Bizarro World: Is The True US Unemployment Rate 65 Percent Rather Than 5.1 Percent?

Unemployment measures are all about HOW you count the numbers.

For example, The Federal Reserve wants you to believe that the civilian unemployment rate has fallen to 5.1%. That is, the number of unemployed divided by the size of the civilian labor force.


Looks good, doesn’t it?

Well, if we include those NOT in the labor force in with those for are unemployed, the number changes from 5.1% to 65%. This is consistent with the decline in average hourly wage growth YoY.


Since 2010, for every person who dropped off the unemployment rolls, another joined the NOT in labor force rolls. Hence, a fairly consistent 65% rate since 2010. And for every person who is employed, there are TWO who are either unemployed or have dropped out of the labor force.

According to the Bureau of Labor Statistics, who is not in the labor force?

Persons not in the labor force are those who are not classified as employed or unemployed during the survey reference week.

Labor force measures are based on the civilian non-institutional population 16 years old and over. (Excluded are persons under 16 years of age, all persons confined to institutions such as nursing homes and prisons, and persons on active duty in the Armed Forces.) The labor force is made up of the employed and the unemployed. The remainder—those who have no job and are not looking for one—are counted as “not in the labor force.” Many who are not in the labor force are going to school or are retired. Family responsibilities keep others out of the labor force.

So, let’s call it the un/non employment rate? It does paint a different picture of the health of the labor market.

We are truly in Bizarro World.


Bartenders And Wait Staff Dominate Jobs Added, Manufacturing Jobs Decline (Fed’s Fischer See No Bubbles)

The September jobs report was nothing short of disastrous. Not only were far fewer jobs added than we expected, the jobs added were low wage, part-time jobs … such as bartenders and restaurant waitstaff.

jobs by industry_sept15

Even worse, higher paying manufacturing jobs declined.

Any wonder why wage growth is so tepid?


There is no bubble in wages. Fed Vice Chair Stanley Fischer said he see few obvious bubbles in the US economy.

Here is one of Stanley Fischer’s training videos for economists.


Will Fed Go To 11? Americans Not In The Labor Force Skyrockets By 579,000 To Record 94.6 Million

The monthly jobs report is out for September and it stinks.

Only 142k nonfarm payroll jobs were added, 60K below the consensus. Average hourly earnings were flat at just under 2.2% YoY.


The August jobs report was also revised lower from 173K to 136K.

Americans not in the labor force skyrocketed by 579,000 to a record 94.6 million, up from the previous record 94.0.


And as a result of this surge in people who aren’t working (nor want to work), the participation rate crashed from 62.6% to 62.4%, the lowest since October 1977.


The jobs report is very recession-like, particularly with The Atlanta Fed GDP NOW at a measly 0.9% for Q3.

gdpnow-forecast-evolution 100115

What is The Fed to do? They lowered the Fed Funds target after the 2001 recession and dot com bubble burst, then again after the housing bubble burst and The Great Recession. In addition, The Fed expanded their balance sheet dramatically after the housing bubble burst.


Where does The Fed go from here facing another recession? 11.


Atlanta Fed Q3 GDP Growth Falls To 0.9 Percent (Non-residential Construction and Exports Plunge)

The Atlanta Fed’s GDP NOW real-time measurement just fell to 0.9%.

The GDPNow model nowcast for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2015 is 0.9 percent on October 1, down from 1.8 percent on September 28. The model’s nowcast for the contribution of net exports to third-quarter real GDP growth fell 0.7 percentage points to -0.9 percentage points on September 29 following the advance report on U.S. international trade in goods from the U.S. Census Bureau.

gdpnow-forecast-evolution 100115

The culprits? Non-residential real estate construction and exports.


Meanwhile, global PMI is back down to levels just before The Great Recession.


As Fed Chair Janet Yellen says, “Great success!”


Questions About Leak at Federal Reserve Escalate to Insider-Trading Probe

According to an article in the Wall Street Journal, Questions About Leak at Federal Reserve Escalate to Insider-Trading Probe (firm at center of probe says it is a media organization with special legal protections).

WASHINGTON—A high-profile investigation into a leak of sensitive information from the Federal Reserve in 2012 has escalated to an insider-trading probe led by a key market surveillance agency and federal prosecutors in Manhattan, according to people familiar with the matter.

But the firm at the center of the probe, Medley Global Advisors, has thrown up a roadblock by claiming a novel defense: It says it is a media organization entitled to special protections under the law, the people said.

Federal prosecutors in the Southern District of New York are focusing on the information leak while the Commodity Futures Trading Commission is looking into whether anyone violated insider-trading rules in 2012 when Medley disclosed to its clients details about the Fed’s plans for further economic stimulus, according to people familiar with the matter.

Buried in the story:

The Oct. 3 Medley note, which came the day before the Fed released the meeting minutes, included confidential details that indicated the information came from inside the Fed.

For example, Medley stated that Fed officials debated providing an assurance that they wouldn’t consider raising interest rates until unemployment fell below 6.5% or the medium-term outlook for inflation rose above 2.5%. The language was adopted later that year.

Well, it’s no secret that The Fed can’t generate inflation.


And unemployment rates are fairly meaningless since wage growth is so low.


Say, I hope Yellen didn’t tell Medley about the 6th degree polynomial regression of the Case-Shiller home price index!!!


JPMorgan Leads Big Banks Out the Door of FHA (But Wells Fargo Hangs Tough!)

According to Kate Berry of American Banker, JPMorgan Chase has nearly stopped making home loans insured by the Federal Housing Administration.

Most large banks have curtailed FHA-backed loans in the past two years because of concerns about credit and legal risks, and JPMorgan’s 98% drop-off in that period puts an exclamation mark on the trend.

The $1.8 trillion-asset bank’s FHA market share was a mere 0.2% at June 30, compared with 12.2% just two years earlier, according to government data crunched by the American Enterprise Institute’s International Center on Housing Risk.

The rollback among big banks follows harsh penalties meted out by the Justice Department, which accused many banks of putting FHA on the hook for shoddy loans in the years leading up to the mortgage meltdown. Market shares at BB&T, Bank of America, Fifth Third Bancorp, Flagstar Bank, M&T Bank, Regions Financial and Wells Fargo have all declined in the past two years, the data shows.

Nonbanks have stepped into the void, and that shift is not expected to reverse until bank executives feel more comfortable with the credit profiles of many FHA borrowers and determine the odds of further federal prosecutions have fallen.

Nowhere is that reality clearer than at JPMorgan Chase.

Chairman and Chief Executive Jamie Dimon warned last year that the risks of FHA lending were just too great.

“The real question for me is should we be in the FHA business at all,” Dimon said on a conference call with analysts in July 2014. “Until they come up with a safe harbor or something, we are going to be very, very cautious in that line of business.”
He meant it.

In the second quarter, JPMorgan Chase originated just 340 FHA loans, compared with 19,111 FHA loans in the second quarter of 2013. Meanwhile, the bank’s overall home lending business is booming. JPMorgan originated $29.3 billion of home loans in the second quarter, up 74% from a year earlier.

According to the AEI, JP Morgan Chase has all but gotten out of the FHA market. Leaving Wells Fargo and US Bank as the big dogs in the FHA space.


But never fear! JPMorgan is financing Los Angeles mansions starting at $115 million.

With home prices over twice as fast as average wages, the FHA has troubles. right here in Potomac City.


Simply Unaffordable: Case-Shiller Home Price Index Rises 4.7 Percent YoY Versus 2.2 Percent Wage Growth

The S&P Case-Shiller 20 metro home price index rose 4.7% YoY for July. Unfortunately, average wage growth is only rising at a 2.2% YoY clip.


Of course, San Francisco still leads the nation in YoY growth. Washington DC is in last place.


San Francisco is witnessing fast growing home prices coupled with declining median family incomes.


Although Washington DC, the home of Uncle Sam, is the slowest growing city in terms of home prices, they still have a positive growth path for median family income.


Simply unaffordable.

Stated differently. The housing market is addicted to Fed.