Why Janet Ain’t Yellin’ “Higher Interest” Anymore: Jobs Worse than Expected and Far Worse than Reported
In the fall of 2015, I said the Federal Reserve would raise interest rates once in December then would not be able to fly any higher thereafter. The stock market would crash shortly after the Fed pulled up on the interest stick (which it did in what became the worst January in stock-market history), and then the Fed’s hopes of recovery would fade away.
I also said that, in spite of a continually degrading economic situation around the world, the Fed would badly want to lift its interest target again in order to prove its recovery had recovered from the first lift. The fact that it would not be able to without stalling the economy completely wouldn’t mean it wouldn’t try. If it did try, however, it would find out in hindsight that any additional pull back on the stick would crash the economy into the dust of the earth.
Here we are half a year later. The collapse did not continue down as quickly as I thought it would. The stock market and oil market stabilized and recovered after January, but the US and global economy remain on a downward flight path, evidenced by falling GDP stats and rapidly declining job numbers.
The Fed certainly appears to be trapped. Fed officials have pounded the pavement to talk about their intention to raise interest rates, but every month faces additional reasons that the Fed is unable to do so.
You can put a toe tag on the Fed’s fake recovery now
The Fed’s plane called Recovery is disintegrating slowly, rather than in one huge blow-up. Six months out from lift off, it is clear that the forces against another rate increase are growing worse month by month.
The Fed’s chances of pulling up any higher are getting rapidly smaller. Globally, there is talk of Brexit and Grexit, and China is looking like a mountainside that could slide any day now. Japan’s one-hundredth attempt at economic recovery through quantitative wheezing has failed completely. Much of the world had descended into Alice’s Wonderland of negative interest rates for the first time in world history, as a last-ditch attempt to recover from the Great Recession (and to recover from their central banks’ failed recovery attempts). Two major European banks are failing, and Venezuela and Brazil have collapsed into economic chaos. (And that’s just a sprinkling of current headlines.)
Yet, the worst news for the Fed is right at home. The Fed’s plane never made it more than a few feet above the runway when the illusory jobs recovery flew like a goose into the Fed’s left engine this week just as Captain Yellen was hoping to pull back on the stick for one more attempt to gain some interest altitude.
Yellen’s ground announcers had let the airshow crowd know they should watch her next trick, so the crowd was attentively watching for the much anticipated rate rise. Then down the plane’s nose dropped in what looked like a clumsily aborted take off, nearly skidding the nose cone back onto the runway. Whew! Many people must be asking, “Can she even fly that thing?”
Month after month, the Federal Reserve proves it is incapable of lifting off, though it keeps saying it will do so. It hinted at four rate increases in 2016, and so far has made exactly … none.
Morgan Stanley compares the Recovery’s present flight attitude to the Great Depression:
“We think that the current macroeconomic environment has a number of significant similarities with the 1930s…. The critical similarity between the 1930s and the 2008 cycle is that the financial shock and the relatively high levels of indebtedness changed the risk attitudes of the private sector and triggered them to repair their balance sheets….”
“In 1936-37, the premature and sharp pace of tightening of policies led to a double-dip in the U.S. economy, resulting in a relapse into recession and deflation in 1938,” the analysts wrote. “Similarly, in the current cycle, as growth recovered, policy-makers proceeded to tighten fiscal policy, which has contributed to a slowdown in growth in recent quarters.” (NewsMax)
In talking about 2016, I said the crash to come would be a second dip into the Great Recession. The Fed has shown that it fears even a mosquito-sized raise in interest altitude after half a year of skimming the runway could precipitate disaster.
No recovery is real if it can only exist under artificial life support, and this recovery has proved that it cannot exist outside of that artificial environment. At The Great Recession Blog, I have maintained for years that the Fed’s recovery would die the second all life support ended, and the following job figures will show you that it is, in fact, dying.
Lipstick ain’t gonna make this pig perdy. Says Michael Feroli, chief U.S. economist at JPMorgan Chase & Co., concerning the latest jobs report:
It’s definitely the most concerning signal we’ve got recently.
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Five indicators on the job market dashboard are red and there’s a bird in every engine
#1 Jobs report worse than expected and much worse than reported
The worst economic indicator of the past week was an abysmal jobs report — the measure of new jobs announced. It was by far the worst jobs report in almost six years, showing a paltry gain of only 38,000 new jobs added to the economy while the number of working-age adults rose by 205,000.
Moreover, the number of new jobs that had been reported positively in the two previous months also proved deceptive and was revised down significantly. (That, of course, was tucked away in the fine print.)
To put a positive spin on hideous numbers, the Bureau of Labor Statistics (BLS, which should simply be BS) reported 484,000 formerly unemployed people are no longer unemployed. That’s fantastic! Well, except they omitted the banal explanation that this was simply because most of those people had been unemployed so long that their unemployment benefits expired. (Sighs. Just when you might have thought you felt some lift.)
Moreover, an all-time record of 94.5 million Americans are not part of the labor force. 180,000 more joined that number in May.
As Jim Quinn said on The Burning Platform,
We only need the other 7.4 million “officially” unemployed Americans to leave the work force and we’ll have 0% unemployment. At the current pace we should be there by election time…. Not one single full-time job has been added in 2016. There were 6,000 less full-time jobs in May than in January, while there are 572,000 more low paying, no benefits, part-time Obama service jobs. Sounds like a recovery to me.
It gets even better. The birth death excel spreadsheet “adjustment” added 224,000 phantom jobs into the May calculation. The lies – they burn…. IT’S ADJUSTMENT IS DEAD WRONG. In reality, jobs should be subtracted from the total. It added 231,000 phantom jobs in April too. The jobs numbers are much worse than the bad numbers being reported.
In other words, we would have actually had a report that said we had a net loss of jobs in May if not for some major “adjustments.” I commented last January on how the BLS reported a gain of 292,000 jobs for December, while only 11,000 of those were real jobs. The rest were upward statistical “adjustments” due to the unseasonably warm winter. Then I noted that the previous year, the BLS had adjusted jobs upward by about the same amount due to the unseasonably cold winter.
What is stunning is not the fact that BLS reports are complete fabrications, but that no one commented on how the upward revisions from actual to “adjusted” jobs was about the same amount each year for completely opposite reasons. What’s stunning is how many people in the financial industry and the financial media continue to put stock in these statistics, which are meaningless because of how arbitrary and inconsistent the adjustments are. Yet, these manipulated job numbers are routinely reported as if they are simple facts.
Apparently, even the Bureau of Lying Statistics was not able to find sufficient reasons to pump the numbers up enough this month to make May look good because they said there were no special factors related to the sharp fall in the jobs market. You know things must be bad when the BLS runs out of BS.
As Jim Quinn continued,
When you see lies, misinformation and deceitfulness at this level, you have to ask yourself whether this entire debt supported house of cards is about to fall. The smell of desperation is in the air. The MSM stories about a booming economy are rolled out on a daily basis. Meanwhile, the average family is being crushed by Obamacare, rising rents, rising food costs, and no interest on any savings they might have left.
Those dismal readings came in as the Fed reported that inflation is keeping its head down (because rising inflation would force the Fed to pull back hard on the interest stick and stall the Recovery. The Fed, however, formulates its inflation readings by factoring out most of the things households pay more for, such as health-care costs, and by having people guess at the rental value of the homes they are buying as a way of determining housing costs, even though most people have no educated basis for knowing the rental value of the home they are buying.
Economists — lately the worst people for seeing a recession when it is coming (or even after it is here) –expected jobs to rise by 164,000, so they were off by more than 400%, even with all the help from BLS adjustments. Not surprising. If you want to be guided forward those who couldn’t even see the Great Recession when it had already arrived, do so at your own peril.