FLASH UPDATE - September 5, 2008

 

 

 

JOHN WILLIAMS’ SHADOW GOVERNMENT STATISTICS

 

FLASH UPDATE

 

September 5, 2008

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Employment/Unemployment Data Confirm Deepening Recession

Concurrent Seasonal Factor Bias Suggests 123,000 July Jobs Loss

M3 Growth Remains Positive but Slowing

 

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Pattern of Monthly, Quarterly and Annual Payroll Contractions Not Seen Outside of Recessions. Once again, the monthly employment report showed an intensifying recession, with increasing payroll losses and rising unemployment. Monthly, quarterly and annual payroll contractions continued, showing patterns never seen outside of recessions. Once again, however, the reported payroll and unemployment deteriorations appear to have been shy of reality, with payroll data revisions pushing greater weakness into prior history.

Payroll Survey.  The Bureau of Labor Statistics (BLS) reported a statistically-insignificant, seasonally-adjusted jobs loss of 84,000 (down 142,000 net of revisions) +/- 129,000 for August, following a revised 60,000 (previously 51,000) jobs loss in July.  Annual change (unadjusted) in total nonfarm payrolls continued to be negative, down 0.29% in August versus a revised 0.15% (previously 0.13%) decline in July.  The seasonally-adjusted series also remained negative year-to-year, down 0.21% in August versus a revised 0.09% (previously) 0.05% drop in July.

Concurrent Seasonal Factor Bias.  The pattern of impossible biases (see the Reporting/Market Focus in the June 10, 2008 SGS Newsletter) being built into the headline payroll employment changes resurfaced with the August reporting.  Instead of the headline jobs loss of 84,000, consistent application of seasonal-adjustment factors — net of what we are calling the concurrent seasonal adjustment bias — would have shown a more-severe monthly jobs loss of about 123,000.  Including last month’s pattern reversal, the upside reporting bias has been seen in 10 of the last 12 months.

Birth-Death/Bias Factor Adjustment.  Another element that added upside pressure to the monthly payroll numbers was the monthly bias factor (birth-death model). Never designed to handle the downside pressures from a recession, the model added a 125,000 upside jobs bias to August 2008 (versus last August’s 102,000 upside bias), following a net upside bias of 4,000 jobs in July 2008. 

Household Survey.  The usually statistically-sounder household survey, which counts the number of people with jobs, as opposed to the payroll survey that counts the number of jobs (including multiple job holders), showed household employment fell by 342,000 in August, following a 72,000 decline in July.

The August 2008 seasonally-adjusted U.3 unemployment rate showed a statistically-significant increase to 6.05% +/- 0.23% from 5.68% in July.  Unadjusted, U.3 increased to 6.1% in August, versus 6.0% in July.  The broader U.6 unemployment rate jumped to an adjusted 10.7% (10.7% unadjusted) in August from 10.3% (10.8% unadjusted) in July.  Refigured for the bulk of the "discouraged workers" defined away during the Clinton Administration, actual unemployment, as estimated by the SGS-Alternate Unemployment measure, rose to about 14.7% in August, up from 14.3% in July.

Employment Environment. The deterioration in August’s employment reporting continued in line with, but still shy of reality, per trends indicated by the better-quality employment-environment indicators: July help-wanted advertising fell again, retesting its historic low; new claims for unemployment insurance continued to surge sharply in terms of annual growth; and recession-level employment readings were seen in both the August manufacturing and nonmanufacturing purchasing managers survey. In combination, these factors suggest that an ongoing jobs loss running in excess of 100,000 jobs per month would be closer to reality than the officially-reported changes.

Since the employment and unemployment indicators tend to be coincident markers of broad economic activity, weaknesses in these numbers are signaling an ongoing recession in place.

M3 Growth Continues to Soften. Based on incomplete numbers for August, the SGS-Ongoing M3 estimate of annual growth in seasonally-adjusted M3 could slow to roughly 14% from 15.4% in July. Such reflects continued slowing monthly growth in the major M3 components, including what may be a flat M2 in August versus July. Nonetheless, monthly growth in total M3 should remain in positive territory for August, and annual growth remains at a highly inflationary level. Further detail will follow in the pending newsletter, with numbers based on more complete information.  

General Outlook Remains Unchanged. As will be discussed in the next newsletter, some of the recent wild price swings seen in the U.S. dollar, oil and gold likely have been encouraged by very some large players in the market, some with actions taken or interests in tandem with certain central banks. The high volatility in the various markets likely will continue, with the gold and currency markets remaining subject to jawboning and both covert and overt central bank intervention. It remains unlikely that we have seen the near-term high in oil prices, and neither has gold topped nor the dollar bottomed. 

All factors considered, the broad outlook remains the same: further intensification of the inflationary recession and a deepening systemic and banking solvency crisis.  Fluctuating, near-term market recognition of these issues and mounting global political tensions intensify the risks for unstable market conditions.

Over the near-term, negative major market displacements likely will follow or be accompanied by intense, broad selling of the U.S. dollar.  An eventual, increasing flight-to-safety outside of the U.S. dollar also should include flight-to-safety into gold.  Despite continuing softness in oil prices, current levels (anything above $90 per barrel) remain highly inflationary. Over the longer term, U.S. equities, bonds and the greenback should suffer terribly, while gold and silver prices should boom.

 

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The next SGS Newsletter is targeted for the coming week (week of September 8th).  The posting of the newsletter and all intervening Flash Updates and Alerts will be advised by