Lies, Damn Lies, and the Real Estate Recovery
Reports of the economy's health have been greatly exaggerated.
Editor's Note: This is part 1 of a multi-part series. See part 2 here.
A few weeks ago I first used the term "statistical recovery" to describe the nature of today's economic environment. Today we're going to further explore that concept, as it's important to have a real understanding of what's happening. This coming "recovery" isn't going to feel like a typical one, and those expecting a V-shaped one are simply making projections from previous economic recoveries, which, based on the fundamentals, aren't warranted.
The Statistical Recovery
The unemployment numbers came out last Friday, and Steve Liesman of CNBC did several interviews live from Leen's Lodge in Maine. I postponed an hour of fishing to be on air with Martin Barnes (of the Bank Credit Analyst) to comment on the numbers. Everyone seemed quite excited that the US lost "only" 247,000 jobs. However, it's still almost twice as large as a year ago; at that time, 128,000 lost jobs seemed pretty bleak.
Nevertheless, comparing it to the average of 692,000 lost jobs per month in the first quarter, those looking for good news immediately started talking about how a recovery is around the corner.
The unemployment numbers are some of the most seriously revised numbers in all of government data. The first monthly estimate is notoriously imprecise. Why people make investment decisions based on this release is beyond me. As I mention continuously, because of seasonal adjustment factors, the unemployment numbers understate job losses in a recession as well as understate job gains in a recovery. About the most we can get from the current data is the broad trend. Admittedly, the trend is getting better, but we're still in a hole and no one has stopped digging.
What we can see is that we're down 6.7 million jobs since the beginning of 2008! We have roughly eliminated the job growth of the last 5 years. And that doesn't take into account the 150,000 new jobs that are needed each month just to maintain the employment rate because of the increase in population. It took 55 months once the 2001 recession was officially over to get back to the previous employment peak. That's 4.5 years, and we're further down now and faced with massive deleveraging. It's going to take a lot longer this time. Let's look at some of the reasons why.
I took a different tack in the CNBC interview. I pointed out that even though it's possible (likely?) we'll see a positive number for GDP for the third quarter, it's not going to feel like a recovery for quite some time.
By the middle of next year (2010) -- when I think we we'll finally hit an unemployment bottom – we'll be down close to 8 million jobs, wiping out all the jobs created since the middle of 2004. Unemployment is likely to be more than 10%, unless they keep playing games with the number.
A Recovery Statisticians Can Love
What I mean by that remark is that the unemployment number went down, even though we lost 247,000 jobs. How can that be? Well, the government assumes that if you weren't looking for a job within the last month, then you're not unemployed. Therefore, on a statistical basis, the number of people unemployed went down by 400,000. (There are 2.3 million such discouraged workers.) More in a minute on the problem that will cause down the road.
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