Speaking Of The Economy: Will The Real Unemployment Number Please Stand Up

The Real
                  Unemployment StatisticsSome of our clients have written in recently concerned about the rise in the value of the US Dollar since about June 2014, and how that might impact their own investments denominated in other currencies, possibly in other countries.  But here is the fundamental question to ask first:  Is the rise of the value of the US Dollar since the summer time real, is it manufactured, or is it all just part of what we will call the Three Card Monte shuffle?

For those of you who are not familiar with Three Card Monte, it is a street game usually involving three playing cards and a very quick maneuvering con man trying to convince onlookers to place bets as to where the proverbial jack, queen or whatever card is located among the shuffle.  Usually you will find unsuspecting tourists visiting cities like New York enticed to play and be relieved of their money in the process.  That is if the fast moving street con man can stay ahead of the police with his portable cardboard box gaming table.  Of course the entire point is to keep the cards moving around as fast as possible, confusing the crowd as to which is the main card in question and which are the decoys.  For those of you that have ever sat as an audience participant in a magic show, you will know this as misdirection, employed so you cannot see the truth of the trick or illusion being performed.  In real life however, while there are quite a bit of theatrics demonstrated by the various illustrious political leaders explaining whatever the topic to the masses, the misdirection is indeed the massaged information the government statisticians and politicians dispel to the general public.  And all of this analysis is important simply because a rise in the value of one nation's currency in relation to others should reflect improving economic prospects of the country and currency in question.  Of course, sometimes there is artificial manipulation in the market by government or other actors, with the intent of making people think certain events are happening due to true fundamentals (when in fact it is an illusion).  So, with this in mind, let us first dissect some of the so-called recent good news about the economy and let us start with unemployment.

Fairly recent news reports tell us that they have managed to get the US unemployment rate down to about 6 percent.  Sounds good considering it was reported in the double digits before.  But, has unemployment really come down or has something else gone on to skew the numbers?  Well, we have commented previously that a large number of people in the US unemployed for a lengthy amount of time were about to see their extended unemployment benefits terminated.  As a result, many seemed to figure out a way to apply for Social Security disability benefits right about the time the unemployment checks were due to stop.  In fact, if you look at the number of new additions to the Social Security disability benefits rolls, you will see it matches up a bit too much for coincidence with the number of people that dropped off of unemployment.  So, abracadabra, we see the statistics of the unemployed drop DOWN, but they are still unemployed albeit collecting Social Security Disability benefits instead.  A large reduction in column A, and a large increase in column B, as it were.  But, since column A is highly touted and reported by the mainstream media, this is the only mainstream statistic most people are aware of.

US Unemployment: What Are The Real Numbers?

However, there is also a very large number of people that have lost their previous full time job and are now working part-time, often at a very reduced wage from before.  They are not doing thisAre
                      The Statistics Real? because they want more free time on their hands, but rather because they cannot find anything else.  Technically these people are employed, albeit very often at minimum wage or in the least an extremely reduced income from what their previous job had paid.  Such persons as classified in the U-6 tabulations from the Bureau of Labor Statistics, and such figure reveal some very different and interesting numbers from the other numbers reported.  It is here we see the rate at 12 percent or higher, which differs quite a bit from the highly touted reduced 6 percent unemployment figures.  Again, move them from one column to another.  Even more striking are the figures broken out by state, as we see U-6 unemployment (or underemployment as the moniker often used) in Michigan and Illinois at over 14 percent, Oregon and Rhode Island at 15 percent plus California and Nevada at 16 percent.  Broken down every further, New York City comes in at over 14 percent and Los Angeles at 17 percent.

Various forms of public assistance or social welfare, such as the SNAP or was formally known as the US Food Stamp Program, also tell some interesting tales.  And it is the increase in the US Government SNAP program specifically that offers meaningful insight as to what is really going on with the US economy with regards to jobs and personal income.  Back in the year 2000 there was about 17 Million people enrolled in the program.  In 2009 that number jumped up to about 40 Million and today in 2014 it is edging close to 50 Million (46 to 48 Million depending which date of statistics you want to use).  So, rounding off the numbers, we are talking about roughly 25 percent of the entire adult working age population in the US on the SNAP or food assistance government program.  In order to qualify, your monthly income must be less than 130 percent of the poverty income limit or what translates into about US$2,500 per month for a family of four people.   Another way to look at this is to say that about one quarter of the adult working age population in America is poor, or make up what is often referred to as the working poor (they are employed but with barely surviving wages).

On the topic of what the job situation in the US actually is, Microsoft recently announced (July 2014) that it will lay off 18,000 jobs globally in 2015, which is the largest layoff ever so far in the company's almost 40 year tenure.  Hewlett-Packard announced it would cut up to 16,000 jobs. Merck announced it will layoff 16,000 employees. Other companies announcing job layoffs in 2014 include General Electric, Macy's, Nordstrom, Coca-Cola, IBM, Caterpillar, Citibank, JPMorgan Chase, PNC, United Technologies, Kellogg, and Nike.  The point is, are the statistics presented by the US Bureau of Labor Statistics accurate, or not?

As we have opined before, it would seem the official US Government statistics for unemployment, inflation and host of other economic indicator are, shall we say, massaged.  Which leads to the question of why?  Spain, or at least what is reported by the Spanish Government, tells us that unemployment in that country is about 25 percent for the general population and 50 percent for the younger generation.  It is not a good number, it is certainly not good economic news, but it is what it is – the truth.   If we utilize some of the statistics compiled by Mr. John Williams of the Shadow Statistics Service (http://www.shadowstats.com/) we find some very disturbing differences from what the US Government reports.  For example, with cost of living adjustments coming up for such government payments as Social Security, we find the US Government claiming they will increase Social Security payments by about 1.5 percent because that is the inflation rate they calculate.  However, Mr. Williams comes up with over 9 percent as the real or true inflation number, which seems closer to the truth from the information we have seen.  Of course, to only have to legally increase government payments by 1.5 percent is more palatable to a government running Trillion Dollar annual deficits as it is.

In any event, we do not write such things to be negative or gloomy for the sake of it.  Rather, you as a business owner or perhaps you as an employed person needs to make various kinds of investment and other decisions based upon the information at hand.  If that information is just plain wrong, then how can you ever make the right economic choices accordingly?  Not only that, but there is a physiological component as well.  Meaning, if the government says inflation is only 2 percent (or whatever number) and your personal experience tells you otherwise, you are bound to think yourself crazy or incompetent.  In the least, maybe you are going to think that you are just doing something wrong when everyone else (or at least the government) is doing something right.  Must be, because how is it possible you are being told that unemployment (using the topic of this article) is all the way down to 6 percent and you (plus perhaps a few of your friends) are either unemployed or cannot find the job you want based on your university degree.  Of course if you come to the conclusion that you are quite sane and that the statistics are a fiction, then you begin to wonder what other things are not true.  N'est Ce-Pa?