The real and unreal in the Fed’s report on the economy

The real and unreal in the Fed’s report on the economy

Steel iron worker

NEW YORK, May 1, 2014 — The Fed is ramping down another $10 billion per month from bond purchases in quantitative easing, setting the meter at $45 billion per month going forward. The Fed claims that it sees “growth in economic activity.” It is evidently talking about stats or trends they are looking at in the present, because GDP growth for the 1st Quarter of 2014 came in at just 0.1. The explanation or excuse, depending on your outlook, is that heavy storms and ugly weather (aka, the polar vortex) put a damper on economic activity.

Based on the Fed’s cheery report, the Dow rose to a record high, hitting 16,580. The central bank also noted that “adjusted inflation” was low, to the extent that it causes concern of “risks to economic performance.” They must not be looking at the price of energy or basic necessities that consumers deal with on a daily basis, both of which, of course, have been excluded from the official inflation index since the 1980s.

Consumer spending edged upward. But when one takes a look at the internals, one soon discovers that the biggest component was the predictable increase in cost to consumers resulting from the “Affordable Care Act.” If a surge in prices results in a pinch on consumers to the tune of $43 billion, you have to wonder if they’ve changed the definition of “affordable.” The pickup added 1.1 percentage points to growth, the most since quarterly records began in 1947.

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As more Americans find their health coverage premiums going up or have to purchase more expensive replacement policies, no doubt GDP will continue to be padded as a consequence. Of less interest to the upbeat reports was the fact that industrial business investment in equipment and materials was down 2.1% – a very telling number. Utility bills were a big part of the Consumer Spending number, while spending on goods hardly moved. New housing starts were down and our already unhealthy trade imbalance widened. But, the standard narrative is that all will be splendid going forward, because the spring thaw is here at last.

There is one metric that is emphasized with more insistence and drama than any other in the corporate media’s banner reporting of the health of the economy – unemployment and “jobs created” or added to the economy. More emphasis is given in reports if the current number can be interpreted as meaning that the economy is on the uptick. Is the jobs picture impressive? Perhaps, against a background of lowered expectations. ADP’s payroll survey reported an added 220,000 jobs this month, compared to general predictions of 210,000.

To put this into perspective however, April’s numbers allegedly bring the average up to 180,000 per month for the first quarter, which is slightly above the number needed to keep pace with population growth. The Bureau of Labor Statistics estimates that 10.5 million people are unemployed. If that is an accurate number – which is questionable in light of truth from this administration being in short supply, you can see that we’re a long ways off from returning to acceptable employment numbers that befit a genuine recovery as opposed to a media contrived coverage of one.

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The problem is the little known or discussed fact that the jobs numbers – whether the ones submitted by ADP on Wednesday or the BLS numbers expected tomorrow, potentially are wildly inaccurate and are subject to major revisions, as is the GDP number and other metrics. As Dan Diamond writes in Forbes, “the jobs report is getting press-ganged into a job it wasn’t meant for. The numbers are horribly imprecise, off by more than 30% any given month — a gap that we’d never tolerate for an election or even a paycheck”.

News anchors and radio reporters don’t add this disclaimer in their trumpeting of the vaunted first Friday of the month numbers, but the BLS does. Their official margin of error for any given month is 100,000 jobs. As The Economist‘s Ryan Avent noted, “there is a 90% chance that employment rose [in March] by between 20,000 and 220,000 jobs.” ADP has been measured to be off by as much as 60,000 jobs.

That’s one problem. Here’s another. If instead of “U-3” – the more favorable sounding statistic, you use the more inclusive number of disenfranchised workers, known in government statistics as “U-6”, (the data point you never hear in mass media job reports), unemployment is over 20 million. Would it make sense to let Congress add millions of foreign workers to the existing H1-B1 visa quota? Only if you are an employer in the tech or professional services sector, looking to maximize shareholder value while further eroding the wages of working Americans.

Meanwhile, a closer look at the statistics from BLS, indicates that the second largest category of new hiring was in “food services and drinking places”. Translated – fast food. Burger King says business is picking up after the winter blues.

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