Likely effect of disastrous employment figures

Bonddad referred me over to Mish's analysis of the really, really bad employment report. His analysis is:

Two days ago in Mass Layoffs Soar I proposed "One of these months there is going to be a massive "unexpected" downward jobs revision. More than likely that will be used as an excuse by the Fed to cut (or further cut) rates. It won't help."

So Soon?

The August BLS Employment Situation Report shows that "One of these months" has already arrived.

Nonfarm payroll employment was essentially unchanged (-4,000) in August, and the unemployment rate remained at 4.6 percent, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. Over the last 3 months, total payroll employment changes have averaged 44,000 per month and private sector employment changes have averaged 72,000 per month (as revised). In August, employment in manufacturing, construction, and local government education declined, while job growth continued in health care and food services.

Participation Rate Sinks to 65.8%

How does the BLS hold the unemployment rate low with such pathetic numbers? The answer is of course the participation rate.

"In August, the civilian labor force edged down to 152.9 million, and the labor force participation rate decreased to 65.8 percent. The declines were largely due to a drop in labor force participation among teenagers; their participation rate fell to 39.7 percent."

Well participation rates can't go negative so this source of nonsense will eventually have to stop.

Mish is saying that the employment figures were only as positive as they were because the Bureau of Labor Statistics (BLS) is fudging the figures like mad. Or, as he states it, there is a great deal of BLS "moonbat activity" designed to make the already bad looking numbers from showing the true dimensions of the disaster that has occurred. If economic numbers in tables don't cause your eyes to glaze over I strongly suggest that you go read his report in full.

From the macroeconomic point of view, these numbers point to the coming problem in the economy.

Gross Domestic Product (GDP) = Consumption (C) + Investment (I) + Government Expenditures (G). [GDP=C+I+G)]

But since Bush took office, "I" and "G" have not become significantly larger. Think about it - for the tax cuts to have kept the economy working, "I" would have had to increase. it didn't. What has kept the economy from going into recession has been the continued consumer ("C") spending.

But real wages have not increased since the Clinton administration. Consumption spending ("C") has been the main cause of any increase in GDP since Bush entered office, and that has been manipulated to prevent recessions from causing Bush to be defeated for reelection in 2004.

As I wrote earlier, Federal Reserve Chairman Alan Greenspan wanted Bush reelected and the Republicans to remain in power. He did it by lowering interest rates and by failing to regulate the quality of mortgage loans that banks were issuing.

The resulting housing bubble kept both employment its resulting consumption spending artificially high. But the economy needed to go into recession early in Bush's first term, so the efforts to artificially pump up the economy required more and more effort as time went on. Or to say it another way, the housing bubble was created to artificially pump up the economy for political purposes, but the longer the bubble was permitted to last, the more damage it did to the economy.

Greenspan started slowly rising the interest rate in February 2005 to try to slowly correct the damage he had done, but it didn't work.

A housing bubble takes a long time to demonstrate its damage. I'm sure that the mortgage companies could see it in 2006, but it did not become publicly known until the largest mortgage company in the nation (Countrywide) announced that it was having problems in early 2007. The damage of the bubble has been slowly surfacing since then, The credit crisis from this Summer are just the latest effects. Countrywide has announced that it expects a 25% drop in mortgage lending next year, and is now laying off 20% of its workforce (a number that has not yet made it into the BLS statistics.)

There are more economic problems to come. The only thing no one knows is how severe they will get. Recession? More likely now than not.

One thing about this, though, is that the President usually gets credit or blame for the status of the economy because he was in office when it happened, no matter what he did. In this case, however, George Bush and the Republicans are directly responsible, and demonstrably so.

The Bush administration has been faulted for politicizing a lot of things that should not be politicized so that they can keep Republicans in power. Attorney General Alberto Gonzales has just resigned over the scandal of politicizing federal Justice. Michale Brown was fired as head of FEMA because FEMA had been made a dumping ground for unqualified political activists and the disaster in New Orleans proved it. Here we can see how the same process of politicizing everything the government touches has also effected how the economy is managed by the Federal Reserve.

There is nothing in America (or Iraq) that the Republicans and the Bush administration have touched that is not the worse for it. Our next recession (among many other disasters) has been worsened by our Republican party.

Remember that when you go to vote next. That vote is the only protection we, the average American people, have from the Republicans.