Fed Fails To Stimulate Jobs, Declares Victory and Pulls Out

June 18th, 2014
in macroeconomics

by Lee Adler, Wall Street Examiner

The seasonally finagled headline number for nonfarm payrolls for May increased 217,000. The consensus expectation of Wall Street conomists was for a gain of 220,000. This report was not too hot, not too cold but j-u-u-u-st right! The market loved it.

The seasonally adjusted monthly gain equated to an annualized gain of roughly 2.6 million or 1.9%.

Follow up:

Actual, not seasonally adjusted (NSA), nonfarm payrolls rose by 920,000 in May to a total of 139.2 million. The actual annual growth rate was +1.75%. The seasonally adjusted number slightly overstated the gain. However, the actual number was better than the 10 year average and slightly better than May 2013. On the surface it looked like a good number.

However, I find the consistency of the growth pattern to be “strange”. The annual rate of change has been between 1.55% and 1.85% for more than 2 years. Excluding a brief bump in early 2012, that string has persisted since September 2011. Meanwhile, the Fed has grown its balance sheet by 38% over the past year, and stock prices have risen not quite 20%. Ben Bernanke’s theory was that stock price gains resulting from QE would stimulate jobs. After 5 years of massive Fed balance sheet expansion, it’s apparent that he was dead wrong. There’s not much trickling to the labor market, either in terms of jobs or labor income.


Nonfarm Payrolls Steady State Growth is StrangeClick to enlarge

The payrolls data is from the BLS establishment survey or CES. The BLS also surveys households. According to the household survey (CPS), actual not seasonally adjusted total employment rose by just 631,000 in May, or about 50% less than payrolls.This was an unremarkable performance either way. The number was better than the 10 year average May gain but fell about 10% short of last year’s May gain.

The establishment survey (CES) of nonfarm payrolls purports to count the total number of jobs. The household survey (CPS) supposedly counts the number of people holding jobs. That survey is the one used to calculate the unemployment rate.

Why does the payrolls data look “strange?” Check out the growth rate of payrolls versus the growth of employment per the household survey over the past couple of years. I have special software which analyzes the data and, through artificial intelligence, like that of conomists, automatically writes its conclusion on the chart. I just input the data and then sit back a few seconds to await the result. Here it is.


Payrolls Vs. Total EmployedClick to enlarge

This month, the total number of payroll jobs according to the establishment survey was 139.2 million. The total number of employed persons according to the household survey was 146.4 million. The difference must be all those self employed eBay sellers. Or perhaps the household survey is overcounting self employed by including people not making any money like, say, real estate sales people working on commission. Is a job with little or no income really a job? I wonder how many jobs like that are pushing the unemployment rate down.

Making even less sense is that the BLS says that full time jobs counted in the household survey rose by 1.1 million to 119.2 million in May. That was way better than the typical May and it handily beat May 2013′s gain of 969,000. Total jobs in the household survey rose just 1.4% year over year but full time jobs rose 2.2%, more than even the number of nonfarm payrolls jobs. Apparently full time jobs are crushing it while part time jobs are declining.


Full Time Job Percentage Still Near Rock BottomClick to enlarge

Those stellar gains in full time jobs were the best year over year performance October 2012. But the full time jobs to population ratio stands at only 48.1%. That’s just 0.1% higher than in May 2009, when the recession hit bottom. More jobs were cut for a few months after that, but the economy stopped contracting around that time. The full time employment to population ratio has only recovered to where it was 2 months after the stock market bottom, and the lowest point of the recession by most measures. How is getting back to the worst point of the recession a “recovery?”

Compare this rate with 51% at the bottom of the 2002-03 recession and 53% in 2006, thanks to the fake jobs spawned by the housing bubble. This economy is still drowning by these standards. And the likelihood of getting back to the 53% housing bubble level via a financial engineering bubble is nil. Financial engineering does not create jobs. In fact, the evidence is overwhelming that it destroys them, as it incentivizes corporate executives to purchase company stock rather than expand their businesses.

Meanwhile mainstream Wall Street propaganda organs like Dow Jones and Bloomberg are trumpeting the apparent fact that total jobs have recovered to their pre recession highs. While that may be true of total jobs as they are supposedly counted, it’s not true of full time jobs. They’re still 1.7 million below the May 2007 level. More importantly, the percentage of the population that has jobs is barely above its recession low, and not even remotely close to breaking the long term downtrend.

If the purpose of the Fed’s massive balance sheet expansion really was to stimulate job growth, it has massively and abjectly failed. It has enriched bankers, leveraged speculators, and particularly corporate executives. The Fed has enabled and encouraged them to use free cash from the Fed for massive stock buy backs that increase the leverage on their companies’ balance sheets. Not coincidentally it also enabled them to purchase the stock option grants they had issued to themselves. It’s a nice racket, especially because it’s legal. But this shell game does not stimulate job creation. Nor does it lift the wages of workers, whose average weekly income has risen just 1.8% over the past year.

The Fed’s Taper of QE is a tacit recognition of those facts. In the face of its massive malfeasance, the Fed has declared victory and implemented staged withdrawal.









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