% from $36.4 billion in November to $40.2 billion in December.  A $4.6 billion rise in exports was swamped by an $8.4 billion rise in imports.  The goods deficit rose by $3.4 billion while the services surplus shrank by $0.4 billion.

Petroleum products accounted for all of the increase in the goods deficit and then some, with the petroleum deficit rising by $3.6 billion.   The trade deficit in the following categories of goods also worsened by the amount indicated:

• Food, feed and beverages:  -$0.5 billion
• Vehicles & parts:  -$0.7 billion

The trade deficit in the following categories of goods improved by the amount indicated:

• Industrial supplies, except petroleum:  +$0.9 billion
• Consumer goods:  +$0.3 billion
• Capital goods (industrial machinery & equipment):  +$0.2 billion
• Other goods:  +$0.03 billion

So, aside from petroleum products, the overall balance of trade in goods improved by $0.2 billion. 

The following is a chart of the trade data:

U.S. Trade Deficit

The following is a chart of the trade data as a percentage of real per capita GDP:

Trade Deficit as % of Real PC GDP

As you can see, although the overall trade deficit is getting worse, thanks largely to oil, the trade deficit in non-petroleum goods actually improved slightly in December, with a rise in exports slightly out-pacing a rise in imports.  This is a glimmer of good news, but it’s too early to read much into it. 

The trade deficit with the following selected nations worsened by the indicated amount:

• Canada:  -$1.5 billion
• Venezuela:  -$0.5 billion
• Ireland:  -$0.5 billion
• Nigeria:  -$0.1 billion
• Mexico:  -$0.1 billion

The worsening in the deficit in all of the above except Ireland can be attributed to oil.

The trade deficit with the following selected nations improved as indicated:

• China:  +$2.1 billion
• Japan:  +$0.8 billion
• Saudi Arabia:  +$0.5 billion
• Germany:  +$0.3 billion
• South Korea:  +$0.1 billion

This is very good news because, with the exception of Saudi Arabia, the above countries have accounted for the worst of our trade deficit in non-petroleum goods.  Is it possible that the rest of the world is actually making an effort at cutting their reliance on exports to the U.S.?  I’m skeptical.  One month does not a trend make.  But it’s a step in the right direction.  Time will tell.

January Unemployment Report Just Weird

This morning the Bureau of Labor Statistics released one of the weirdest unemployment reports you’ll ever see.  As reported by the BLS, non-farm payrolls fell by 20,000 jobs.  Yet, unemployment fell dramatically, from 10.0 to 9.7%.  With the labor force growing by nearly 150,000 per month, a loss of 20,000 jobs should have driven the unemployment rate up by 0.1%.

And that’s not even the weird part.  What’s weird is that, while the non-farm payrolls fell by 20,000, total employment grew by 541,000.  That means that farm employment exploded.  In January?!?!?  Hardly seems plausible.  Making it even more unlikely is that weekly jobless claims continued to run at a high level throughout Janaury, a rate that should have unemployment rising by 0.5% for the month.  Then, if that wasn’t weird enough, they cut non-farm payrolls by approximately one million going back to March of 2009.  Did they discover that the Bush administration had been padding the figures?  Or are they setting the stage to make any rebound in jobs look that much bigger? 

The reason that the unemployment figure came in so much lower than everyone expected, I believe, is because the data is seasonally adjusted.  January is typically a month when retailers lay off a lot of seasonal employees.  So if, in a month when payrolls typically decline by 500,000, they only decline by 250,000 (because they never hired as many seasonal workers in the first place), then seasonally adjusted that’s a gain in employment of 250,000.  I can’t prove it, because the BLS doesn’t make the unadjusted data available. 

No one, including the Obama administration, really believes this month’s report.  Obama’s proposed budget for next year, based on optimistic projections for the economy, only projected unemployment falling to 9.8% by the end of the year.  Now it’s already at 9.7%?  Not likely.

The following is my calculation of unemployment which, since it uses the same government data (what else can I use?), also shows similar declines in unemployment. 

Unemployment Calculation

And here’s the same data in graphical format:

Unemployment Chart

We’ll get a better read on the employment situation next month when the seasonal factors aren’t such an issue.

Is the U.S. a Piglet?

There’s been lots of concern about sovereign debt in Europe this week, centered on four nations now dubbed the “PIGS”:  Portugal, Ireland, Greece and Spain.  I suppose the “PIGS” acronym is a metaphor for their appetite for debt. 

I thought it might be interesting to take a look at a few key economic indicators for these countries and see how the U.S. stacks up against them.  The following spreadsheet compares their balance of trade per capita, their national debt per capita and their national debt as a percentage of GDP.  (National debt includes both public debt – that held by its citizens – and external debt – held by foreign investors.)  I’ve included the national debt per capita because, although economists are fond of expressing national debt as a percentage of GDP, it must be remembered that it’s not the GDP that will ultimately have to repay the debt; it’s the people.

PIGS

As you can see, Ireland is a bit of an anomaly.  Although it has an enormous trade surplus, the highest in the world, it also has the worst national debt problem by far, at 1400% of GDP, or almost $595,000 per person in Ireland.  I can’t explain Ireland’s predicament, but it makes me wonder whether Ireland’s staggering trade surplus has been an orchestrated plan by the rest of the world to provide Ireland a way out of their fiscal problems.

That leaves Portugal, Greece and Spain.  All three have very large trade deficits per capita.  The U.S. isn’t far behind. 

All three have national debts that are near or above 300% of GDP.  By that measure, the U.S. has a ways to go.  But in per capita terms, the U.S. is on a par with Portugal.

So is the U.S. a “piglet?”  Though not at the same level of concern about the potential for default by the “PIGS,” concern about America’s debt is higher than ever.  Ratings agencies are threatening to beginning cutting our credit rating if the debt problem isn’t addressed soon.  Perhaps the only thing that makes U.S. debt a “safe haven” is that everyone knows that, unlike the “PIGS,” the U.S. can simply print money to pay its obligations if all else fails.  But that strategy would not be without serious risk to the U.S. economy. 

Let’s hope the trough runs empty before we can baloon to “PIG” status.

Weekly Jobless Claims “Unexpectedly”(?) Rise Again

http://www.reuters.com/article/idUSN1416882220100204

Weekly first-time jobless claims rose yet again last week, and the 4-week moving average has now risen for three straight weeks.  This was “unexpected” for analysts, but not unexpected for anyone who understands that the root cause of our economic problems has yet to be addressed. 

The number of workers filing new applications for jobless benefits unexpectedly rose last week, according to a government report on Thursday that pointed to a labor market still under stress even as the economy grows.Initial claims for state unemployment benefits increased 8,000 to a seasonally adjusted 480,000 in the week ended January 30, the Labor Department said.

Analysts polled by Reuters had forecast claims falling to 460,000 from a previously reported 470,000.

The much-ballyhooed recovery (the rise in GDP being the only evidence) is an illusion and the economy is quickly sinking back into recession.  (Although, if economists were honest, they’d admit that it never ended.)

Enforcing Flawed Trade Deals

http://www.reuters.com/article/idUSTRE6131YM20100204

No sooner do I announce plans to scale back on posting articles when along comes something I can’t resist.  The above-linked Reuters article reports on an announcement by Commerce Secretary Gary Locke of plans to boost enforcement of trade deals in an effort to achieve Obama’s promised doubling of exports in five years.   There are a couple of key points that need to be made here. 

First of all, I have spent virtually my whole adult life listening to presidents, Commerce secretaries and U.S. Trade Representatives vowing to get tough on trade deal enforcement.  This effort will turn out no differently.  If anything, exporting nations are relieved to have the focus drawn away from the import side of the equation.

Secondly, the following passage from the article can’t pass without comment:

“While the U.S. is a major exporter, we are underperforming,” Locke said in the excerpts given to reporters. “U.S. exports as a percentage of GDP are still well below nearly all of our major economic competitors.”

The competitors Locke speaks of are primarily China, Japan and Germany.  Back in early November, Obama challenged his economic team with the question, “If Germany can build an economy on exports, why can’t we?”  (See Obama on Trade: “If Germany can do it, why can’t we?”.)  America is not “underperforming.”  It’s not about “competing.”  The problem is that the field of economics doesn’t yet recognize or understand the role of population density disparities in driving global trade imbalances.  Boosting our exports means that nations like China, Japan and Germany have to boost their imports – their domestic consumption.  If they were capable of such domestic consumption, they wouldn’t have the need to export so much in the first place, nor would they have the excess production capacity to do so. 

I don’t doubt the president’s sincerity.  Every president for the past 30 years has understood the need to restore a balance of trade.  But Obama is the first post-global economic collapse president and, as such, the first to have an added sense of urgency brought on by a realization of the ultimate consequences of sustained trade imbalances.  Unfortunately, he’s fallen back on the same worn out approach of enforcing trade deals when it’s the deals themselves, lacking population density-leveling mechanicsms,  that are the problem. 

But this time, time is not on his side.  The era of sweeping trade imbalances and their consequences under the rug has ended.  The U.S. is economically boxed in on all sides by high unemployment, global demands to rein in our budget deficit and a Federal Reserve with an empty tool box.  So the only question is how soon the president will run out of patience with the export-focused approach and turn his attention to imports.

Announcement

After some soul-searching and research, I’ve decided that the time has come to take my game to the next level.  My strategy thus far has been an attempt to drive a bottom-up understanding of a new economic theory that might eventually drag economists along, kicking and screaming.  It’s impossible to say whether I’m having any effect but, if I am, it may take a thousand years to achieve the desired results.  What’s really needed is an intravenous injection of this theory into the body of economics. 

I’ve begun working on a white paper which I plan to submit for pulication in one of the many academic economics journals.  The vast majority of articles published in such journals are written by Phd economists, but I’ve been encouraged to submit such a paper and, upon examining some of these journals on-line (the ones that allow the user to view a free sample), I’ve concluded that it’s worth a shot at finding one that will consider a submission from “an independent researcher.” 

It’s going to take a bit of work – not a simple “copy and paste” of a condensed version of the book.  It needs to be presented in a much more scholarly format.  I’m letting you know this, faithful readers, because it means that I won’t be able to post or reply to comments on this blog at the same rate as in the past, for a little while at least.  I’ll still post commentary on major economic developments, perhaps once a week or so, and will still read all of the comments, but may not have enough time to reply as much as I’d like. 

I’ll keep you posted on my progress.  My understanding is that many of these journals do not accept simultaneous submissions, which means that instead of “shot-gunning” copies to all of them at once, hoping to score a hit with one of them, I may have to submit to them one at a time, awaiting acceptance or rejection before moving on to the next. 

Even if this effort is ultimately a failure and no one agrees to publish, it may not be in vain, since someone at each journal must read the paper in order to pass judgment.  Like planting seeds behind a fence, just because you can’t see what happens next doesn’t mean that it hasn’t borne fruit. 

Beyond this white paper effort, I’m also contemplating a 2nd edition of Five Short Blasts or, perhaps, a new book altogether.  I’d like to keep this theory out there, available in a book that’s fresh and relevant with up-to-date data. 

Again, I’ll keep you posted.  Wish me luck.

Domestic Vehicle Sales Plunge in January

Lost in all the stories yesterday about gas-pedal problems at Toyota, the impact on their sales in January (which fell almost 50% from December), and sales gains by GM and Ford was the fact that overall domestic vehicle sales (including the big 3 and foreign transplants) plunged to an annual rate of 7.9 million vehicles in January, much worse than analyst expectations of a small decline from 8.5 million in December to 8.4 million.  After rising for three consecutive months, domestic vehicle sales fell in January to their lowest level since October.

Aside from the happy 4th quarter GDP report, evidence is mounting that the economy has stalled again and may already be back-sliding into recession – the “double dip” that many economists have predicted.  Jobless claims have begun rising again; job losses have resumed and now vehicle sales have slipped badly.  The government’s efforts to gloss over the realities of the post-globalization economy and the root causes of the collapse are failing.  The Federal Reserve is out of ammo and will halt its balance sheet expansion (currently in the form of purchases of mortgage-backed assets from the banks) in March.  And patience with exploding deficits is growing thin.  Things are going to get very interesting this year.