SMOKE AND MIRRORS OR JUST SMOKE?

Unemployment numbers sent the Dow up 800 points with the fantastic numbers issued today (6 June), by the Trump administrations Bureau of Labor Statistics or (BLS).  The 13.3% unemployment number was far less than anyone that follows economic statistics would find believable. 

Not thinking that someone would actually manipulate the numbers? This harkens me back to 2012 when then citizen Trump decried that Obama was cooking the books and not reporting accurate unemployment numbers. I have considered that Trump’s statement on fudging the numbers could be viewed as a projection of a deja vu moment.  Most economists predicted the number to be at 19-20%.  I myself had predicted a rate of less than 20% for optical reasons last week, not considering the Fed would actually under report the numbers.

I also had estimated a spot unemployment rate last week of 25%, when there were 40 million reported unemployed and 160 million as a full employment number gauge.  The 19-20% number was the average consensus of most economists predicted and represented the whole months average.  Looking deeper into the numbers BLS provided, you find the Fed admits its problems with counting as a result of the virus and how to categorize situations as employed or unemployed.

 If you go by how Trump wanted to show Obama’s numbers, which included workers on temporary layoff, workers who had their hours reduced to part time, and workers that wanted a job but were not looking.  This total would have today’s unemployment rate to be at 27% or 14% higher than reported.

 The difference between 13.3% reported unemployment numbers vs 19.5% predicted, causes me to pause and look at the base numbers to attempt to reconcile the difference.  I immediately looked at Labor Statistics (BLS) raw data and discovered one minor and two major flaws in the data. I first was inclined to look at methodology. 

Trump justification?  Unemployment rate went from 14.7% in April to 13.3% in May. Could this make some sense?  There was a reported 2.5 million jobs added in May and an estimated 8.3 million jobs lost in April.  If 160 million is the baseline full employment then a 2.5 million reduction in unemployment (jobs created) would yield the 1.6% difference.  13.3% + 1.6% is 14.9% right? Close enough to 13.3%.  Simplistic, however wrong answer. It only considers jobs added, not new unemployment. Perhaps this is how they came up with a number that Trump would like to have shown?

The first minor difference in data had to do with collection and had shown a reduction of 19% of households surveyed.  The BLS uses a survey of households to gather data on employment as a standard practice. This should not have impacted the survey in any significant manner unless the data collection was selective.  The Coronavirus was used as an excuse with fewer canvassers.

The BLS data provided by the government in the report, also admitted to two flaws which are found on the last page in the notes: one flaw they admitted to would have increased the unemployment by 3%  making it a rate of 16.3%.  That’s getting closer, however, it does not explain the other 2-3% difference.

 The other error was described as an error in the combination of employment and unemployment numbers based on a questionnaire and interpretation of the answer having to do with coronavirus temporary vs. layoff, or if the former employer has gone out of business or just a temporary layoff.  These numbers were combined and not counted as unemployed and they stated they are not going to try to rectify the issue.  Could this error have resulted in the missing 2%?  The data shows 4.9 million people are likely miscounted or 1.4%, Voila! You guessed it, the real rate should have been 16.3+1.4 or 17.7% which is great considering the pandemic, however the 13.3% reported by this administration, I now declare as total Bullshit.

Economists look at the same data in a different light.  It was reported that the unemployment claims are now at 30 million.  With full employment at 160 million the rate should be closer to 18.8%.  The simple fact is we have lost 2 times more jobs and in a shorter period than the great recession of 2008.  The more realistic number would be closer to the 17.7% still does not reflect the misery the 27% are actually feeling, using all the unemployed as Trump wanted Obama to do.  All these lies to have a show put on, so it looks like the economy is skyrocketing it’s too bad all the benefit will be great only for the 1%.

COOKING THE BOOKS

I have long admonished anyone that takes stock market indices as a sign of economic health of the country.  Take the 30 stocks that make up the DOW.  These have been artificially inflated with the influx of 3 trillion dollars of fed printed money into the economy. The Fed has been sucking up all the bond issues and stock options it could get their hands on in order insuring the capital investment and construction projects are going forward.  The Fed continued allowing companies to buy back shares and reward corporate executives.  The last year’s tax break and Low interest loans at less than 1% are providing capital to invest in capital equipment, which can be written off immediately.  All these things have buoyed the market and thus the DOW’s rise.

Ok now lets get back to reality. The 21 trillion dollar GDP that was last year.  This value will shrink, no question.  The third quarter economic predictions are a 37% contraction.  That’s an 8 trillion dollar hit to GDP for that quarter alone and does not count the damage incurred in the 1^st quarter.  Theatres, restaurants, airlines, travel industry, small shops all will either contract on a semi-permanent basis or disappear.  If there is no magical cure for the virus, all will be reset.  Bailouts and loans only go so far.  Winners and losers are picked and how long do you continue to be uncle Santa Clause.  I predict Trump and McConnell will bribe the general public with another payout close to the election.  This, with another giveaway to their friends in business and a pittance to the public again.  The economic news of the unemployment rate allows them to prolong the payout to closer to the election.  The economic prediction from the Trump administration with its injection of capital and bailouts will only take a 5% hit to the economy?

The other reason I don’t use the stock market as a judge of the economy, is the fact I have not lost very much of my portfolio and markets are again nearing record highs.  The easiest way to make a lot of money very quickly is to manipulate the market making wild swings with highs and lows.  An informed investor will make money on both sides as grifters often do.   

I know the economy is hurting much more than that.  How do you get stock market prices to be near to the levels prior to the virus without manipulation?  Wake up! The markets do not reflect the health of the overall economy only the economic health of the wealthy.

The economy is made up of millions of small businesses. Most operate on small margins and will not be in business with a loan as another expense even if they do re-open.  These and all the other obvious other larger businesses are yet to have the shoe drop.  These are the real measure of a healthy economy.

All this goes back to Trump’s magical thinking.  If the market is happy nothing else matters.  Make the employment numbers unbelievable to boost the market and have BLS hide in the back of the text the methodology showing a 3% known built in bias, and another 1.4% undercount manipulates the numbers for optics only?

I have seen poor economic leadership in my time, but never from someone that claims he went the most prestigious college of economics Wharton.  Fact is, he had a professor that taught at both schools, UPenn and Wharton and that counts as going to that school?  He is so secretive you can’t see his grades.  Trump is a prime example of why you don’t put businessmen in office.  He’s trashed the economy and thinks he has done fantastic job.  Magical thinking and his minions make it all possible!  If he graduated, it must have been from Trump University, and he should still have his degree revoked!