Bullshit Eco News: Jobless Claims

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Today’s Reuters story about initial jobless claims is pure bullshit because it concludes that the low level of workplace firings we’re now seeing signals improvement in the U.S. labor market, but does so without explaining that there are a lot fewer people with jobs they can be fired from.

This is the economic equivalent of saying “good news, none of your kids died this week” to someone who lost all of their children in a horrific car crash a year ago.

Why?

Because the painful truth is that the U.S. labor market continues to struggle mightily seven years after the worst economic downturn in U.S. history since The Great Recession. The percentage of the adult population which has work in this nation right now is locked in a range that’s the lowest in 32 years.

So many people have been fired and so many salaries have been reduced that there just aren’t as many well paid people to fire in our nation anymore for companies looking to cut their labor costs. Those bad times are what’s driving the reduction in firings. They’re not indicative of good times.

Publicly traded companies are so obsessed with their stock price that they now use headcount reductions and pay cuts to create the appearance of growth in the absence of true growth. Every cent they appear to save on labor costs appears as an additional penny of profit, but at a very heavy cost to their long-term prospects.

It’s the corporate equivalent of burning your furniture to stay warm in the winter. Which is why you don’t see truly profitable companies doing it.

The smaller number of fired workers this story talks about is to be expected in a society where there have been fewer people with decent-paying jobs every year since 2007. In that context, the lower level of firings does not point to a “solid labor market” as this story erroneously claims.

Instead, it points to an economy on the verge of collapse due to the reduced ability of idled workers to consume goods and services and to the unwillingness of so many employed workers to buy homes. Even workers with good jobs are hesitant to tie themselves to a single area by purchasing a home and having kids at a time when publicly traded companies are so willing to fire people in response to brief fluctuations in demand for their goods and services.

The twin backbones of consumer spending – which accounts for about 68.5 percent of the $17.4 trillion American economy – are discretionary spending and residential housing purchases. When they falter, as they have since 2008, our national economy gets weaker and weaker.

There simply are not that many well paid people in this nation for the Fortune 500 to fire any more and that’s a big reason why the level of initial claims reported by Reuters looks so low.

But don’t look to any mainstream news organization to tell you that. They specialize in fatally flawed economic stories like this one, which simultaneously bullshit the average American while educating the financially literate predators of Wall Street who exploit them.

The Fortune 500 continues to boost profits by reducing labor costs in the absence of real growth. One of the main ways the Greed-is-Good crowd accomplishes this is by replacing veteran workers making good money with underpaid kids fresh out of school. But the cheaper kids are less productive than the experienced folks they replace, so it’s a pyrrhic victory at best for those who engage in these machinations and one which exists only on paper.

The economic indicator in the Reuters story is called “initial jobless claims” and it’s a measure of new unemployment claims. However, initial jobless claims don’t measure the percentage of the population which cannot be fired because it’s already been let go. The level of firing it reflects is meaningless in the absence of that context.

It’s the job of the economic journalists who generated this Reuters story to bring that information into their coverage of it. By failing to do so they provide an artificial and misleading outcome to their readers, especially those who are not familiar with the limits of this indicator.

Let me put it another way: If every American worker were fired a year ago the number of initial jobless claims this week would be zero. But that low level wouldn’t be a good thing and it wouldn’t point to a solid labor market.

The best measure of our labor market is the payroll-to-population ratio, which measures the percentage of people who are employed. It’s better than the unemployment rate, which only measures the percentage of idled workers who are actively looking for work seven years after the worst economic collapse in U.S. history since The Great Depression.

Workers who have given up looking for new jobs are neither counted by the monthly unemployment rate nor reflected in the weekly initial jobless claims reports.

However, they are included in the payroll-to-population rate in the chart at right. The ratio was 59.3 percent in June for Americans 16 or older and its been below 60 percent since 2008. That compares with 64.5 percent in June of 2000. The last time the ratio was below 60 percent this long was 1983, when women were much more likely to be stay-at-home housewives.

That sea change in the number of employed Americans is why our labor market feels so lethargic right now. Fewer people have jobs and those who do typically have to work a lot more hours to receive the same pay as before, which makes them harder to replace.

That’s why we’re seeing fewer firings.

It’s not a sign of strength. It’s a sign of weakness.

It’s also the reason why the housing market continues to struggle so much.

The United States doesn’t have a healthy labor market, we don’t have a healthy corporate community or a healthy economy, and we are very far from being the wealthiest nation on the planet.

The painful truth is that we are in the midst of an unsustainable cycle of self destruction driven by a plague of Wall Street locusts who call themselves “hedge funds” and “private equity funds,” and consume one source of currency protein after another.

Everyone on the planet with any kind of real financial literacy can see this. That’s why they’re now racing one another to pilfer our pay-to-play government’s treasury ahead of its increasingly likely economic collapse under the weight of schemes like payday lending, predatory loans, for-profit colleges and red-light cameras. The locusts use them all to bilk money out of the U.S. economy as our neutered government regulators stand by and watch.

They’re moving into the insurance and news industries right now and it’s virtually assured that if they haven’t taken from you yet – they will. Because they need to grow and there are fewer pots of money in our economy as they destroy them.

Still don’t believe me?

Well, the chart at right shows how corporate profits have surged in the new millenium. The gains are coming mostly out of the pockets of the workers who are being paid less and doing more. The very people who must work harder, according to silver spoon presidential candidate Jeb Bush.

There’s a similar chart below it for wages, which was produced by The Pew Research Center. The top line is for wages after they’re adjusted for inflation and shows how flat they’ve been for 50 years now.

At the very bottom, is another cool chart for productivity from Mother Jones, which shows that U.S. workers are producing a helluva lot more for the same wages.

How’s that happen?

Some of it is due to new technology, but a lot of it happens when two people are fired and a third is given their work and told to do 120 hours of labor for 40 hours of pay. Or else.

 

 

 

Editor’s note: Reuters was not singled out in this column because its economic team is weak, or because its coverage of initial jobless claims or any other economic indicator is particularly flawed.

In fact, its dedicated eco team is one of the best in the business. If not the best.

Reuters’ competitors on economic indicators include Bloomberg News, Market News International, The Wall Street Journal and The Associated Press. All of them routinely commit the same errors. Mostly because their eco stories are geared toward financial professionals, but are widely reprinted by lesser news organizations serving more general readerships.

This is problematic because a financial audience is more likely to understand the information omitted from indicator stories, such as the failure to adjust monthly job creation tallies for population growth. This growth makes zero between 90,000 and 130,000 jobs.

A general audience is more likely to view something like a monthly job creation tally of 50,000 as a positive for the labor market in the absence of that caveat, when it’s really a net loss of 40,000 to 80,000 jobs. The same kind of thing is true of comparisons of historical housing activity which don’t account for population growth.

That’s what we mean when we say these flawed stories can simultaneously inform one audience while misleading another.