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A Bubble In Search of a Pin


Should Greenspan, Bernanke, and the entire Fed have seen it coming?


The work-week hours rose slightly. Income growth was better than it's been. Temporary workers rose, which is typically a harbinger of an increase in full-time employment. The number of people working part-time for economic reasons plummeted by 849,000.

And finally, the unemployment rate fell 0.3% to 9.7%. This of course means that more people are dropping out of the labor pool, and it also means they'll at some point come back.

On the negative side, a loss of 22,000 jobs is nowhere close to the 100,000 new jobs that are needed just to hold unemployment steady. 41% of those unemployed have been so for over six months.

Quoting David Rosenberg:

While there will be many economists touting today's report as some inflection point, and it could well be argued that we are entering some sort of healing phase in the jobs market just by mere virtue of inertia, the reality is that the level of employment today, at 129.5 million, is the exact same level it was in 1999. And, during this 11-year span of Japanese-like labor market stagnation, the working-age population has risen 29 million. Contemplate that for a moment; fully 29 million people competing for the same number of jobs that existed more than a decade ago. That sounds like pretty deflationary stuff from our standpoint.

Not only that, but consideration must be taken that in 2009, we had a zero policy rate, a $2.2 trillion Fed balance sheet and an epic 10% deficit-to-GDP ratio. You could not have asked for more government stimulus. Yet employment tumbled nearly 5 million in 2009.

Finally, a very sad chart, courtesy of David. Those in the 25-54-year-old male category have seen their total number of jobs fall back to the level it was in 1996. Fourteen years later, and the "breadwinners" who are supposedly in their prime have seen an almost 10% drop in employment.

As noted above, January employment numbers are very volatile, and are likely to be adjusted either up or down by a lot in coming months. But this report wasn't the disaster of December. It still shows a very weak economy that certainly doesn't need a large tax hike next year. I hope we start seeing some positive numbers soon, but I'm not optimistic that we're going to see the 200,000-plus new jobs per month we need to really start denting the unemployment numbers for some time. Not when the National Federation of Independent Business says 71% of small businesses don't plan to hire this year.

The Fed is taking away quantitative easing. Stimulus spending is exiting in the last half of the year. States and communities are having to either raise taxes or cut spending by $350 billion! I heard on the radio coming back from the gym (I think it was my friend Steve Liesman on CNBC) that there are now 55,000 fewer teachers than a few years ago.

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