The Bureau of Labor Statistics reported today that the U-3 unemployment rate rose to 9.7% in August, up from 9.6% in July. In One Word: Yuck, Karl Denninger focuses in on the U-6 figure, which is a more accurate count of the job stuggles average Americans are experiencing:
The issue here is the unemployment rate continues to rise. The incipient “improvement” has now been canceled, which unfortunately extinguishes the expectation of “imminent recovery.”
What I really don’t like is the U-6 number, which ticked up on a seasonally-adjusted basis by a full five tenths to 16.8% after falling back two tenths in July. This implies strongly what I suspected – that seasonal (e.g. hospitality, etc) hiring in fact was reported in July (hired in June) and now we’re seeing it come back off, and that the excess movement was greater than the seasonal adjustment – in other words, the “apparent improvement” was a Chimera rather than reality.
This is consistent with how my general thesis has unfolded:
There has been no real economic recovery; the uptick we have seen thus far has been driven by government spending and distortions rather than actual private activity improvement.
My thesis remains: There is not and will not be true economic recovery on a sustainable basis until the credit intermediation system is truly fixed, and that cannot happen so long as the lying continues.
We keep hearing that unemployment is a lagging indicator — but the fact remains that if there are no jobs, there is no consumer spending, hence no recovery.
Maybe this is beating a dead horse at this point, but oh well…
One of Denninger’s major themes seems indicate that we are stuck in quite a rut.
As you’ve heard time and time again over the last year, consumer spending accounts for c. 70% of U.S. GDP. Denninger has voiced the opinion many times that much of the consumer spending, over not just the last 7 years but really over the last couple of decades, has been the result of demand that was “pulled forward” by cheap credit, etc.
Well, if that’s the case, the only way consumer spending can return (in a reasonably fast manner) to it’s levels of a few years ago is if that cheap credit returns…AND IF consumers are actually willing to borrow AND spend it on crap (much of which they don’t need).
This poses quite a dilemma for our economy. As even economically uneducated people (e.g., me) know, it was that excessive credit, borrowing, and spending that got us into this mess, or was at least a major component of it.
Therefore, we are damned if we do and damned if we don’t (at least in the short term). That is, if we allow the stupid borrowing and spending to return, we may get another quick fix/drug-induced high (to borrow Schiff’s analogy) – but this is just setting us up for another (bigger?!?) crash. On the other hand, if we encourage savings and disciplined spending (both public AND GOVERNMENTAL), we are going feel this hangover for some time, as businesses fight through some sort of deflationary spiral…but at least we’ll get it over with.
Rick, I couldn’t agree more with your last paragraph. Due to the policies of administrations dating back to FDR (including just about every once since), through Keynesian economic philosophy we have managed to build tremendous wealth for our country but at the expense of tremendous debt as well. To keep the myth going, each administration has had to successively pile more and bigger spending on just to mask the growing debt levels. Now we are starting to see the myth unwind as the debts become unmanageable, starting with the credit market freeze back in August 2007.
It seems we have reached an impasse as you described. Do we put off the day of reckoning and continue to delude ourselves that recovery is just around the corner, or do we in the words of Peter Schiff swallow our much-needed medicine and do what is necessary to purge the debts and allow free-market systems to heal themselves?
I think we all know what direction the government has chosen for us. It’s going to be a side-ways slosh for some time, with yet another catastrophic move down, because the authorities just can’t bring themselves to let go of this system. At least not yet.
“it was that excessive credit, borrowing, and spending that got us into this mess”
Joe Biden says you’re supposed to spend money to keep from going bankrupt. I don’t know what you two guys are smoking with your “save and pay down debt” fuzzy math talk but I do know that this is the 21st century and it’s different this time.
If you’re not part of the solution, you’re part of the problem. Spend, damnit, or we’re going to go broke!
P.S. — if you don’t have a job, quit whining. go borrow some money from your closest friend or relative and get your ass to the mall — ASAP.
Good one, Ovals.
…and I hear ya loud and clear. Just today I was eyeing a new .40 cal pistol. Heck, I might go for the .45 now…the ammo is more expensive.
I sure as hell don’t want to be accused of “acting responsibly” at a time of crisis like this.
That reminds me - yesterday I talked my brother into taking an extra table that I have, rather than buying a new one for his dining room…
What in god’s name was I thinking? We gotta get him to Crate and Barrel…or better yet, Robb & Stucky, stat!!!