"Altruistica": Seeking a return to full financial disclosure and regulatory oversight. A financial market analysis blog for "entertainment purposes" only by an experienced CFA seeking new hedge fund engagements for investment writing and analysis. The author has experience investing internationally, running a hedge fund, making angel investments, and helping launch five startup companies. Investors should do their own due diligence.

05 January 2007

Manufactured Jobs Report Ignores Loss of Manufacturing Jobs

The morning jobs report stymied those who expected the ADP (more substantive) jobs contraction news to be somewhat aligned with the Commerce Department report. Of course, 55K of the claimed 167K jobs increase came from the Bureau of Labor Statistics' (BLS or BS, for short) "birth/death model" which simply imagines that new business startups create new jobs. Peter Schiff of EuroPacific Capital points out that:

December’s larger than expected jump in non-farm payrolls is predictably being touted as evidence of a more vibrant U.S. economy. Unfortunately, the data does not support this conclusion. The bloated service sector added 178,000 jobs, while manufacturing shed another 12,000 jobs. What this means is that 178,000 more workers will be consuming goods while 12,000 fewer will be making them. The result will be larger trade deficits that merely compound already stretched global imbalances and exacerbate America’s inevitable day of reckoning. A service sector can only exist so long as it is supported by a vibrant manufacturing sector. The reason is simple. People employed in the service sector consume goods but do not actually produce any of them. Therefore they must rely on others, who presumably benefit from their services, to produce goods in their stead.

In modern America, the goods shortfall is being made up by foreigner producers, who only derive a marginal benefit from the American service sector. In December, 43,000 new jobs were added in the education and health care sectors and 50,000 were added in business and professional services. What are all of these people going to export in order to pay for all the imported goods their paychecks will permit them to consume? Is there really that big a demand for American legal services in China? Do the Japanese really need our accounting advice? Do Saudi Arabian children benefit from pre-schools in America? How many sick Germans will seek treatment in American hospitals? The fact that the U.S dollar rose in response to today’s jobs data is further evidence of how widespread this misunderstanding has become. Currency traders bid up the dollar because they assume a stronger jobs market will engender higher interest rates, which is perceived as dollar bullish. However, they ignore the longer term implications of the larger trade deficits that those service jobs will ultimately produce, which is decisively dollar bearish. For now, all these excess dollars are being absorbed by foreign central banks precisely because foreign private consumers have little use for them. Today’s jobs data means that the resolve of foreign governments to continue accumulating additional dollar reserves will be that much harder to maintain.

As George Ure of Independence Journal points out:
Quite a few revisions this time, but here's my take on the jobs picture. First, manufacturing jobs dropped again in December. Government jobs went up. And when I look at claimed job growth, it doesn't seem like it's keeping up with the underlying growth in the labor force, a figure lots of fancy stats seems to whitewash:

BLS Claimed Job Growth Labor Force Revisions
Dec-05 108 150153 150153
Jan-06 193 150114 150114
Feb-06 243 150449 150449
Mar-06 211 150652 150652
Apr-06 138 150811 150811
May-06 75 150991 150991
Jun-06 121 151321 151321
Jul-06 113 151534 151534
Aug-06 128 151698 151698
Sep-06 51 151799 151799
Oct-06 92 151998 152052
Nov-06 132 152381 152449
Dec-06 167 152775 152775
1 YrTotal 1605 2622 2622

But, to me, the figures seem to show that while the labor market was up 2.6 million, jobs (created totalled) only 1.6 million (leaving 39% of the new labor force without jobs), and while this is going on, miraculously, there's no change in the jobless rate.


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