The Aussie market has started the week on a good note today, up over 1% after the US markets had a strong finish last week.
The S&P500 index is now just 1.8% away from its highest level since 2008. The Dow Jones index is now at a 3 ½-year high.
It seems like just five minutes ago the markets were on their knees. Sentiment was rock bottom as recently as Christmas. So what’s going on?
Data out of the US has been getting steadily better, and the latest instalment on Friday included the US employment numbers. The Bureau of Labor Statistics (BLS) announced 243,000 new jobs. This was the best result for nearly a year, and continues a steadily growing trend.
The chart below shows these monthly employment numbers for the last 8 years to put it in context. I’ve marked the last few months in red to highlight them.
On the back of this, the unemployment rate fell from 8.5% to 8.3%.
8.3% is a good improvement from 9.0% just three months ago. A lower US unemployment rate is a sign of improving economic conditions in the world’s biggest economy. If it continues, it will boost stock markets in the US and Australia alike.
The 8.3% figure shows it has been making good progress down from its peak of 10.2%. It is accelerating towards the 5% level that means close to full employment.
But the only problem about government statistics is … well … THEY ARE CALCULATED BY THE GOVERNMENT.
Like lampposts to a drunk, statistics are better for providing support than illumination.
At best, you have to read deep between the lines to draw anything meaningful out of them with analysis. And at worst, you might as well use them to pick your lotto numbers. Statistics can be easily sliced, diced, refried and repackaged to suit a government’s purpose.
Let Me Show You What I Mean…
Imagine, say, a certain American president was keen to serve a second term. His chances would look much better if that stubbornly high unemployment number came down a bit after spending the last 3 years above 8%. Don’t you think?
And doesn’t it seem convenient that the unemployment figure is suddenly heading down in an election year?
A quick bit of digging shows there was one main reason for the big drop in the US unemployment rate. And it had little to do with 243,000 new jobs. Rather it was the record drop in the number of people counted as ‘looking for work’.
The BLS stopped counting 1.2 million people as being in the labour force.
This is the biggest drop on record. It’s very quick and easy to improve the unemployment number when a population the size of Dallas is wiped off the list.
How can the statisticians get away with this?
It’s all in the fine print. When their benefits run out after two years, job seekers drop off the list of those considered to be in the labour force. Hey presto! The labour force gets smaller, and the percentage of those within this that are working, magically gets bigger overnight. Nice one Uncle Sam.
You get a very different picture if you include those that have dropped off in this way. The unemployment rate would be over 11%.
If you also add those that just plain gave up (after three years of rejection letters), as well as those wanting full-time work but making do with part-time jobs, the figure would be 15.1%.
But 8.3% sounds much better in an election year, so that’s what we saw in the mainstream media over the weekend.
The US lost over 8 million jobs in 2008 and 2009.
In the two years since then, just 3.2 million of these jobs have been ‘recovered’. Just another 4.8 million jobs needed then! Even if the unemployment figure kept dropping at its current rate, it would still take more than 20 months for all those people to find employment.
But even then that wouldn’t be enough. The US is a huge country with over 300 million citizens. Its population is growing by around 3 million a year, about half of whom want work. So you can add another 6 million new job seekers on the market since the start of 2008.
About 130,000 new jobs are needed each month to keep the unemployment rate steady.
So I have some trouble swallowing that 8.3% unemployment figure, which is a very slippery statistic.
It’s not all bad news.
The number of new jobs is improving. Also looking better is the number of unemployment claims. This is the number of people that have lost their job for the first time. This has been falling and is now closer to the natural rate of turnover that we saw before the crisis.
New entrants to the job market back to a manageable pace
This lower number means there are fewer new job seekers coming into the market, giving it at least a fighting chance of recovering.
It has been a long slow road for the US job market, and there are some rays of light appearing.
Less people are losing their jobs and more jobs are being created. But the US job market needs this to continue for years for the true unemployment rate to improve.
The headline numbers might give the markets a boost in the short term, but no one should be cheering about a ‘US jobs recovery’ just yet.
Dr. Alex Cowie
Editor, Diggers & Drillers
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Written by Dr. Alex Cowie
Dr Alex Cowie is Money Morning‘s Chief Resources Analyst. (To have his newest investment ideas delivered straight to your inbox you can subscribe to Money Morning for free here).
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