Tuesday, June 10, 2014

CNBC Analyst Art Cashin: Is Employment getting better or not?

Art Cashin who regularly appears on CNBC writes this article which questions whether US employment is getting better or not. First I will paste some key parts of his article and then add some comments below.

"A Little Perspective On Payrolls – My friend and fellow market veteran, Jim Brown, over at Option Investor, took a stroll through some of the demographic background data on jobs.  Here's a bit of what he wrote over the weekend:
The big news for the morning was of course the Nonfarm Payrolls for May. The headline number came in at a gain of +217,000 jobs and April was revised lower by a small -6,000 drop to 282,000 jobs. The estimate range for May was from 110,000 to 240,000 so it came in towards the high end of forecasts. Overall it was another Goldilocks report, not too hot and not too cold. Over the last 12 months the average gain was +198,000 jobs so there is no real acceleration in hiring.
The unemployment rate remained unchanged at 6.3% as the labor force participation rate remained weak at 62.8%. The separate Household Survey showed a rise of +192,000 in the labor force after a -806,000 drop in April. The Household Survey showed a gain of +145,000 jobs and a nice improvement over the -73,000 loss in April.

The economy needs to create TWICE as many jobs in order to accommodate the increase in the working-age population. That is not likely to happen and the long term unemployment is going to decline slowly as more workers enter the job market.
Approximately 3.6 million college students will graduate in 2014 and roughly 3.5 million will graduate from high school. Approximately 1.2 million legal immigrants will be allowed in and roughly 500,000 illegal immigrants will arrive according to to Homeland Security. Assuming 3.0 million college grads, 1.0 million high school grads, 600,000 legal immigrants and 400,000 illegal immigrants will enter the workforce that is roughly 5.0 million new workers. We only created 2.379 million jobs over the last 12 months or about half what is needed to keep unemployment rates from rising.
In a separate and far more vitriolic analysis, David Stockman calculates that all of the real job growth over the last 14 years has come from the Health, Education and Social Service (HES) area.  In his summary paragraph he proclaims that his analysis shows:
Namely, an economy that has not generated a single net new job for 14 years outside of HES Complex—-that is, jobs which were bought and paid for by taxpayers and the debts that have been created in their behalf.
Maybe the jobs data is not as good as the media claims.


my added comments:

This is the problem we are faced with. We have many media reports and many public officials saying we are in a recovery and the jobs market is picking up. Then we have the skeptics who now question whether these reports are true or not. And Art Cashin is hardly a fringe analyst. He is about as mainstream as you can get.

This is true of the whole debate over whether we have a real recovery or not. Last quarter GDP was terrible but the weather was blamed for that. Forecasts for this quarter are still saying 3% GDP or more even as many reports are coming out lower than expected. The stock market makes all time highs and yet the velocity of money is at an all time low and economic activity seems very sluggish in many parts of the country.

Jim Rickards says the economy is not in recovery and this will become clear as the year goes on. He says the FED will be forced to pause its QE tapering and admit the economy is heading back towards recession. But FED and IMF officials still are saying the opposite.

Someone has to be wrong here. And it does matter because if Rickards is right the credibility of the FED and the financial media will take a huge hit. If they have to pause QE tapering (or even restart it again) the markets are going to react sharply at the FED forecasting yet another recovery that does not actually happen.

This could be the type of thing we are talking about that could lead to another big crisis. So again, it is important what the truth is on this topic and we will follow it closely all year to see who is right. We seem to be in a surreal kind of waiting mode right now on a lot of issues that could definitely impact the monetary system and lead to major change. And yet, all seems relatively calm right now. It is as if everyone is wating to see what happens before any decisions can be made. And nothing happens to help clear up where things stand.

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