David Stockman Lashes Out At Mainstream Media"s "Peak Fantasy Time"

Authored by David Stockman via Contra Corner blog,

If you want to know why both Wall Street and Washington are so delusional about America"s baleful economic predicament, just consider this morsel from yesterday"s Wall Street Journal on the purportedly awesome November jobs report.

Wages rose just 2.5% from a year earlier in November - near the same lackluster pace maintained since late 2015, despite a much lower unemployment rate. But in a positive sign for Americans’ incomes, the average work week increased by about 6 minutes to 34.5 hours in November.... November marked the 86th straight month employers added to payrolls.

Whoopee!

Six whole minutes added to a work week that has been shrinking for decades owing to the relentlessly deteriorating quality mix of the "jobs" counted by the BLS establishment survey. In fact, even by that dubious measure, the work week is still shorter than it was at the December 2007 pre-crisis peak (33.8) and well below its 2000 peak level.

The reason isn"t hard to figure: The US economy is generating fewer and fewer goods producing jobs where the work week averages 40.5 hours and weekly pay equates to $58,400 annually and far more bar, hotel and restaurant jobs, where the work week averages just 26.1 hours and weekly pay equates to only $21,000 annually.

In other words, the ballyhooed headline averages are essentially meaningless noise because the BLS counts all jobs equal----that is, a 10-hour per week gig at the minimum wage at McDonald"s weighs the same as a 45 hour per week (with overtime) job at the Caterpillar plant in Peoria that pays $80,000 annually in wages and benefits.

When the line is trending inexorably from the upper left to the lower right, of course, it means there are more of the former and fewer of the latter. Six more minutes of continuing worse----is still bad.

 

As a matter of fact, the November report showed 20.199 million goods-producing jobs in manufacturing, construction and energy/mining, which did represent about a 2% improvement from prior year.

The real story, however is not about the short-term monthly or annual deltas being generating by an economy barely crawling forward. Rather, at 102 months, the current business cycle is exceedingly long in the tooth by historic standards (the longest expansion was just 118 months under the far more propitious circumstances of the 1990s).

In fact, what has been the weakest expansion in history by far may now be finally running out of gas.

During the last several weeks the pace of US treasury payroll tax collections has actually dropped sharply---and it is ultimately Uncle Sam"s collection box which gives the most accurate, concurrent reading on the state of the US economy. Some 20 million employers do not tend to send in withholding receipts for the kind of phantom seasonally maladjusted, imputed and trend-modeled jobs which populate the BLS reports.

Yet we we are not close to having recovered the 4.3 million goods producing jobs lost in the Great Recession; 40% of them are still AWOL---meaning they are not likely to be recovered before the next recession hits.

Stated differently, the US economy has been shedding high paying goods producing jobs ever since they peaked at 25 million way back in 1980. Indeed,  we are still not even close to the  24.6 million figure which was posted  at the turn of the century.

By contrast, the count of leisure and hospitality jobs( bars, hotels and restaurants), or what we have dubbed the "Bread and Circuses Economy" keeps growing steadily, thereby filling up the empty space where good jobs have vacated the BLS headline total.

Thus, when goods-producing jobs peaked at 25 million back in 1980, there were only 6.7 million jobs in leisure and hospitality. Today that sector employs 16.0 million part-time, low-pay workers or 2.4X the four decade ago level.

Yes, there is nothing wrong with these jobs or the workers who hold them, but the fact that they constitute a rapidly increasing share of the mix is powerful proof that the job market is not nearly as awesome as it is cracked up to be; and that the monthly BLS report is surely no measure at all of a rising standard of living in Flyover America.

The larger point is that the monthly jobs report is really neither a report on true labor market conditions or a proxy for genuine economic growth. The fact is, without sustained growth of  full-time, full-pay "breadwinner" jobs there is no real economic recovery or progress.

And we literally mean, no progress. With an update for November"s results, the chart below would show 72.8 million "breadwinner jobs" in goods production, the white collar professions, business management and support, transportation and distribution, FIRE (finance insurance and real estate) and full-time government jobs outside of schools.

As it happens, that is virtually the same number posted by the BLS back in January 2001 when Bill Clinton was packing his bags to vacate the Oval office. In short, three presidents later---all of whom have claimed undying devotion to good jobs and rising living standards---and there is hardly a single new breadwinner job.

The above chart does not bring the concept of awesome to mind. In fact, it reminds of the same kind of stagnation that is evident in all the key metrics for real economic progress. For instance, an economy flat-out can not grow without steady gains in industrial production, which includes energy extraction and all facets of goods manufacturing from automobiles to furniture clothes, shoes and canned soup.

But like in the case of "breadwinner jobs", this so-called recovery has generated none of it. The index of industrial production stands at exactly the level of the pre-crisis peak a full decade ago.

There is a whole raft of these statistics,  but the following graph leaves little to the imagination.

Notwithstanding the Fed"s whacko claim that it hasn"t generated enough inflation in recent years, the truth is that even by the BLS" faulty measuring stick every single dollar of median household income gain has been eaten up by CPI inflation. Accordingly, there has been zero gain in real median household income for the entirety of this century!

What does our latest Oval Office occupant plan to do about this? Why nothing less than borrow $1.8 trillion from future taxpayers in order to enable corporations and other business to crank-out even bigger financial engineering distributions to shareholders in the form of dividends, stock buybacks and M&A deals.

This isn"t even "disruption" as per the Donald"s real job. It"s just dumb and fiscally irresponsible beyond measure - a message we have once again taken to the mainstream media in recent days.

Goldman Raises December Rate Hike Odds To 80%

Having pointed out a glaring error in today"s payrolls report, which indicated that there was at least one math error in calculating the average hourly earnings number, and as a result casts doubt on every other piece of data released by the BLS, we urge algos and the handful of carbon-based traders, to take anything released by the BLS with a boulder of salt, especially data on wage inflation, until the BLS provides an explanation for what is going on.

Until then, here is Goldman methodically going "by the numbers", and validating the market"s reaction that sent December rate hike odds to the highest in one year, as moments ago Goldman chief economist, Jan Hatzius, revised his odds of a December hike from 75% to 80%.

Nonfarm payrolls fell 33k in September—considerably below expectations—however, we believe temporary hurricane effects likely explain all or most of the weakness. In fact, the employment report appears strong on net after taking into account hurricane effects, given the drop in the unemployment rate to a new cycle low and the upward revisions to average hourly earnings. We increased our Fed probabilities, with subjective odds of a December hike at 80% (vs. 75% previously).

And the breakdown:

1. Nonfarm payrolls fell by 33k in September—113k below expectations—and growth in prior months was revised down by 38k on net. However, we believe temporary hurricane effects likely explain all or most of the weakness. We had previously estimated a drag of 125k from hurricane effects, and it appears to have been even larger: the BLS commissioner reported “a sharp employment decline in food services and drinking places and below-trend growth in some other industries likely reflected the impact of Hurricanes Irma and Harvey” (food service employment alone fell by 105k). Gauging the magnitude of the impact is difficult, but given the commissioner’s statement and given the sharp rise in the household “not at work due to weather” series, our working assumption is that all or most of the weakness was hurricane-related—and likely transitory. The state-level payrolls data released October 20th will provide substantial clarity on the magnitude of the impact. By industry, goods-producing industries added 9k jobs in September reflecting a rise in construction employment (+8k). Private service-providing employment fell 49k, as a 111k drop in leisure and hospitality payrolls was partially offset by growth in education and health (+27k) and trade, transportation, and utilities (+26k) jobs. Government payrolls rose 7k. The breadth of job gains weakened likely due to hurricane effects, with the payrolls diffusion index – the net share of industries adding jobs during the month – falling to 55.7% from 60.2%


2. The household measure of employment was very strong, rising 906k in September following the 74k decline in September. The 939k gap between employment growth in the household and payroll reports was the largest ever excluding months with level adjustments to population controls. Household employment on a population- and establishment survey-adjusted basis rose only 7k, as the numbers of workers on unpaid leave from their jobs—which are included in household employment but not in establishment employment—rose by 908k (SA), presumably largely driven by the hurricanes. The unemployment rate fell in September to 4.22% from 4.44%, as the surge in household jobs more than offset the increase in the participation rate to 63.1% (from 62.9%). While the unemployment rate may in principle have been pushed down by hurricane effects (for instance if the response rate drops more among unemployed), we think this is unlikely because the BLS noted that “there was no discernible effect on the national unemployment rate” and because historically natural disasters have led to moderate increases in the unemployment rate. Another reason to doubt that the decline in the unemployment rate was due to the hurricanes is that household employment was strong (as opposed to the labor labor force being weak). The broader U6 underemployment rate fell 3 tenths to 8.3%, as the shares of marginally attached and the U3 rate fell.


3. Average hourly earnings increased by a larger-than-expected 0.45% in September (mom), and a significant upward revision to July growth (+0.2pp to +0.5%) resulted in the year-over-year rate increased to +2.9% from a previously reported pace of +2.5% in August. While the composition effect due to the decline in the share of low-wage leisure and hospitality workers may have boosted September earnings, the upward revisions in prior months were large. Average weekly hours held steady at 34.4.


4. Our preliminary wage tracker—which distills signals from several wage measures—shows 2.4% for Q3, up from +2.2% in Q2.


5. We believe the headline payrolls miss is considerably less important than usual for the monetary policy outlook, because hurricanes clearly affected the data, other US growth data has been firm, and there are two more employment reports between now and the December meeting to make up for the weakness. We actually think the most important takeaway from the report was the upward revision to average hourly earnings, with wage growth now reported at just below 3%. Given this and given the drop in the unemployment rate to a new cycle low, we increased our Fed probabilities, with subjective odds of a December hike at 80% (vs. 75% previously).

Of course, if the BLS" wage growth calculation is wrong, everything changes. Until then, here"s a look at where the market-implied odds of a December hike are: not surprisingly... right at 80%.

Paul Craig Roberts Warns Americans: "Oligarchic Rule Prevails Regardless Of Electoral Outcomes"

Authored by Paul Craig Roberts,

Do the Wall Street Journal’s editorial page editors read their own newspaper?

The frontpage headline story for the Labor Day weekend was “Low Wage Growth Challenges Fed.” Despite an alleged 4.4% unemployment rate, which is full employment, there is no real growth in wages. The front page story pointed out correctly that an economy alleged to be expanding at full employment, but absent any wage growth or inflation, is “a puzzle that complicates Federal Reserve policy decisions.”

On the editorial page itself, under “letters to the editor,” Professor Tony Lima of California State University points out what I have stressed for years: “The labor-force participation rate remains at historic lows. Much of the decrease is in the 18-34 age group, while participation rates have increased for those 55 and older.”

Professor Lima points out that more evidence that the American worker is not in good shape comes from the rising number of Americans who can only find part-time work, which leaves them with truncated incomes and no fringe benefits, such as health care.

Positioned right next to this factual letter is the lead editorial written by someone who read neither the front page story or the professor’s letter. The lead editorial declares: “The biggest labor story this Labor Day is the trouble that employers are having finding workers across the country.” The Journal’s editorial page editors believe the solution to the alleged labor shortage is Senator Ron Johnson’s (R.Wis.) bill to permit the states to give 500,000 work visas to foreigners.

In my day as a Wall Street Journal editor and columnist, questions would have been asked that would have nixed the editorial. For example, how is there a labor shortage when there is no upward pressure on wages? In tight labor markets wages are bid up as employers compete for workers. For example, how is the labor market tight when the labor force participation rate is at historical lows. When jobs are available, the participation rate rises as people enter the work force to take the jobs.

I have reported on a number of occasions that according to Federal Reserve studies, more Americans in the 24-34 age group live at home with parents than independently, and that it is those 55 and older who are taking the part time jobs. Why is this? The answer is that part time jobs do not pay enough to support an independent existence, and the Federal Reserve’s decade long zero interest rate policy forces retirees to enter the work force as their retirement savings produce no income. It is not only the manufacturing jobs of the middle class blue collar workers that have been given to foreigners in order to cut labor costs and thus maximize payouts to executives and shareholders, but also tradable professional skill jobs such as software engineering, design, accounting, and IT—jobs that Americans expected to get in order to pay off their student loans.

The Wall Street Journal editorial asserts that the young are not in the work force because they are on drugs, or on disability, or because of their poor education. However, all over the country there are college graduates with good educations who cannot find jobs because the jobs have been offshored. To worsen the crisis, a Republican Senator from Wisconsin wants to bring in more foreigners on work permits to drive US wages down lower so that no American can survive on the wage, and the Wall Street Journal editorial page editors endorse this travesty!

The foreigners on work visas are paid one-third less than the going US wage. They live together in groups in cramped quarters. They have no employee rights. They are exploited in order to raise executive bonuses and shareholder capital gains. I have exposed this scheme at length in my book, The Failure of Laissez Faire Capitalism (Clarity Press, 2013).

When Trump said he was going to bring the jobs home, he resonated, but, of course, he will not be permitted to bring them home, any more than he has been permitted to normalize relations with Russia.

In America Government is not in the hands of its people. Government is in the hands of a ruling oligarchy. Oligarchic rule prevails regardless of electoral outcomes. The American people are entering a world of slavery more severe than anything that previously existed. Without jobs, dependent on their masters for trickle-down benefits that are always subject to being cut, and without voice or representation, Americans, except for the One Percent, are becoming the most enslaved people in history.

Americans carry on by accumulating debt and becoming debt slaves. Many can only make the minimum payment on their credit card and thus accumulate debt. The Federal Reserve’s policy has exploded the prices of financial assets. The result is that the bulk of the population lacks discretionary income, and those with financial assets are wealthy until values adjust to reality.

As an economist I cannot identify in history any economy whose affairs have been so badly managed and prospects so severely damaged as the economy of the United States of America. In the short/intermediate run policies that damage the prospects for the American work force benefit what is called the One Percent as jobs offshoring reduces corporate costs and financialization transfers remaining discretionary income in interest and fees to the financial sector. But as consumer discretionary incomes disappear and debt burdens rise, aggregate demand falters, and there is nothing left to drive the economy.

What we are witnessing in the United States is the first country to reverse the development process and to go backward by giving up industry, manufacturing, and tradable professional skill jobs. The labor force is becoming Third World with lowly paid domestic service jobs taking the place of high-productivity, high-value added jobs.

The initial response was to put wives and mothers into the work force, but now even many two-earner families experience stagnant or falling material living standards.

New university graduates are faced with substantial debts without jobs capable of producing sufficient income to pay off the debts.

Now the US is on a course of travelling backward at a faster rate. Robots are to take over more and more jobs, displacing more people. Robots don’t buy houses, furniture, appliances, cars, clothes, food, entertainment, medical services, etc. Unless Robots pay payroll taxes, the financing for Social Security and Medicare will collapse. And it goes on down from there. Consumer spending simply dries up, so who purchases the goods and services supplied by robots?

To find such important considerations absent in public debate suggests that the United States will continue on the country’s de-industrialization, de-manufacturing trajectory.

From Jihad To Jobs, Paul Craig Roberts Says "Fakes News Is A US Media Specialty"

Authored by Paul Craig Roberts,

The American media specializes in fake news.

Indeed, since the Clinton regime the American media has produced nothing but fake news.

Do you remember the illegal US bombing and destruction of Yugoslavia? Do you remember “war criminal” Slobodan Milosevic, the Serbian president branded “the butcher of the Balkans,” who was compared to Hitler until Hillary passed the title on to the President of Russia? Milosevic, not Bill Clinton, was arrested and placed on trial at the International Criminal Tribunal. He died in prison, some say murdered, before he was cleared of charges by the International Criminal Tribunal. http://www.globalresearch.ca/milosevic-and-the-destruction-of-yugoslavia-unpleasant-truths-no-one-wants-to-know/5540873

Do you remember the destruction of Iraq justified by the orchestrated propaganda, known by the criminal George W. Bush regime to be an outright lie, about Saddam Hussein’s “weapons of mass destruction,” weapons that the UN arms inspectors verified did not exist? Iraq was destroyed. Millions of Iraqis were killed, orphaned, widowed, and displaced. Saddam Hussein was subjected to a show trial more transparent than Stalin’s trial of Bukharin and then murdered under the pretext of judicial execution.

Do you remember the destruction of Libya based entirely on Washington’s lies and the criminal misuse of the UN no-fly resolution by turning it into a NATO bombing of Libya’s military so that the CIA-armed jihadists could overthrow and murder Muammar Gaddafi? Do you remember the killer bitch Hillary gloating, “we came, we saw, he died!”

Do you remember the lies that the criminal Obama regime told about Assad of Syria and the planned US invasion of Syria that was blocked by the UK Parliament and the Russian government? Do you remember that Obama and the killer bitch sent ISIS to do the job that US troops were prevented from doing? Do you remember General Flynn revealing on TV that it was a “willful decision” of the criminal Obama regime to send ISIS to Syria over his objection as Director of the Defense Intelligence Agency? This bit of told truth is why Gen. Flynn is hated by the Washington criminals who forced him out as Trump’s National Security Adviser.

Do you remember the US coup in Ukraine against the democratically elected government and its replacement with a neo-nazi regime? Do you remember that Washington’s crime against Ukrainian democracy was quickly hidden behind false charges of “Russian invasion”?

Can you think of any truthful report in the American news in the past two decades?

All of the lies leading to the death of millions told by the criminal Clinton, George W. Bush, and Obama regimes were transparent. The US media could easily have exposed them and saved the lives of millions of peoples and saved seven countries from destruction in whole or part. But the presstitutes cheered on the gratuitous and criminal destruction of countries and peoples. Every one of the presstitutes is a war criminal under the standards set by US Supreme Court Justice Robert Jackson at the Nuremberg trials.

We cannot even get a truthful jobs report. Friday (Aug. 4) the Bureau of Labor Statistics (BLS) reported 205,000 new private sector jobs in July and a drop in the unemployment rate to 4.3%. This is fake news.

The Associated Press’s Christopher Rugaber rah-rahs the fake news, adding that many economists think “robust hiring could continue for many more months, or even years.” Let’s think about that for a moment. Generally speaking economists regard full employment to be a 5% rate of unemployment. There can never be a zero rate of unemployment because of frictions in the job market. For example, there are people between jobs who have lost or quit a job and are looking for a new one, and there are people who have dropped out of the work force, perhaps to spend more time parenting or to care for an aged and ill parent, and have reentered the work force. Economists also believe that employment cannot go too low without pushing up inflation.

Assuming economists have not suddenly changed their minds about what rate of unemployment is full employment, if the unemployment rate is currently 4.3%, it is already below the full employment rate. How can the rate continue to fall for years when the economy is already at full employment? Apparently, this question did not occur to the AP reporter or to the “many economists.”

Of course, the 4.3% unemployment rate is fake news. It does not include millions of discouraged workers. When these workers who have not looked for jobs within the last four weeks are included, the unemployment rate jumps to 22-23%.

Now consider the alleged 205,000 July new jobs. Probably about half of these jobs are due to the add-ons from the birth-death model, and the other half from manipulations of seasonal adjustments. John Williams at shadowstats.com will tell us. However, let’s assume the jobs are really there. Where does the BLS tell us the jobs are?

Eighty-nine percent of the jobs are in services, essentially domestic non-tradable services.

Professional and business services account for 49,000 of the jobs, of which 30,000 are in administrative and waste services (garbage collection) and 14,700 are in temporary help services.

54,000 of the jobs are in education and health services, of which ambulatory health care services, home health care services and social assistance account for 46,900 of the jobs.

62,000 of the jobs are in leisure and hospitality, of which waitresses and bartenders account for 53,100 of the jobs and amusements, gambling, and recreation account for 5,900 jobs.

This picture of American employment has been holding for about two decades. It is a portrait of a third world labor force. The jobs are not in export industries. The jobs are not in high productivity, high value-added occupations that produce a middle class income. The jobs are in lowly paid, often part-time domestic services.

The jobs do not produce incomes that provide discretionary spending to drive up business profits. So why did the stock market hit new highs? The answer is that corporate executives are taking advantage of the Federal Reserve’s zero interest rates to borrow money with which to buy back their companies’ shares in order to drive up their bonuses, the main component of their pay.

But these undeniable facts about employment did not prevent Christopher Rugaber and the other financial presstitutes or newspaper headline writers or “many economists” from asking “How much better can it get?” (Atlanta Journal-Constitution front page, Aug. 5, 2017).

It is not only seven Muslim countries that Washington and its presstitutes have destroyed in whole or part with lies. Washington’s lies have also destroyed the American economy and the American work force.

"The Lost Generation": Goldman Unemployment Charts Explain Just How Spoiled Millennials Are

This morning, Goldman"s Econ team, led by Jan Hatzius, set out to identify why wage growth has been elusive despite the fact that unemployment rates and other labor utilization measures signal an economy at full employment.  For evidence of labor market "slack" they decided to take a look at how recessionary college graduates handled the post-recession labor market as their lack of skills often make them the most vulnerable to a weak job market.

While the unemployment rate and other labor utilization measures signal an economy at full employment, wage growth has been weaker than expected recently, raising questions about the true degree of slack. To the extent that some pockets of excess slack remain, the cohort that came of age during the Great Recession would seem a natural place to ?nd it, given the pronounced and long-lasting effects of recessions on young workers.

In today’s daily, we review the labor market experience of the cohort graduating college or beginning careers during or immediately after the recession. Unsurprisingly, unemployment rose sharply in this segment from 2007 and 2010. However, since then, jobless rates have improved dramatically on both an absolute and relative basis – particularly over the last year – and the unemployment rate in this cohort is now under the national average. Relative wages have also partially recovered, and broader measures of utilization suggest that minimal excess slack remains in this cohort.

While not terribly surprising, they found that the young folks who graduated in the immediate aftermath of the "Great Recession" suffered relatively steep wage degradation relative to the overall population. 

Average earnings trends in the household survey show a similar pattern of underperformance and subsequent recovery. As shown in Exhibit 3, usual weekly earnings in this cohort declined by 6% relative to the population during and after the recession (on an age-adjusted basis). However, despite a partial recovery, the earnings gap remains: relative wages on this basis have only retraced a third of the post-recession decline (qualitatively consistent with the predictions of the academic literature).

But what is surprising is why those wages haven"t recovered meaningfully despite the fact that unemployment rates among the same cohort have fallen precipitously.  

And while Goldman didn"t point this out, perhaps there are some interesting, if overlooked, clues in the following two charts that lend some insight into the behaviors and attitudes of the current millennial generation as compared to previous generations that came of age during previous recessionary periods.

The chart on the left is particularly telling if you just compare the 1981 recession to 2008.  In the immediate aftermath of the recession, the unemployment gap for young people declined in both instances for the first 4 quarters of the recession. 

That said, the experience beyond Q4 is quite different as the 1981 cohort experienced a massive surge in employment while millennials in 2008 simply continued to decline and only bounced slightly off the lows.  Now, one could say this is an unfair comparison because the 2008 recession was deeper and more protracted than the 1981 recession. But, what we find most intriguing is that the 1981 cohort saw a massive surge in employment despite suffering the greatest wage decline of any of the recessionary periods for the past 35 years, and nearly double the experience of the 2008 recession.

Translation, when recession struck in 1981, Baby Boomers and Generation X got off their asses and took any job at any wage they could find to make ends meet.  But, when recession struck in 2008, millennials simply moved in with mom as opposed to taking a job that didn"t fully reward their extensive skillset garnered from 4 years of rigorous anthropology studies at a preppy New England liberal arts college.

Why Wage Growth Will Remain Elusive

Authored by Lance Roberts of Real Investment Advice,

Just recently, Bloomberg ran a fascinating article discussing a new study from the McKinsey Institute.

“American manufacturing could be poised to rebound as technological disruption shakes up global production chains, but that will offer little relief to displaced factory workers, according to new research by the McKinsey Global Institute.

Now, McKinsey sees conditions changing in a way that could favor U.S. producers: automation is weakening the case for labor arbitrage as wages rise in emerging market economies and developing market residents are coalescing into a new consumer class, among other factors.

While the U.S. could seize on those manufacturing growth opportunities, especially if the government and companies invest to make production more competitive, there are catches. Importantly, production might bounce back without bringing a lot of jobs in tow.

‘Even if we rebuild factories here and you build plants here, they’re just not going to employ thousands of people — that just doesn’t happen,’ said report co-author and McKinsey Global Institute Director James Manyika. ‘Find a factory anywhere in the world built in the last 5 years — not many people work there.’”

McKinsey is absolutely correct. While the President recently started a discussion on “Buy American,” most of the root belief in the efficacy of tax cuts, tax reform, and nationalism is rooted in the history of “Reagan-omics.”

The thing most overlooked by the majority of economists, politicians, and commentators, is the stark difference in the underlying economic and monetary fundamentals which provided the massive tailwind Reagan’s policies that simply don’t exist currently. As my partner, Michael Lebowitz, illustrated previously:

“Many investors are suddenly comparing Trump’s economic policy proposals to those of Ronald Reagan. For those that deem that bullish, we remind you that the economic environment and potential growth of 1982 was vastly different than it is today.  Consider the following table:’”

The issue of working harder, and earning less, continues to plague the economic minds driving both monetary and fiscal policy. Since the turn of the century, there has been a steady erosion of the growth rate in compensation as advancements in technology has limited the ability for workers to demand higher wages.

Whether it has been McDonald’s installing kiosks to replace cashiers or manufacturing companies automating assembly line jobs, the decision simply comes down to which is more cost-effective to increase bottom-line profitability. The answer is always – automation. This is shown in the chart below from McKinsey which shows which industries are the most susceptible to automation.

This continuing drive for profitability by reducing the cost of labor through increased productivity also explains the other conundrum of the “hidden unemployment.”

Businesses remain keenly focused on the bottom line, particularly as payroll and benefit costs continue to climb each year, as aggregate end demand drags. However, if businesses can increase productivity without increasing employment those net gains flow directly to the bottom line. This attitude, of course, not only stifles the need for employment but also lowers wage requirements as the available labor pool competes for fewer jobs.

Skills Lacking

Bloomberg ran a second article recently discussing the second problem which is further suppressing wage growth – a lack of requisite skill sets. To wit:

“A growing number of companies are finding it difficult to recruit skilled workers, which threatens to curtail profits and growth, according to a quarterly survey conducted by the Washington-based National Association for Business Economics.

The results of NABE’s July Business Conditions Survey published on Monday showed that 34 percent of respondents have had trouble hiring skilled employees over the last three months, up from 27 percent in January. The Washington-based association polled 101 panelists, who are economists from companies and industry associations.

In response, companies are sponsoring foreign workers, expanding their search and hiring more independent contractors, according to the survey. They’re also boosting automation, stepping up internal training and in some cases improving pay, Jankowski said.

Perhaps at least partially as a result, more than a third of respondents cited labor costs as having the largest negative impact on their profits so far this year.”

In a nutshell, there is the entirety of the problem and the reason why wage growth remains nascent. Mike Shedlock summed up what is going on, stating:

• It’s not just salaries. Obamacare and benefits are hurting many companies.


• Cheap money from the Fed keeps zombie companies alive.


• Cheap money from the Fed induced (and still does) over-expansion fast of food restaurants and retail stores of all sorts.


• Workers really are not worth benefit costs plus an extra 3% so companies seek to automate.


• Are McDonald’s workers worth $15? Please be serious.


• Amazon and online shopping are weakening retail profits.

Increasing productivity, lowering costs and increasing profit margins. In a slow growth economy, this has become the clarion call to corporate CEO’s. This is why, as shown on Tuesday, that while earnings per share have exploded, actual revenue growth remains feeble.

Working more and earning less. That is struggle faced by the average American today as each dollar buys less than it did before. Statistically, the economy may be recovering. However, for the average American it is a far more depressing reality. Capacity utilization still remains far weaker than at the peak of the last economic cycle and employment relative to the total working age population remains mired at lows. These components all feed back into the mental and financial state of the consumer which, in turn, impacts businesses future investment and hiring decisions – or lack thereof.

The real story here is that there is little hope for an already struggling middle class to gain any ground in an economic climate that continues to stack the cards against them.

But who knows, maybe someone will develop an “app” for that.

Paul Craig Roberts Warns Of "Ever More Official Lies" From The US Government

Authored by Paul Craig Roberts,

The false reality constructed for Americans parallels perfectly the false reality constructed by Big Brother in George Orwells’ dystopian novel 1984.

Consider the constant morphing of “the Muslim threat” from al-Qaeda to the Taliban, to al-Nusra, to ISIS to ISIL, to Daesh with a jump to Russia. All of a sudden 16 years of Middle East wars against “terrorists” and “dictators” have become a matter of standing up to Russia, the country most threatened by Muslim terrorism, and the country most capable of wiping the United States and its vassal empire off of the face of the earth.

Domestically, Americans are assured that, thanks to the Federal Reserve’s policy of quantitative easing, that is, flooding the financial markets with newly printed money that has driven up the prices of stocks and bonds, America has enjoyed an economic recovery since June of 2009, which must be one of the longest recoveries in history despite the absence of growth in median real family incomes, despite the growth in real retail sales, despite the falling labor force participation rate, despite the lack of high value-added, high productivity, high wage jobs.

The “recovery” is more than a mystery. It is a miracle. It exists only on fake news paper.

According to CNN, an unreliable source for sure, Jennifer Tescher, president and CEO of the Center for Financial Services Innovation, reports that about half of Americans report that their living expenses are equal to or exceed their incomes. Among those aged 18 to 25 burdened by student loans, 54% say their debts are equal to or exceed their incomes. This means that half of the US population has ZERO discretionary income. So what is driving the recovery?

Nothing. For half or more of the US population there is no discretionary income there with which to drive the economy.

The older part of the population has no discretionary income either. For a decade there has been essentially zero interest on the savings of the elderly, and if you believe John Williams of shadowstats.com, which I do, the real interest rates have been zero and even negative as inflation is measured in a way designed to prevent Social Security cost of living adjustments.

In other words, the American economy has been living on the shrinkage of the savings and living standards of its population.

Last Friday’s employment report is just another lie from the government. The report says that the unemployment rate is 4.4% and that June employment increased by 222,000 jobs. A rosy picture. But as I have just demonstrated, there are no fundamentals to support it. It is just another US government lie like Saddam Hussein’s weapons of mass destruction, Assad’s use of chemical weapons against his own people, Russian invasion of Ukraine, and so forth and so on.

The rosy unemployment picture is totally contrived. The unemployment rate is 4.4% because discouraged workers who have not searched for a job in the past four weeks are not counted as unemployed.

The BLS has a second measure of unemployment, known as U6, which is seldom reported by the presstitute financial media. According to this official measure the US unemployment rate is about double the reported rate.

Why? the U6 rate counts discouraged workers who have been discouraged for less than one year.

John Williams counts the long term discouraged workers (discouraged for more than one year) who formerly (before “reforms”) were counted officially. When the long term discouraged are counted, the US unemployment rate is in the 22-23 percent range. This is borne out by the clear fact that the labor force participation rate has been falling throughout the alleged “recovery.” Normally, labor force participation rates rise during economic recoveries.

It is very easy for the government to report a low jobless rate when the government studiously avoids counting the unemployed.

It is an extraordinary thing that although the US government itself reports that if even a small part of discouraged workers are counted as unemployed the unemployment rate is 8.6%, the presstitute financial media, a collection of professional liars, still reports, in the face of the government’s admission, that the unemployment rate as 4.4%.

Now, let’s do what I have done month after month year after year. Let’s look at the jobs that the BLS alleges are being created. Remember, most of these alleged jobs are the product of the birth/death model that adds by assumption alone about 100,000 jobs per month. In other words, these jobs come out of a model, not from reality.

Where are these reported jobs? They are where they always are in lowly paid domestic services. Health care and social assistance, about half of which is “ambulatory health care services,” provided 59,000 jobs. Leisure and hospitality provided 36,000 jobs of which 29,300 consist of waitresses and bartenders. Local government rose by 35,000. Manufacturing, once the backbone of the US economy, provided a measly 1,000 jobs.

As I have emphasized for a decade or two, the US is devolving into a third world workforce where the only employment available is in lowly paid domestic service jobs that cannot be offshored and that do not pay enough to provide an independent existence. This is why 50% of 25-year olds live at home with their parents and why there are more Americans aged 24-34 living with parents than living independently.

This is not the economic profile of a “superpower” that the idiot neoconservatives claim the US to be. The American economy that offshoring corporations and financialization have created is incapable of supporting the enormous US debt burden. It is only a matter of time and circumstance.

I doubt that the United States can continue in the ranks of a first world economy. Americans have sat there sucking their thumbs while their “leaders” destroyed them.

Elderly Americans Are Taking Their Grandkids' Summer Jobs

Compared with their peers in the European periphery, American teenagers looking for a part-time job this summer are in an enviable position: With the unemployment rate at a post-crisis low and demand for seasonal workers set to rise by more than 10 percentage points compared with last year, they shouldn’t have much trouble finding work, Bloomberg reported.

However, despite these encouraging circumstances, the teenage workforce participation rates are already at their lowest levels in more than a decade – and they’re expected to keep falling. The Bureau of Labor Statistics expects the workforce participation rate among teens to break below 27 percent in 2024, or 30 points lower than the peak seasonally adjusted rate in 1989.

Why? Because teens these days are facing stiff competition from Americans over the age of 65 – i.e. their parents and grandparents.

As Bloomberg reports: American teens are “being crowded out of the workforce by older Americans, now working past 65 at the highest rates in more than 50 years.”

Of course, senior citizen aren’t the only demographic group vying for the service-industry jobs once coveted as a rite of passage among American teens. Immigrants have also taken some of those jobs, as Bloomberg reports.

“Why aren"t teens working? Lots of theories have been offered: They"re being crowded out of the workforce by older Americans, now working past 65 at the highest rates in more than 50 years. Immigrants are competing with teens for jobs; a 2012 study found that less educated immigrants affected employment for U.S. native-born teenagers far more than for native-born adults.”

Whether you"re looking at summer jobs or at teen employment year-round, the work trends for teenagers show a clear pattern over the last three decades. When recessions hit, in the early 1990s, early 2000s, and from 2007 to 2009, teen labor participation rates plunge. As the economy recovers, though, teen labor doesn"t bounce back.

Today"s college-bound teens are finding that the ROI for focusing on their studies in the hopes of obtaining outside scholarships or merit-based aid packages is more attractive than a minimum-wage paycheck, according to a study by the BLS.

“Parents are pushing kids to volunteer and sign up for extracurricular activities instead of working, to impress college admission counselors. College-bound teens aren"t looking for work because the money doesn"t go as far as it used to. ‘Teen earnings are low and pay little toward the costs of college,’ the BLS noted this year. The federal minimum wage is $7.25 an hour. Elite private universities charge tuition of more than $50,000.”

Whereas decades ago, summer school was for remedial-track students who failed courses offered during the academic year, teens from affluent families are enrolling in enrichment courses and taking classes for college credit as high school curriculum grows increasingly more intense.

In 1982, fewer than one in 10 high school graduates had completed at least four years of English classes, three years of math, science, and social science, and two years of a foreign language. By 2009, the most recent data in the U.S. Digest of Education Statistics, the share of grads taking those classes was almost 62%.

All this studying has obvious benefits, but a single-minded focus on education has disadvantages, too; a summer job helps provide teens with real work experience that they can’t get at school or home. Working teens learn how to interact with co-workers, operate as part of a team and – most importantly – deal with bosses.

Last year, 43 percent of 16- to 19-year-olds were either working or looking for a job. That"s 10 points lower than in July 2006. In 1988 and 1989, the July labor force participation rate for teenagers nearly hit 70 percent.

In July 2016, more than two-fifths of American students aged 16-19 were enrolled in a summer course. That’s more than four times the enrollment totals from July 1965, Bloomberg reported.

93% Of All Jobs "Created" Since 2008 Were Added Through The Birth/Death Model

According to the prevailing narrative, job growth in the US, where GDP over the past decade has been on par with that in the 1930s, is one of the otherwise brighter economic indicators in a time when much of the economic data such as capital spending, productivity and especially wage growth (so critical for the Fed"s future plans) has been a chronic disappointment. Today, for example, headlines blast that the US has enjoyed 80 months of continuous jobs growth with unemployment hitting 4.3% – the lowest since 2001. However, there is more to this "strong" number than meets the untrained eye.

As our friends at Morningside Hill calculate, a full 93% of the new jobs reported since 2008 - 6.3 million out of 6.7 million - and 40% of the jobs in 2016 alone were added through the business birth and death model – a highly controversial model which is not supported by the data. On the contrary, all data on establishment births and deaths point to an ongoing decrease in entrepreneurship.

Here are the details of how over 90% of the jobs created in the past decade were nothing more than a "statistical" adjustment in some BLS model.

The controversial birth death adjustments

In order to account for jobs created or lost by new business formations or bankruptcies each month, the BLS introduced the birth/death adjustment. It started during the Reagan administration as Reagan was complaining that the bureau was undercounting the jobs he created. The birth-death model used to have a terrible name – the “bias adjustment factor.” This adjustment is computed using a model based on probability-based sampling methodology.

The table below shows the number of jobs that were added through birth/death adjustments over the past 17 years and the percentage of jobs added through the birth/death model

Let’s analyze the data.

• Before 2003 few jobs were added through the adjustment, despite the fact that net business formations were much stronger back then (see data below).


• Then, what strikes us as odd, is that according to the BLS in the depths of the 2007-2009 recession, the birth/death adjustment continued to add a lot of jobs – 904,000 jobs were added in 2009 alone. One would assume that in the nadir of the Great Recession when business defaults skyrocketed, the birth and death adjustment would be a net negative and subtract from the overall jobs number instead of adding to it.


• Lastly, it turns out that a full 30% of jobs created since 2010 or 4.5 million out of 15 million jobs were added via the birth/death adjustment. It is also interesting to note that 40% of the jobs added in 2016 came through the adjustment.

The reason the BLS wanted to include this adjustment was a perception that they were undercounting jobs created through new start-up business formations (that were too young and too small to show up in the Establishment Survey). Those start-ups would eventually appear in their data, but with a few months’ lag. Therefore, if there was a steady supply of new start-up businesses and no sudden shifts in the trend, no adjustment would be necessary. Logically, it would only make sense to apply the adjustment if there is a significant increase in the rate of start-up formations, which has not materialized. On the contrary, multiple studies track a consistent decline in new business creation. Literally every study we have found documents the consistently deteriorating entrepreneurial environment in the US.

The following charts trace a clear downward trend in both employment gained from private sector births and the number of business births per year. Notice the suppressed level of births after 2008.

Furthermore, self-employed persons as a percentage of the working age population and the number of jobs created by establishments less than one year old are also declining.

A study by Harvard Business School entitled “Problems unsolved and a nation divided” summarizes the findings of its multi-year long project called “The US competitiveness project.” The study is a “fact-based effort to understand the disappointing performance of the American economy.” We found this project to be well worth the read and have selected the following chart (below to the left) depicting the multi-decade slowdown in new business formation. Further supporting the Harvard study findings, a Brookings Institution paper called “Declining business dynamism in the United States: a look at states and metros” shows that business formations slowed down and business deaths accelerated after the crisis of 2008 (below to the right).

Below to the left we have a chart from the Economic Innovation Group showing the net annual change in the number of US firms. Notice the significant slowdown after 2008, including 3 negative years. This is clearly not captured by the data from the Bureau of Labor Statistics. Below to the right we have a few charts from the Wall Street Journal summarizing some data points that confirm these trends.

With the data on new business formations and deaths in mind let us now go back to the BLS’s official birth / death adjustments. We have charted the net jobs added through the BLS model and ran a linear trend line to see if it captures the deteriorating entrepreneurial environment. In the chart below, the upward-trending line representing net jobs added through the adjustment is in complete dissonance with all the other data.

The Bureau of Labor Statistics (BLS) seems to be alone in its belief that the entrepreneurial environment in the US is improving. We believe that the BLS has been artificially inflating the monthly payroll numbers via the birth and death adjustment. This overstatement is not trivial in nature – the adjustment added 30% of all jobs reported since 2010.

h/t Morningside Hill

New Study Says Robots Took All Of Detroit's Jobs, Not Mexico

As Trump gets ready to renegotiate NAFTA and impose tariffs on companies looking to outsource production to Mexico, a new study from MIT and Boston University suggests that industrial robots, not Mexico, may be the bigger factor contributing to the high levels on unemployment in the Midwest. 

Entitled "Robots and Jobs: Evidence From US Labor Markets," the authors of the study found that the addition of 1 robot per 1,000 workers results in an 18-35 bps reduction in the employment-to-population ratio and 25-50bps reduction in wages.  Per Bloomberg:

One additional robot per thousand workers reduces the employment-to-population ratio by 0.18 percentage points to 0.34 percentage points and slashes wages by 0.25 percent to 0.5 percent, based on their analysis. To put that in context, the U.S. saw an increase of about one new industrial robot for every thousand workers between 1993 and 2007, based on the study.

"The employment effects of robots are most pronounced in manufacturing, and in particular, in industries most exposed to robots; in routine manual, blue collar, assembly and related occupations; and for workers with less than college education," the authors write. "Interestingly, and perhaps surprisingly, we do not find positive and offsetting employment gains in any occupation or education groups."

Worth noting: the authors estimate that robots may have increased the wage gap between the top 90th and bottom 10 percent by as much as 1 percentage point between 1990 and 2007. There"s also room for much broader robot adoption, which would make all of these effects much bigger.

While the study found that only 360,000-670,000 jobs had been lost to robots over the past couple of decades, estimates indicate that an additional 3.5 million permanent jobs losses could occur over just the next 10 years which would increase the natural unemployment level by over 2%.

Because there are relatively few robots in the US economy, the number of jobs lost due to robots has been limited so far (ranging between 360,000 and 670,000 jobs, equivalent to a 0.18-0.34 percentage point decline in the employment to population ratio). However, if the spread of robots proceeds as expected by experts over the next two decades (e.g., Brynjolfsson and McAfee, 2012, especially pp. 27-32, and Ford, 2016), the future aggregate implications of the spread of robots could be much more sizable. For example, BCG (2015) offers two scenarios for the spread of robots over the next decade. In their aggressive scenario, the world stock of robots will quadruple by 2025. This would correspond to 5.25 more robots per thousand workers in the United States, and with our estimates, it would lead to a 0.94-1.76 percentage points lower employment to population ratio and 1.3-2.6 percent lower wage growth between 2015 and 2025.

Of course, the impact is even more dramatic when you consider that the job losses are heavily concentrated in a handful of industries.  The automotive industry employs 39% of existing industrial robots, followed by the electronics industry (19%), metal products (9%), and the plastic and chemicals industry (9%).

Meanwhile, the following maps help to highlight the exposure of various regions of the country to industrial automation, imports and offshoring of jobs.  Not surprisingly, the heaviest concentration of robots has developed in the rust-belt region where they"ve replaced 1,000s of UAW workers.

Of course, this wouldn"t be the first time that economists had prematurely predicted the demise of labor markets due to technological advances:

"We are being afflicted with a new disease of which some readers may not have heard the name, but of which they will hear a great deal in the years to come—namely, technological unemployment" - Keynes, 1930

“Labor will become less and less important. . . More and more workers will be replaced by machines. I do not see that new industries can employ everybody who wants a job” - Leontief, 1952

US Job Market Not As Strong As Perceived, San Fran Fed Warns

Despite endless streams of Fed Speakers proclaiming, in one form or another, that "we are at, or close to, full employment;" many in America - judging by the election of President Trump - are not feeling as exuberant as the jobs data implies they should be. The SF Fed itself now agrees: "the labor market may not be quite as tight as the headline unemployment rate suggests."

As we detailed previously, between 1948 and 2015, the work rate for U.S. men twenty and older fell from 85.8 percent to 68.2 percent. Thus the proportion of American men twenty and older without paid work more than doubled, from 14 percent to almost 32 percent. Recent data over the last number of years have begun to show that it is not just the American male who is struggling.

The participation rate of female workers is beginning to decline as well. The trend in the workplace has not been our friend.

And The San Franciso"s Fed researchers Regis Barnichon and Geert Mesters question "how tight is the US labor market?"

The current low unemployment rate compared with previous labor market peaks has raised some fears regarding whether the labor market has become too tight. In this Letter, we use a new method to isolate the effects of demographic changes on unemployment, and we find that the demographic-adjusted unemployment rate is still 0.3 to 0.4 percentage point higher than it was at past labor market peaks.

This indicates that the labor market may not be quite as tight as the headline unemployment rate suggests.

The researchers note that there is a major demographic effect in this...

As of February 2017 the shift-share adjusted rate stands at 5.0%—the same level as in the 1979 and 1989 labor market peaks (green line) and only one-tenth higher than the 2006 peak—which appears to confirm the initial impression of a tight labor market.

However, we believe this conclusion is premature. We find that the standard approach to demographic adjustment does not properly capture the full effects of demographic changes. In fact, once we address the shortcomings of the standard approach, the demographic-adjusted unemployment rate appears to be higher than all its previous lows since 1976.

Taking a longer-run perspective, we consider the effects of demographics on unemployment since the mid-1970s and their underlying causes. Figure 2 shows that demographic factors lowered the unemployment rate by about 2 percentage points over this period, according to our adjustment method. This number is substantially larger than that implied by a conventional shift-share analysis, which suggests demographics lowered unemployment by just over 1 percentage point.

So, in other words, if Yellen ever needs an excuse to get dovish, her own SF Fed research department just offered up PhD-style proof that the economy is not as strong as everyone hopes for... due to demographics.

*  *  *

Furthermore, any reasonable analysis suggests that in the future, the rate at which jobs are being lost to new technologies is only going to double and triple. This is one of the central problems facing society today, not just in the US but all across the developed world.

How The Market Creates Jobs (And How Government Destroys Them)

Via Walter Block of The Mises Institute,

The Creation of Jobs

If the media tell us that "the opening of XYZ mill has created 1,000 new jobs," we give a cheer. When the ABC company closes and 500 jobs are lost, we"re sad. The politician who can provide a subsidy to save ABC is almost assured of wide spread public support for his work in preserving jobs.

But jobs in and of themselves do not guarantee well-being. Suppose that the employment is to dig huge holes and fill them up again? What if the workers manufacture goods and services that no one wants to purchase? In the Soviet Union, which boasts of giving every worker a job, many jobs are just this unproductive. Production is everything, and jobs are nothing but a means toward that end.

Imagine the Swiss Family Robinson marooned on a deserted South Sea island. Do they need jobs? No, they need food, clothing, shelter, and protection from wild animals. Every job created is a deduction from the limited, precious labor available. Work must be rationed, not created, so that the market can create the most product possible out of the limited supply of labor, capital goods, and natural resources.

The same is true for our society. The supply of labor is limited. We must not allow government to create jobs or we lose the goods and services which otherwise would have come into being. We must reserve precious labor for the important tasks still left undone.

Alternatively, imagine a world where radios, pizzas, jogging shoes, and everything else we might want continuously rained down like manna from heaven. Would we want jobs in such a utopia? No, we could devote ourselves to other tasks - studying, basking in the sun, etc. - that we would undertake for their intrinsic pleasure.

Instead of praising jobs for their own sake, we should ask why employment is so important. The answer is, because we exist amidst economic scarcity and must work to live and prosper. That"s why we should be of good cheer only when we learn that this employment will produce things people actually value, i.e., are willing to buy with their own hard,earned money. And this is something that can only be done in the free market, not by bureaucrats and politicians.

The Destruction of Jobs

But what about unemployment? What if people want to work, but can"t get a job? In almost every case, government programs are the cause of joblessness.

Minimum Wage. The minimum wage mandates that wages be set at a government-determined level. To explain why this is harmful, we can use an analogy from biology: there are certain animals that are weak compared to others. For example, the porcupine is defenseless except for its quills, the deer vulnerable except for its speed.

In economics there are also people who are relatively weak. The disabled, the young, the untrained—all are weak economic actors. But like the weak animals in biology, they have a compensating advantage: the ability to work for lower wages. When the government takes this ability away from them by forcing up pay scales, it is as if the porcupine were shorn of its quills. The result is unemployment, which creates desperate loneliness, isolation, and dependency.

Consider a young, uneducated, unskilled person, whose productivity is $2.50 an hour in the marketplace. What if the legislature passes a law requiring that he be paid $5 per hour? The employer hiring him would lose $2.50 an hour.

Consider a man and a woman each with a productivity of $10 per hour, and suppose, because of discrimination or whatever, that the man is paid $ 10 per hour and the woman is paid $8 per hour. It is as if the woman had a little sign on her forehead saying, "Hire me and earn an extra $2 an hour."

This makes her a desirable employee even for a sexist boss. But when an equal-pay law stipulates that she must be paid the same as the man, the employer can indulge his discriminatory tendencies and not hire her at all, at no cost to himself.

Comparable Worth. What if government gets the bright idea that nurses and truck drivers ought to be paid the same wage because their occupations are of "intrinsically" equal value? It orders that nurses" wages be raised to the same level, which creates unemployment for women.

Working Conditions. Laws which force employers to provide certain types of working conditions also create unemployment. For example, migrant fruit and vegetables pickers must have hot and cold running water and modern toilets in the temporary cabins provided for them. This is economically equivalent to wage laws because, from the point of view of the employer, working conditions are almost indistinguishable from money wages. And if the government forces him to pay more, he will have to hire fewer people.

Unions. When the government forces businesses to hire only union workers, it discriminates against non-union workers, causing them to be at a severe disadvantage or permanently unemployed. Unions exist primarily to keep out competition. They are a state-protected cartel like any other.

Employment Protection. Employment protection laws, which mandate that no one can be fired without due process, are supposed to protect employees. However, if the government tells the employer that he must keep the employee no matter what, he will tend not to hire him in the first place. This law, which appears to help workers, instead keeps them from employment. And so do employment taxes and payroll taxes, which increase costs to businesses and discourage them from hiring more workers.

Payroll Taxes. Payroll taxes like Social Security impose heavy monetary and administrative costs on businesses, drastically increasing the marginal cost of hiring new employees.

Unemployment Insurance. Government unemployment insurance and welfare cause unemployment by subsidizing idleness. When a certain behavior is subsidized—in this case not working—we get more of it.

Licensing. Regulations and licensing also cause unemployment. Most people know that doctors and lawyers must have licenses. But few know that ferret breeders, falconers, and strawberry growers must also have them. In fact, government regulates over 1,000 occupations in all 50 states. A woman in Florida who ran a soup kitchen for the poor out of her home was recently shut down as an unlicensed restaurant, and many poor people now go hungry as a result.

When the government passes a law saying certain jobs cannot be undertaken without a license, it erects a legal barrier to entry. Why should it be illegal for anyone to try their hand at haircutting? The market will supply all the information consumers need.

When the government bestows legal status on a profession and passes a law against competitors, it creates unemployment. For example, who lobbies for the laws which prevent just anyone from giving a haircut? The haircutting industry—not to protect the consumer from bad haircuts, but to protect themselves against competition.

Peddling. Laws against street peddlers prevent people from selling food and products to people who want them. In cities like New York and Washington, D.C., the most vociferous supporters of anti-peddling laws are established restaurants and department stores.

Child Labor. There are many jobs that require little training—such as mowing lawns—which are perfect for young people who want to earn some money. In addition to the earnings, working also teaches young people what a job is, how to handle money, and how to save and maybe even invest. But in most places, the government discriminates against teenagers and prevents them from participating in the free enterprise system. Kids can"t even have a street-corner lemonade stand.

The Federal Reserve. By bringing about the business cycle, Federal Reserve money creation causes unemployment. Inflation not only raises prices, it also misallocates labor. During the boom phase of the trade cycle, businesses hire new workers, many of whom are pulled from other lines of work by the higher wages. The Fed subsidy to these capital industries lasts only until the bust. Workers are then laid off and displaced.

The Free Market. The free market, of course, does not mean Utopia. We live in a world of differing intelligence and skills, of changing market preferences, and of imperfect information, which can lead to temporary, market-generated unemployment, which Mises called "catallactic." And some people choose unemployment by holding out for a higher paying job.

But as a society, we can insure that everyone who wants to work has a chance to do so by repealing minimum wage law, comparable worth rules, working condition laws, compulsory union membership, employment protection, employment taxes, payroll taxes, government unemployment insurance, welfare, regulations, licensing, anti-peddling laws, child-labor laws, and government money creation.

The path to jobs that matter is the free market.

What The Jobs Report DIDN’T Tell You Last Week

Ever since the gold report was published, the gold price moved up. This caught several investors by surprise, as some of them even continued to dump gold, scared by what appeared to be a good jobs report.

‘Appeared to be’, because?

Yes, 227,000 new jobs were created, and we can’t deny that’s a positive evolution. However, the increased job number is also the only positive thing in the jobs report, and there are two other issues that haven’t really been highlighted.

Two issues that could, and probably will, have an impact on the interest rate decisions later this year.

First of all, the unemployment rate in the USA actually increased from 4.7% to 4.8%, despite the job growth.

How is that possible?

Simply put, due to the way the Bureau of Labour Statistics is gathering its data, almost 700,000 people have been ‘removed’ from the civilian population. The total size of the civilian population is rebalanced on a yearly basis, in January.

Source: Bureau of Labor Statistics

The smaller size of the civilian population caused the labor force participation rate to increase by 0.2%, and this by itself caused the unemployment rate to increase as well, despite the job creation number.

And as the unemployment rate is one of the key factors the Federal Reserve is looking at to determine whether or not a rate hike is appropriate, this small increase could have an impact on the decision making process. And keep in mind this is the second consecutive increase in the unemployment rate as the December unemployment rate also came in higher than the unemployment rate in November (and this did not include any population rebalancing exercise).

But perhaps even more important is the extremely disappointing update on the average hourly earnings (‘AHE’). The AHE increase fell to just 0.1% in January on a month/month comparison, but the real catch is in the details.

Exactly because the 0.1% increase is focusing on a monthly update, the revision of the wage increase in December is actually telling you something more serious is going on. The December wages have been revised down by 0.2%, so if that would NOT have happened, the average hourly wage would have DECREASED in January.

Source: tradingeconomics.com

And that’s a horrible conclusion, considering the official inflation estimates are currently hovering at around 2.3-2.5% by the end of 2017, it’s pretty easy to see and understand the inflation will eat a lot of the wealth of the lower income class and middle class people away. Indeed, let’s have a look at the expected five year forward inflation rate, as expected by the Federal Reserve:

Source: St Louis Fed

After all, the salaries are remaining relatively stable, whilst the inflation rate is eating away 2% of the families’ purchasing power. You don’t have to be a genius to see this could go terribly wrong as a declining purchasing power will reduce the so-called  ‘disposable income’, causing the demand for non-essential goods to increase. We aren’t just ‘inventing’ this. Just have a look at the next chart which shows you the consumer confidence level in the USA.

Source: tradingeconomics.com

Indeed, despite the job growth in January, the consumer confidence level was decreasing and this should tell you the common man in the street doesn’t feel too confident about the ‘job growth’ numbers and the economic prospects for the middle class man.

The numbers don’t lie, and even though the Bureau of Labour Statistics was proud to announce yet another increase in the job numbers, the data that wasn’t shouted from the rooftops is far more important. The US Consumer Confidence is decreasing, and the wages are stalling. This means inflation is eating away the people’s purchase power ànd savings.

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How The Coming Wave Of Job Automation Will Affect You

Submitted by David Galland via The Passing Parade

One of the more interesting mental exercises related to predicting the future involves trying to fathom the impact the rise of robots will have on humanity.

We can be quite sure that in the proverbial blink, robots will be doing all the war fighting. After that, what’s the point? But does that then lead to the sort of robotic apocalypse so well envisioned in Terminator?

I also suspect it’s only a matter of time before the idea of sex bots goes from being an “eew” sort of thing to a household appliance. Well, at least in some households. After all, we already live in a world where every possible iteration of sexual proclivity is not just accepted but celebrated. So, who’s to deny the unmated a good snogging from the Yabadabdo Sexbot 2000?

In fact, in a recent survey, 1 in 4 adults aged 18 to 34 said they would “date” a robot. But what will the impact of bionic sex partners be on society—or birth rates, for that matter? It’s all but impossible to see through the fog to the answers.

We already have robo news reporters (you didn’t actually think humans write the crap passed off for news these days, did you?) Of course, as the news writing programs become more and more sophisticated, might the algorithms be tweaked to influence the masses to buy an advertiser’s product or, more onerously, to create a desired political outcome? You know, kind of how Google tried to get Hillary elected?

In terms of managing money, we already have robo traders and robo advisors. But what happens when these technologies become self-learning? Will the competing programs become so adept at exploiting kinks in the armor of Mr. Market that they will effectively nullify each other?

It’s also abundantly clear that self-driving cars will become the norm within the next decade. As someone who hates driving, that is a development I eagerly await. But imagine the sweeping changes self-driving cars will have on insurance, road building, car manufacturers, trucking, energy usage, the urban landscape, the taxi industry, government and regulations (will we still need driver’s licenses?), senior mobility, etc. It’s staggering to contemplate, and it’s just over the horizon.

I could continue, but as I am preparing for a trip to Tafí de Valle in the neighboring province of Tucumán here in Argentina tomorrow morning, I’ll shuffle toward the featured article of this week’s musings—a look at the impact of automation on the structure of the workforce by friend and associate Stephen McBride.

This is a particularly interesting topic on many levels. What percentage of the workforce is at risk of being replaced by automation? Where will the displaced find new jobs? What job skills will remain largely immune to automation? How will the US government, which is funded to the tune of 92% by income-related taxes, replace the lost revenue… a robot tax?

It’s a big topic, too big for a single Parade, but we must start somewhere. And with that, I turn the podium over to Stephen.

How the Coming Wave of Job Automation Will Affect You

By Stephen McBride

The 227,000 jobs added to the payroll in January marked the 76^th straight month of expansion. The headline number is impressive. But if you dig a little deeper, you’ll find these jobs “aren’t what they used to be.”

Since 2000, the creation of full-time positions has slowed significantly. The private sector used to add full-time jobs at 2–3% per annum. In 2000, that number fell below 2%. Since 2008, it has been below 1%.

The majority of positions created since 2010 have been temporary. Around 20–50% of employees at the likes of Google and Walmart now fall into this category. With the explosion of contract workers, “workforce solution” firms now generate an estimated $1 trillion in revenue every year.

The declining quality of jobs has caused many to stop looking for work. The labor force participation rate is near the lowest level since 1978. Hordes of Baby Boomers retiring skews the data somewhat, but the rate for workers in their prime isn’t pretty either. Almost 12% of men aged 25–64 aren’t in the workforce—a near five-fold increase in 60 years.

So what has caused this shift?

Automation Annihilation

Steven Berkenfeld, a managing director in the investment banking division at Barclays, summed up the thought process of companies hiring today: “Can I automate it? If not, can I outsource it? If not, can I give it to an independent contractor?” Hiring an employee is the last resort.

Over the past four decades, millions of jobs have been lost to automation. The manufacturing sector is a prime example. While productivity has increased, employment has fallen.

We can see this trend when comparing companies across time. The most valuable US firm in 1964 was AT&T. Then, it was worth $267 billion (in 2016 dollars) and employed 758,611 people. Today, Google is worth $370 billion and has only 55,000 employees.

Many workers have already been replaced by machines, but the number is only set to rise.

A 2013 study from the University of Oxford concluded that 47% of jobs in the US will likely be automated over the next two decades. And a 2015 report by McKinsey found that the majority of tasks performed in sectors like manufacturing and food service can be automated with currently demonstrable technology.

Technological advancement has created more jobs than it has destroyed in the past. However, the big problem is the lag time it takes to forge those new careers. Given the high cost of living in the US today, even a small lag could be financially devastating.

Let’s take a look at the implications of job displacement going forward…

The Missing Middle

Due to an inability to secure a full-time job, McKinsey estimates 20–30% of workers now partake in contingency work to supplement their income. Work in the “gig economy” can be fun, but it doesn’t provide a stable, reliable wage. Sure, one can survive on it, but it’s hard to get mortgage approval or support a family with it.

One of the reasons the US became an economic behemoth was its large middle class. With the loss of traditional careers, this trend is now in reverse. Over time, employment will likely become polarized as “Middle America” is hollowed out.

Lower-quality careers ultimately mean lower pay… and when incomes drop, people have less to spend. Given that consumption now accounts for 70% of economic activity, this is a matter of great concern. As the Fed has stated: Recoveries don’t die of old age. It’s usually falling demand that leads to their death.

Many Americans are unable to find full-time employment, but they are spending more trying to attain it. Outstanding student loans now total a whopping $1.4 trillion. This isn’t a problem if individuals have the ability to pay. But with 45% of recent college graduates underemployed and 10% over 90 days late on payments, it’s a big problem.

In 2013, the Department of Labor predicted 65% of school children will be employed in jobs that don’t yet exist. Therefore, many of the skills they are learning today will likely be obsolete in the near future.

And it’s not only job seekers who are affected. With dependency ratios collapsing, who will fund the pensions of the retiring Boomers?

Displacement does not only have economic consequences, it also has profound social consequences. A Gallup study found that having a job was the number one social value. Unemployment is linked to increased drug use and depression. It’s also positively correlated with crime.

While automation will have a major impact on the future of employment, the outlook is not all bad.

Machines may be rendering many skills useless, but creativity is where humans still have an edge. McKinsey listed “managing others” and “applying expertise” as the least susceptible to automation. Likewise, Deloitte identified cognitive skills as the most important to have going forward.

Machines may be advancing, but the future is likely to be one of collaboration, not competition. There will be serious challenges in the near term as many jobs are displaced by technology. But in the end, who would bet against the “ascent of man”?