Friday, December 2, 2011

Stocks Finish Flat After Suspect Non-Farm Payroll Data; Super Week for Stocks

By now, the "official" BLS non-farm payroll figures for November have been digested, sliced, diced and regurgitated by radio talk shows, blogs and financial news outlets.

While the headline numbers of 8.6% unemployment - a big drop from last month's 9.0 - and a gain of 120,000 net new jobs created (140,000 in the private sector) looked good on the surface, a peek under the hood revealed that the unemployment rate did not drop due to new jobs, but rather on the scurrilous assertion that 315,000 people dropped out of the civilian labor force.

These 315,000 are often described as "discouraged" workers, who have fallen off the unemployment roles and are no longer seeking employment. Of course, this assumption that just because your unemployment benefits have run out you're no longer seeking employment is nearly a complete fantasy. The truth of the matter is that many of these people will be filling up the welfare and food stamp roles in a New York minute, while others will take menial day jobs, work off the books, move in with friends or relatives or join the swelling ranks of the homeless.

Additionally, the BLS reported that the participation rate (the percentage of adults in the labor force) fell from 64.2% to 64.0%, with those not in the labor force growing by 487,000. That number includes retirees (a number that will only continue to grow as Baby Boomers begin to retire), long term disabled and, supposedly, lottery winners who no longer have to toil for a wage.

So, while the White House does a victory lap, claiming unemployment at its lowest rate in more than 2 1/2 years, the reality of working in America is vastly different from what the media would have one believe.

More than eight million fewer people are employed than before the last recession began in the 4th quarter of 2007. Employment is at levels last seen in 2000. Long-term unemployment remains a persistent problem. The average time out of work is now over 40 weeks, the highest in history.

That's why Wall Street was not wowed with the report. The statistically-misleading headline 8.6% unemployment was achieved primarily due to a faltering workforce and over 300,000 falling off the roles. Stocks began the day with healthy gains, but after a week full of encouraging and cheerleading, profit-taking was the order of the day and volume was a mere dribble.

Still, the week as a whole was impressive for equity investors. The Dow rang up a gain of 788 points, one of the best weeks ever. The S&P 500 gained 85 points and the NASDAQ was up a whopping 187 points.

Wall Street can cheer for now, as the economy seems to be limping steadily along, but longer term problems remain, especially in the middle class, where the general result of a layoff or firing and subsequent successful job search results in working for less and a lower standard of living.

Politicians may crow about the continued "job creation," but the hard truth is that America is not creating enough jobs to satisfy the needs of what used to be a robust, mobile labor force. Adjustments are being made, as unreported income and cash transactions in the so-called "underground economy" are on the rise. What's keeping America going is, as usual, not the jury-rigging of the political class, but the ingenuity of the American populace and their will to live free and unfettered by the rigors of an oppressive federal government.

The long and short of it is that for all the official numbers and statistics the government produces, they don't add up to a strong economy. It is what lies underneath that is really making a difference. At some point, government must admit that they cannot create jobs or centrally plan the economy and the size and scope of the governments at all levels must be reduced. The US economy is too big, too diverse and too dynamic for it to be controlled from Washington, DC or even state capitols. People work, get paid and maybe, pay taxes, though how they go about those various processes is of too much complexity and granularity for government statisticians to capture.

There's a lot of untapped wealth and resource in the United States, mostly in the hands and minds of American workers. Government needs only to get out of the way and allow Americans to live and earn honestly and with hope for the future.

Dow 12,019.42, -0.61 (0.01%)
NASDAQ 2,626.93, +0.73 (0.03%)
S&P 500 1,244.28, -0.30 (0.02%)
NYSE Composite 7,453.55, +3.12 (0.04%)
NASDAQ Volume 1,656,224,750
NYSE Volume 4,137,980,750
Combined NYSE & NASDAQ Advance - Decline: 3407-2204
Combined NYSE & NASDAQ New highs - New lows: 158-56
WTI crude oil: 100.96, +0.76
Gold: 1,751.30, +11.50
Silver: 32.69, +0.07

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