Bogus Report - Unemployment Closer to 10% than 9%

Bogus!

The market didn't know what to make of it. On the one hand, the unemploy- ment rate was reported much improved, dropping another four-tenths of a point to 9.0%. On the other hand, the economy added a pitiful 36K jobs in January. Both surveys producing the conflicting numbers were contaminated by poorly captured factors, and so if ever there were need for a review of an economic report, the bewildering employment report for January 2011 offered one.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Tickers: NYSE: BAC, NYSE: JPM, NYSE: GS, NYSE: C, NYSE: MS, NYSE: WFC, NYSE: TD, NYSE: PNC, NYSE: STT, NYSE: JNS, Nasdaq: TROW, NYSE: GE, NYSE: WMT, NYSE: MCD, NYSE: AA, NYSE: AXP, NYSE: BA, NYSE: CAT, Nasdaq: CSCO, NYSE: CVX, NYSE: DD, NYSE: DIS, NYSE: HD, NYSE: HPQ, NYSE: IBM, Nasdaq: INTC, NYSE: JNJ, NYSE: KFT, NYSE: KO, NYSE: MMM, NYSE: MRK, Nasdaq: MSFT, NYSE: PFE, NYSE: PG, NYSE: T, NYSE: TRV, NYSE: UTX, NYSE: VZ, NYSE: XOM, Nasdaq: PAYX, NYSE: MAN, NYSE: RHI, Nasdaq: JOBS, NYSE: MWW, NYSE: KFY, NYSE: ASF, Nasdaq: KFRC, NYSE: TBI, NYSE: DHX, Nasdaq: KELYA, NYSE: SFN, NYSE: CDI, Nasdaq: CCRN, Nasdaq: ASGN, NYSE: AHS, Nasdaq: BBSI, Nasdaq: HHGP, NYSE: SRT, Nasdaq: RCMT, Nasdaq: VSCP, NYSE: JOB, Nasdaq: TSTF, NYSE: DIA, NYSE: SPY, Nasdaq: QQQQ, NYSE: DOG, NYSE: SDS, NYSE: QLD, NYSE: NYX, NYSE: ICE, Nasdaq: NDAQ

Bogus Report - Unemployment Closer to 10% than 9%

How could it be, you ask? How could one data point within the report improve so much while the other deteriorated so badly? Besides the noise that misdirected each, the two data points emanate from two separate surveys, which can certainly lead to variation. The Household Survey is used to estimate the unemployment rate, while the Establishment Survey is employed to derive the net change in the nation's employment.

The easiest of the two data points to debunk is the Nonfarm Payroll increase of 36K. It is relatively clear, and economists agree, that the bad weather that plagued a vast span of the nation affected corporate hiring in January. Just as weekly jobless claims were skewed lower by closed government offices and piling up paperwork, corporate offices were closed for snow days as well. As fewer employees made it in, even when the businesses were open, less work got done. Within the HR departments of these companies, that neglected work translates into job postings never placed, interviews pushed forward, employee research put off, and finally hiring, training and assimilating new workers allowed to slide.

Still, economists knew about the bad weather, and had forecast a nonfarm payroll increase of 140K nonetheless. In fact, the lowest estimate registered among the economists surveyed was for an increase of 55K, still higher than the actual result of 36K. It is possible that the bad weather also affected the surveying directly, but it's also possible that hiring disappointed, even excluding weather. Only time will tell.

The Household Survey produced the second four-tenth decrease in the unemployment rate in consecutive months. The degree of improvement over the two-month span was so dramatic that nothing like it had been seen since 1958. Still, given the news from the Establishment Survey, this news seems completely disjointed. Indeed, economists were looking for an increase in the unemployment rate to 9.5%, and the lowest forecast called for an improvement to 9.2%, still well above the reported rate. Thus, the drop to 9.0% made little sense to anyone, including economists (you may interject with your economist gibe here).

Here's what happened

An annual adjustment to population controls led to a favorable change in the rate (You tell me what this means, because not one guru made sense describing it today). What I did see was a decrease in the population count in January, and that doesn't make sense.

More importantly, we saw a 504K decrease in the labor force where there really isn't any drop-off. That followed December's labor force decrease of 260K. Some of this mysterious disappearance of American workers can be attributed to a 191K increase in the count of those who are "Marginally Attached" to the workforce (follows 36K increase in December). These folks have basically taken a break from looking for work, which is easy to do through the holidays and given massive snow storms and iced over roads.

We suggested last month that despair was another factor that likely set in through the holidays, when the unemployed had to face or hide from relatives and friends. And considering the long-term unemployed (and most depressed) count declined by 231K in January - as they likely stopped seeking employment, we expect that was exactly the case. Therefore, this unemployment rate is bogus, and real unemployment is likely closer to 10%. When the seasonal blues dry up, and those people come back to the workforce, the rate should bounce back up again.

What we have is a worse situation, not a better scenario; it's one in which a sizable portion of our population is losing hope. Politicians should be worried about this, because what follows that desperate feeling is anger of the sort being expressed in Egypt. And if it is youth who are leading the revolt in Egypt, well then it should likewise be troublesome that some 25% of student loan borrowers attending for-profit U.S. schools are defaulting on their student loans.

What may have also affected the decline in American workers is perhaps a migration to overseas opportunities. Certainly desperate times call for desperate measures. Maybe they're opening up McDonald's (NYSE: MCD) franchises in Baghdad and Kabul, or finding jobs across the worker depleted Mexican border. I don't know what's up, but this report is not offering good news. Stocks should have sold off today, if only somebody could have made sense of this report. The market is efficient and will eventually get it, and when it does, it should get sick too.

The pure calculation of the Underemployment Rate:

If we add back the 2.8 million (previously 2.609 mln.) displaced workers to the labor market, and include the 8.407 million (previously 8.931 mln. revised) underemployed part-timers in the unemployed count, adjusted unemployment reaches ((13.863M + 2.8M + 8.407M) / (153.186M + 2.8M)) * 100 = 16.1%.

Under-Employment Rate Trend:

January 2011: 16.1%
December: 16.7%
November: 17.0 %
October: 17.0%
September: 17.1%
August: 16.7%
July: 16.5%
June: 16.5%
May:16.6%
April: 17.1%
March: 16.9%
February: 16.8%
January: 16.4%



Article should interest investors in Bank of America (NYSE: BAC), J.P. Morgan Chase (NYSE: JPM), Goldman Sachs (NYSE: GS), Citigroup (NYSE: C), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), TD Bank (NYSE: TD), PNC Bank (NYSE: PNC), State Street (NYSE: STT), Janus (NYSE: JNS), T. Rowe Price (Nasdaq: TROW), General Electric (NYSE: GE), Wal-Mart (NYSE: WMT), McDonald's (NYSE: MCD), Alcoa (NYSE: AA), American Express (NYSE: AXP), Boeing (NYSE: BA), Caterpillar (NYSE: CAT), Cisco Systems (Nasdaq: CSCO), Chevron (NYSE: CVX), DuPont (NYSE: DD), Walt Disney (NYSE: DIS), Home Depot (NYSE: HD), Hewlett-Packard (NYSE: HPQ), IBM (NYSE: IBM), Intel (Nasdaq: INTC), Johnson & Johnson (NYSE: JNJ), Kraft (NYSE: KFT), Coca-Cola (NYSE: KO), 3M (NYSE: MMM), Merck (NYSE: MRK), Microsoft (Nasdaq: MSFT), Pfizer (NYSE: PFE), Procter & Gamble (NYSE: PG), AT&T (NYSE: T), Travelers (NYSE: TRV), United Technologies (NYSE: UTX), Verizon (NYSE: VZ), Exxon Mobil (NYSE: XOM), Paychex (Nasdaq: PAYX), Manpower (NYSE: MAN), Robert Half International (NYSE: RHI), 51Job Inc. (Nasdaq: JOBS), Monster World Wide (NYSE: MWW), Korn/Ferry International (NYSE: KFY), Administaff (NYSE: ASF), Kforce (Nasdaq: KFRC), TrueBlue (NYSE: TBI), Dice Holdings (NYSE: DHX), Kelly Services (Nasdaq: KELYA), SFN Group (NYSE: SFN), CDI Corp. (NYSE: CDI), Cross Country Healthcare (Nasdaq: CCRN), On Assignment (Nasdaq: ASGN), AMN Healthcare Services (NYSE: AHS), Barrett Business Services (Nasdaq: BBSI), Hudson Highland Group (Nasdaq: HHGP), StarTek (NYSE: SRT), RCM Technologies (Nasdaq: RCMT), VirtualScopics (Nasdaq: VSCP), General Employment Enterprises (NYSE: JOB) and TeamStaff (Nasdaq: TSTF).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.