Thursday, May 30, 2013

Foreshadowing Economic Conditions

The Social Security Administration's (SSA) monthly snapshot is not due for public release until sometime next week. The US Bureau of Labor Statistics' (BLS) next monthly report is due out next Friday. What can we expect?

Given indicators floating about, one can assume another month of more of the same.

First, we have a continuing trend of former workers filing for SSDI with the SSA. SSDI is "disability insurance". It isn't really insurance. It is a government pay-out. Each month, as unemployment handouts expire, former workers are filing for SSDI, claiming disability due to mental health conditions. The most claim disability is "depression". The depression is caused by an inability to gain employment. While on SSDI, these people are taken out of the labor pool. That lowers the total labor force, the denominator in the equation used to calculate U3 and U6 unemployment rates. When a denominator gets smaller, the percentage employed gets larger. In other words, the unemployment statistics fall.

In April, the number of personnel on SSDI had risen to about 10,961,000. Preliminary numbers (not completely verified) indicate that as many as an additional 17,000 new recipients were added in May. Leaked numbers claim the total number of personnel currently receiving SSDI may be up to 10,978,000. That means 17,000 fewer people in the workforce. That doesn't include people who go back to school. It won't include new mothers who drop out of the workforce to be stay-at-home mothers. It doesn't include workers reaching retirement age. it doesn't count the people who just give up looking.

Some may recall the reported drop in the Workforce Participation Rate. The BLS reported a drop in participation that coincided with the lowered U3 unemployment rate celebrated by many who fail to look at all the data.

In addition, the last few monthly reports from the BLS have indicated increases in part-time employment while full-time opportunities decline. The drop has not been an immediate cliff-fall on the graph in either case (WPR or Part-Time due to economic conditions). They have been gradual declines.

The U6 under- and unemployed rate is rising, slowly, month by month. The U3 is ticking down, though. The reason is simple. Employers are facing conditions that make it more feasible to hire 3 part-time workers than two full-time. Their payroll taxes are lower. The benefits they must provide are lower. The penalties they face starting in January 2014 are lower. Those increased taxes and penalties are mostly due to the Patient Protection and Affordable Care Act (PPACA), nicknamed "Obamacare".

The truth is that the average household is earning less income. That is not growth. That is not prosperity. Parents are faced with working two to three part-time jobs to make ends meet. In many cases, this is in single-parent households. In others, both parents are working outside the home. That keeps parents from being as active as they'd like to be in their children's lives.

The weekly jobless claim numbers from various states show that new claims keep being filed. The numbers of "new hires" are not rising at a rate that can adequately overcome those claims. More of those "new hires" are part-time positions than there are full-time new hires. So the U6 rate remains abysmal.

The housing market is allegedly on the rise, becoming a "sellers' market". New home sales are up, as are the selling prices. This is because interest rates are being held artificially lower than the free market would adjust towards. Because the rates are held lower, lenders are less likely to grant the loans. Those who could not get loans in previous years are settling for lowered value homes than they shopped for in past years. They are getting smaller mortgages, and trying to buy. The sellers are not losing as much as they would have a year or two ago. However, many of them are still selling at a loss. The loss just isn't as great.

Because interest rates are being forced lower than the free market would correct them towards, banks are not paying as much (if any) interest on savings, checking, money market, CD, or bond accounts. The small interest paid is much lower than inflation. Due to that, keeping money in savings is actually a slowly leaking bucket rather than a slow-growing nest egg.

To combat those low rates, more people are investing what savings they can scrape together into private businesses. This is the stock market. The Dow and NASDAQ numbers have gained over the past year. But these are higher-risk means of investing savings than a savings account would be. The draw is that dividends on stocks have the potential to pay out equal to or greater than the inflation rate.

Consumer confidence is up. However, real spending is not what it was in 2008. Over the past 5 years, Americans have adapted, despite the poor policies of the current administration. These days, a trip to McDonald's is the treat that a steak dinner at Outback was 5 years ago. It is still conditions of austerity, not prosperity. Then there is the fact that, due to poor interest rates and high inflation rates, it is more cost effective to spend what you have today. Your dollar today will be worth 70 cents tomorrow.

The indicators all point to more dismal reports next week. If reported U3 falls by less than 0.5%, it is not an improvement. If U6 remains the same or rises, then things got worse. If the WPR remains the same or fails to rise by less than 1.0% then things are not improving.

The water is rising. The basement is flooded. The roof is leaking. The levy is about to burst. You can see another storm cloud on the horizon.

But Americans have always been resilient We will persevere despite the attempts by the current administration to further enslave us and make us dependent upon the government. Things may get worse. However, it is nothing the US cannot handle. We have been through worse. We will be great again.