Monday, June 06, 2011

The May BLS Employment Numbers & Economic Forecasts

By now the business press and pundits have thoroughly treated the dismal 54,000 net employment increase in May and the rise in unemployment to 9.1%.

The usual suspects claim it's transitory- simply the result of the Japanese earthquake aftermath and Midwest tornadoes. Or that at least it was a positive number.

Get real. An already-anemic average of some 200,000/month for a few months has turned down as the bottom dropped out of housing prices- again.

Housing price declines spark increased probabilities of defaults, as more current homeowners experience negative equity. Such disruption of households bodes ill for consumer spending. Lower consumer spending leads to fewer net jobs created.

What was unexpected, at least to me, was the number of Keynesian pundits who came out of the woodwork, amidst the debt limit standoff and the end of the Fed's QE2, to call for more federal stimulus.

You can't make this stuff up. We've seen 2 1/2 years of wrongheaded economic policy by two administrations fail to simply let the economy naturally bottom out and return to expansion.

Instead, we had about a trillion dollars of wasted stimulus, illegal takings under the guise of auto and insurance company bailouts which did nothing that constitutionally-provided normal bankruptcy wouldn't have accomplished, sans the extra tens of billions of spending, and failed attempts to prop up home prices via foreclosure moratoria and threatened equity write-offs.

As I paraphrased Michael Steinhardt in this post from early 2009,

"The current administration seems to be attempting to skip the 'restructuring of debt' step necessary to any economic recovery, and moving directly to flooding markets with liquidity, while leaving inept managements, such as auto makers and commercial banks, intact, rather than force them through bankruptcy. Steindhardt clearly indicated a disbelief that this will work or be productive."

He was correct. By most measures of economic activity- housing construction and pricing, job creation, GDP growth- the US economy continues to be troubled.

The Wall Street Journal took the opportunity to make Bob Doll, BlackRock's equity investments chief, its weekend interview. The piece noted that BlackRock is now the world's largest investor.

Hhhmmmm.....I wonder what Bob was going to say amidst all the gloomy data.

'It's time to sell?'

Hardly. Bob Doll's number one job right now is to talk BlackRock's book, in order to let the firm reposition without calling attention to any sales it may be conducting. The very last thing you would expect to see- and he didn't disappoint this weekend- is Doll yelling to head for the exits, causing a stampede of retail and other institutional investors that would destroy the valuations in BlackRock's own funds.

At times like these, the last people you want to listen to are those with the most to lose by publicly admitting how bad current economic statistics are.

That said, my own signals don't indicate an immediate need to go short. And Doll's taking a longer term perspective is not necessarily bad, either. But being a Pollyanna isn't believable, either.

Perhaps the most interesting thing Doll said was an almost throwaway comment about technology having raised the unemployment level associated with full employment from 3% thirty years ago to something north of 6% now. He blithely said,

"And that has political and social consequences that I don't think we even know what to do with yet."

Indeed. And what a time to realize this, eh? When the housing sector, traditionally an important driver of the US economy, is dormant, housing prices continue to weaken, and net job creation is nowhere near the necessary rate to attain full employment for years.

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