Unemployment - July 2011: Less workers = Less Unemployment

The July 2011 employment  report came in at a net increase of 117,000 jobs after a decrease of 37,000 government jobs from an increase of 154,000 private sector jobs.  Consensus had been for an increase of 75,000.  The ADP private employer survey had shown an increase of 114,000 earlier in the week.  Given the market correction this week, it was a welcome positive however weak it is.  The unemployment rate decline one tenth of a percent to 9.1%.  The total unemployed including discouraged workers declined one tenth to 16.1%.  If one used the 1980's calculation (the Shadow Statistics chart in the link changes monthly) for total unemployed including discouraged, it would have been approximately 22.7% rather than 16.1%.

The employment population ratio fell to 58.1% which is the lowest since August 1983 (also that low in November 1973 and March 1953) as can be seen in the third chart here at dshort.com.  The participation rate of national available workforce declined from 64.1% to 63.9%, which is also the lowest since the early 1980's as shown in the first chart here from calculatedrisk.com or in the Calculated Risk employment charts gallery here.

The unemployment rate is down not because there has been an increase in jobs, but because the population who could work has declined and the number of available workers participating from the population has declined.  Less workers equals less unemployed being reported.  6.2 million Americans have been unemployed for more than 6 months and as the 99 week unemployment benefits keep expiring more and more unemployed are no longer even counted and they drop into statistical oblivion.  8.4 million Americans are involuntary part time workers, because they cannot get full time work.  The official 16.1% total unemployed including discouraged equates to 24,800,240 Americans unemployed; the old 1980's calculation equates to 34,750,953 Americans unemployed.

If one were to reduce the official unemployment rate of 9.1% (13,931,000 Americans) to an economic concept of full employment at 5% (7,654,395 Americans) at 117,000 jobs increase per month, it would take 74 years and 9 months, because it takes 110,000 (between 100,000 to 150,000 but 110,000 should be very close) new jobs per month just to keep up with the population increase.  If 250,000 jobs were added each month, it would take 3 years and 9 months.  If there was economic growth consistent with strengthening recovery, job growth should be at least 350,000 per month and it would take 2 years and 2 months to reach 5% unemployment.  A truly strong recovery would be over 400,000 to 450,000 jobs per month and at 450,000, it would take 1 year and 6 months.


But as unemployment starts to abate, more and more discouraged workers and workers, who have exhausted all extended benefits, no longer counted will start looking again for work and theoretically re-enter the available worker population.  To the official total unemployed including discouraged workers to only 5% unemployed (economic full employment) at 250,000/month it would take11 years and 1 month; at 350,000 it would take 6 years and 5 months; at 450,000 it would take 4 years and 6 months to get to 5% unemployment.

Using the old 1980's calculation for total unemployed including discouraged workers, at 250,000 it would take 16 years and 11 months; at 350,000 it would take 9 years and 9 months; at 450,000 it would take 7 years to reach 5% unemployment.

If you are over 50 years old and unemployed, it becomes even more difficult to obtain new work of any kind much less work consistent with experience and ability.  Since 2008, each year has gotten worse for those over 50.  By December 2010, unemployed workers 55-64 years old who had been unemployed for more than a year composed 40% of the total unemployed for that age group and for the 65 years and older group unemployed approximately 43% of that group had been unemployed for more than a year.  And there are those help wanted ads which have started to appear that will consider only those currently employed.  During the Depression ads, which are illegal now, included ages discriminating against older workers; now, discriminatory employers just do not interview older workers.

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Links 8/4/2011: Eyes on Growth

Recession risk in Germany (Edward Hugh)

Is France being sucked in?

Is deflation back?

Washington debt battle as diversion 

US economy on brink, no safety net

Societe Generale Bank income and Greek debt

Swiss franc depreciation

Hungarian local governments want delay in repaying Swiss franc debt
Swiss franc & Japanese yen

Japan selling yen

currency intervention & FED possible easing resumption


Bank of England holds rate on weak growth

Czech central bank holds interest rate with inflation up on higher sales taxes not demand

European banks liquidity funding stress


South Africa bails out Swaziland

Turkish currency to tumble

Turkey cuts interest rate to support growth

Turkish lira tumbles

Denmark trying to side step EU bank resolution laws

Spain 7% ten year bonds will be trigger

will Eurozone become transfer union?

In Ireland 1-in-4 have only part time job

ECB needs to support Spain and Italy now, what is taking them so long?

will buy bonds?

needs to intervene

eurozone banks hoarding cash


ECB pause rate increases and buy bonds?

only ECB can halt eurozone contagion


ECB buys Portuguese and Irish bonds in secondary market but not Spanish or Italian --- excuse me!

ECB extends liquidity measures to six months and -- gasp! -- expresses continuing concern about headline inflation (woops)

ECB action crucial in European liquidity crisis (Edward Harrison)


ECB/Trichet only hope for eurozone (but he is no Austin Powers)

 Spanish & Italian bonds worsen as Trichet fiddles

Spain sells 3 year bonds for high price

Markets unimpressed with ECB failure to act decisively

ECB's Trichet has no comment on not buying Spanish and Italian bonds -- will this power vacuum be filled?



Is Berlusconi worn out from partying? -- no debt concern

Europe's dominos

Italy bound to default?

Spain's high risk election (Edward Hugh) -- I am already on record as saying Zapatero made a huge mistake in calling for elections

US long term unemployment will depress wages (Menzie Chinn)

US incomes down 15.2% since 2007 through 2009

BNY Mellon bank to charge cash depositors

US economy on the edge (Tim Duy)

Soldering on in Ireland or we can climb any mountain

US bond yields down, Italian bond yields up: Context not good either way -- Somebody needs to do something (Paul Krugman)



If this market has you running scared, you were not properly diversified for your investment growth, preservation of assets, and cash needs investing time horizons.

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Eyes On Growth: Update Links 8/3/2011

 The US ADP Private Employment Survey came in at up 114,000 jobs which was over expectations of 100,000.

The ISM Non-Manufacturing (service sector) PMI was down in July to 52.7 from 53.3.  It was expected to be up.

On Italy running out of money

Is Italian bond sell-off self-fulfilling?

eurozone crisis widening


eurozone domino effect

Widening eurozone crisis demands bigger rescue fund

Death by 1000 cuts or EU bond

Italian growth & banks


Italian, Spanish ten year bond yields at record high on growth concerns

European money markets freezing

Irish leaving Ireland to find jobs

European crisis is not over (this is a somewhat hopeful apologia that only debt reduction will save Greece; it will only make it worse)

Greek default not realistic (argues that it would take two years to print and coin new currency and it would have to be done in absolute secrecy)

Germany's road to 1930's currency crisis (it was not hyperinflation --- that was in early twenties)

1930's redux

Swiss defend franc with interest rate cut (at least they are not repeating their mistake of last year and buying euro to intervene and lower franc; it cost them significant losses)

Australian retail sector in recession

China non-manufacturing PMI up to 59.6

Assessing the debt ceiling damage on growth and unemployment

The debt ceiling debate that did not happen (the middle class is getting stiffed while the wealthy skate)

The Rube Goldberg doomsday machine (from Nouriel Roubini's Econometer blog)

Debt debate distracted us from recession threat

Small business owners using pawn shops for business liquidity

Lack of jobs and weak tax receipts trump deficit hysteria

Recession probability increases (national Bureau of Economic Research, which ex post facto determine beginning and end of recessions, members give personal opinions)

Keep you eyes active and your minds open; keep your critical analysis skills sharp.



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Keep Your Eyes on Growth: United States and Global Growth are Declining Not Slowing

United States  Q2 2011 GDP was a disastrous 1.3% and Q1 was revised down to 4 tenths of a percent as well as other prior quarters revised down as this chart from Econbrowser show:





The predicted stronger second half of 2011 seems decimated, leaving the FED sidelined, also as it looks, after the new data, more like 6 tenths of a percent and  7 tenths of a percent for Q3 and Q4 with the output gap widening even further as the graph from Tim Duy in the last link above shows.



Anyone who has invested and/or was consumed by the conviction of coming inflation can drop the illusions, because inflation is not happening in an economy in which growth is stalled and banking down.  The recession was deeper than thought and sheds some light on high lingering unemployment.

This week the Global Manufacturing PMI for July was down from 52.3 to 50.6, which is the lowest since July 2009.  The U.S. ISM Manufacturing PMI for July was down 50.9 from 55.3 for a two year low.  China HSBC Manufacturing PMI was down to 49.3 (any PMI below 50 is a contraction) from 50.1, while official China PMI was down to 50.7 for a 29 month low.  UK PMI was down to 49.1 for the lowest since June 2009.  Russia was down to 49.8, which was the first sub-50 since December 2009; Taiwan was down to 46.1, which is the largest decline since January 2009.  Eurozone PMI was down to 50.4 from 52.0 for the slowest pace in 22 months.  Australian PMI was down 9.5 points to 43.4.  This is a global decline in growth which is shaping up like a train wreck.

German June retail sales, which were reported this week, surprised with a 6.3% increase when only a 1.6% increase had been expected, but it was still down 1% from a year ago.  This is probably an outlier resulting from disruptions in the calendar shopping days with June having two less and May having three more this year.  While German car makers are optimistic for the rest of the year, electronics and DIY sales are down.  Eyes will be watching the July retail sales reported at the end of August.

53% of European companies which have reported earnings since July 11 have missed earnings which is the most in approximately five years.  Lenders in Brazil, Russia, India, and China are under increasing credit pressure from their growing economies raising questions about the level of possible non-performing loans.  If you look at our July, June, and May articles you will see several on the eurozone and China, such as this one on the consequences of trade imbalances and the debt dilemma.

All of this economic information quashed any short lived delusional euphoria over deficit reduction in the United States.  A sovereign nation which issues its own currency can only default by political choice, i.e., as an act of political will, as it can always pay its debts in its own currency.  As of Tuesday, August 2nd, we have had eight down days in the DOW for the first time since October 2008.  And we still have the ADP Private Employment Survey (consensus 100,000 up), the ISM service sector index (up a little), and the July employment report (consensus up 75,000).  If the July employment report is less than expected, as were the ISM Manufacturing, consumer spending, and GDP reports this week, it will cap a very negative week of declining growth which will be aggravated by the proposed austerity deficit reduction passed this week, which will cut growth by .3% and increase unemployment by .15% - .2% in 2012 and continue to cut growth in each year through 2021 with 2013 growth potentially cut 1.6% as the chart from, Macoadvisers in the immediately preceding link shows (multiply the columns by 2 for the economic multiplier effect, i.e., negative .15% = negative .3% for FY 2012 and FY 2013 = negative .8%):


This further contraction on top of growth moving towards stagnation in the United States and globally will only further push us futilely towards recession if not depression.  Take a look at the top ten biggest tax breaks which could be cut in deficit reduction and you will find the predominant burden is on the middle class not the wealthy who are being protected from tax increases. Despite public belief, taxes are at historical lows (they were as high as 90% in 1960 until John Kennedy lowered them) and tax revenues in 2009 (24%) are almost the same percentage of GDP as in 1965 (24.7%) as the OECD chart in the immediately preceding link shows:


In fact, Americans pay almost the lowest taxes of  the developed countries in the world with Chile and Mexico only having lower taxes.

As growth stagnates, the deep problems of unemployment officially at 9.2% in June and total unemployment, included discouraged workers, at 16.2% (approximately 22.6% if one used the old 1980's calculation) will only worsen.  The July GDP numbers, global PMI numbers, and the debt limit deficit reduction are final nails in the mystery of the lingering, long term high unemployment.  The charts at Calculated Risk (take a look at all of them here), such as this graph, show how significantly different unemployment as a result of this recession as opposed to other recessions and how exceptionally bad unemployment is.


When you consider all of the above and you add Cyprus, whose traded ten year bond yields are going higher from 8.9% to over 10% more recently, facing an invitation to a eurozone bailout and, if bond yields keep rising, Italy and Spain potentially running out of money in September and February respectively, you have converging global and United States contractions which will feed off each other and austerely intensify the pain.


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The Seven Percent Solution

I was somewhat astonished recently to see coverage of Goldman Sachs analysis that Italy could be in trouble if its ten year bond yield reaches 7%.  After all, the ECB has consistently brought out the sniper rifle and uncapped the scope when eurozone country's 10 year bond yield reaches 7% and puts the finger on the trigger when it exceeds 7.5% as it did with Greece, Ireland, and Portugal.  That is the point the ECB decides it is not going to continue providing liquidity and risk raising the eurozone average ten year interest rate.  It is also a level at which public debt in a fixed monetary union, in which trade imbalances cannot be economically resolved between countries and devaluation is only possible through internal adjustments which can only be achieved by austerity and deflation, verge towards unsustainability.  Deflation does not promote growth since growth creates inflation.  Consequently, the 7% level and the 7.5% trigger is the point of uncompetitive divergence at which imperial Europe dictates to colonial Europe that the Irish will become indentured servants to protect European banks, the Portuguese will be groomed to become serfs (after all the Portuguese social programs to bring the Portuguese people from dictatorship to the modern developed world cost money), and the Greek people will be pushed into slavery.

Understand the trading yields of the ten year bonds are not the concern except as they indicate what the issuing yield of any new ten year bonds might be.  Since Italy's economic growth is slowing, as Rebecca Wilder has thoroughly explained and Edward Hugh has documented, and Greece, Ireland, Spain, Italy, and France all have declining growth.  In fact, all of Europe is slowing in growth including German production amid global slowdown.  If these countries have a need to grow, whether inhibited by austerity or not, then they have a need to issue debt in the international market.  These countries also have high private debt which is a larger negative than public debt to GDP (at least less important in a fiat currency country).  If the newly issued debt is likely to be 7.0% - 7.5% or higher, depending on the size of the national economy and debt, the ECB will have its finger on the trigger.  The question of Spain, Italy, and France being to big, i.e., too costly to Germany and the banks of Europe, is a question which has been repeatedly kicked down the road just as recently as last Thursday and Friday and has already been viewed as a restricted default.

Are there any exceptions to the 7% solution?  Portugal tried to evade the ECB sniper by arranging private placements of public debt issuance but got too close to needing a true international auction.  The Cyprus ten year bond is trading in a volatile range, having exceeded 7.5% on June 23rd when Commerzbank recommended they no longer be bought, from 8.2% on June 29 to 8.9% on July 20 just before the newest kick the can down the road plan for Greece, which has temporarily lowered traded bond yields for all eurozone countries.  Why has Cyprus not had the trigger pulled?  It has not issued new debt in the international market since the ten year bond in February 2010 which was issued at 4.625% and is now trading at 8.9% as of July 20.  Cyprus has considered, and is considering issuing new debt in November at international auction, but has so far, as recently as this June, successfully placed the debt locally.  As long as it can stay away from the international market in issuing and placing debt, it will evade the ECB sniper.  With banks in Cyprus heavily exposed to Greek debt (Marfin alone has as much exposure as Dexia), new austerity budget which will decrease growth, and the need to rebuild the recently explosion damaged utility plant, the ability to place new debt locally and/or by private arrangement may become increasingly difficult.


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European Bank Exposure to PIIGS

The EBA published its stress test results of 90 Eurozone banks of which eight were found to have less than the 5% target capital ratio, but actually 20 banks were below that level.  Twelve banks were not listed as failed, because they are raising money.  One German landesbank, Helaba, withdrew from the stress test when its silent participation capital was questioned.

Olaf Storbeck has documented the two different definitions of exposure used in the EBS report which make the different numbers not add up.  More importantly, sovereign default exposure was not included in the study.

Here is an important spreadsheet, which was laboriously compiled by Olaf Storbeck, showing each of the 90 banks exposure to each of the PIIGS.  Spain and Italy have large exposure, but they also had some of the strongest banks.  If you want to get a look at some of the potential exposure of European banks, Storbeck's spreadsheet is invaluable.

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Irish Bank Withdrawals

In looking at bank withdrawals in the eurozone, it is necessary to distinguish between a banking crisis, in which there are bank runs, and a currency crisis, in which foreign investors and depositors withdraw money and domestic households and non-financial corporations draw down monies as the result of unemployment and a poor business loan market.

In Ireland, there was a real estate bubble and banking failures.  The ECB threatened the Irish government into guaranteeing senior bond holders, who were core European banks who had financed the real estate bubble, at the expense of the Irish people.  Did Irish households and non-financial corporations run with their money?

In looking at the May 2010 to May 2011 yearly figures and the different deposit peaks to May 2011 for Irish households, Irish non-financial corporations, other euro area depositors, and rest of the world depositors, we see vastly different transaction patterns.

The peak deposit of the rest of the world was September 2007 at 91,068,000,000 euro which declined to 43,139,000,000 euro as of May 2011; a decline of 47,829,000,000 euro or 52.52%.  The last twelve month decline was 21,666,000,000 euro or 33.43%.  The peak deposits of the other euro area depositors in Ireland peaked in June 2007 at 43,388,000,000 euro which declined to 28,984,000,000 euro as of May 2011; a decline of 14,404,000,000 euro or 33.20%.  The last twelve month decline was 6,191,000,000 euro or 17.60%.  You can see the outstanding balances and monthly transactions here in two tabs of Table A.12.2.

The peak deposits for non-financial Irish corporations was in September 2007 at 45,679,000,000 euro and the peak for households was August 2009 at 99,407,000,000 euro, because households increased deposits from 81,822,000 euro in September 2007.  From the September 2007 peak to May 2011, Irish non-financial corporations declined to 31,655,000,000 euro as of May 2011; a decline of 14,024,000, 000 euro or 30.70%.  The last twelve month decline was 5,325,000,000 euro or 14.40%.  From the August 2009 household depositor peak to May 2011, household deposits declined to 92,133,000,000 euro; a decline of 7,274,000,000 euro or 7.32%.  The last twelve month decline was 5,758,000,000 or 5.88%.  You can see the outstanding balances and monthly transactions in the two tabs of Table A.1 or Table A.11.1 in the link above.

Irish corporations are struggling for money to continue business operations in which consumers are not spending.  There is no pattern of household withdrawals until approximately February 2010 and it is not month to month consistent or accelerating; it does appear to be consistent with growing eurozone and Ireland political crisis, unemployment at 14.1%, which is the highest since 1994, declining property values decreasing home equity, where some prices are down 53%, and increased austerity.

Even with the failure of banks and ECB imposed defense of core European banks which indentured Irish citizens, Irish households and non-financial corporations are showing no runs on Irish banks.  The large withdrawals by rest of world depositors and other euro area depositors are consistent with foreign withdrawal of deposits and investments during a currency crisis, which increases liquidity problems.

I have been watching deposits throughout the eurozone countries, not just the periphery, and I intend to write a larger post in the future as withdrawals are not just occurring in the periphery.

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