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Thursday, February 21, 2013

We Must Address American Labor Force Attrition & Atrophy

American Labor Force AttritionBy The Greek:

The latest Weekly Initial Jobless Claims Report looks harmless enough to the casual reader, but upon closer inspection, it continues to reveal great attrition in the American workforce. It’s the reason why I recently suggested the real unemployment rate was closer to 11.8% than the government’s reported 7.9% rate.

Weekly unemployment insurance filings increased by 20,000 in the period ending February 16, but only rose to 362K. That’s mild enough for a market used to rates running nearer to 400K for what seems like the last decade now. Indeed, the claims count was just a few thousand higher than the economists’ consensus expectation for 359K this week, as compiled by Bloomberg. The four-week moving average for jobless claims reveals a less dynamic environment, with an 8,000 increase in the latest period, to 360,750.

However, what is bothering me today is the ongoing trend in American labor that is hiding the true state of affairs. A tragic number of Americans have been unemployed for far too long, with some 4.7 million Americans or 38% of the total unemployed count out of work for at least 27 weeks. The way the system works is that these people are counted for as long as they are letting the government know about their situation. They have incentive to do so when collecting unemployment insurance, either through the regular program or the extensions program. But if they are to continue to be counted post the expiration of their 99 weeks of extended benefits, then they must file for welfare or some sort of other government support and report their ongoing unemployment. I’m not even certain the government has its act together well enough to count people who remain in the system in this way.

So, as a result, what we have seen is a shrinking labor force count that a lot of economists want to attribute to demographics and the retiring of baby boomers (some 10K a day estimated). However, the employment participation rate has dropped too substantially too quickly, and I think it’s because of the factor I’m laying out for you here today.

In this weekly report, the Department of Labor offers information on the total number of Americans receiving benefits of some sort through all programs. Now, extended benefits are no longer being offered in any state to those Americans just now filing for their regular benefits. In the period reported, for the week ending February 2nd, the total number of unemployed Americans receiving a benefit of some sort was 5.6 million.

Please take a seat now as I report to you something very important. In the just reported February 2nd period, this number dropped by 307,848. Some will say it’s due to an improving American economy and retiring baby boomers, but it is surely also due to American laborers simply falling off the radar screen. It’s unfortunate and it angers me. We must get a good count of these people, so that the government can focus on helping them in some way, either through training programs or some sort of support if they are not receiving any currently. I have a great concern that many jobs lost as a result of the financial crisis may never be recovered, and that certainly will be the case if we do not go the extra mile here.

Now, there is a worker shortage in construction, as I heard from Toll Brothers (NYSE: TOL) during a recent investor conference I attended in Philadelphia. So, many of the long-term unemployed and some of the forgotten described herein will start to hear about new opportunities at homebuilders now. Though, builders recently backed off a bit in terms of their enthusiasm about prospective buyer traffic.

Also, there are small mortgage lenders hiring like mad now in order to fill the mortgage lender shortage that has arisen. It’s due to the destruction of so many firms through the real estate collapse, and the burden major mortgage lenders still bear today, especially Bank of America (NYSE: BAC), Citigroup (NYSE: C) and Morgan Stanley (NYSE: MS). Many of the day’s biggest lenders, including Wells Fargo (NYSE: WFC) and J.P. Morgan Chase (NYSE: JPM) are applying tighter standards today as well. But BofA and the others are also shy to lend more due to the size of their outstanding mortgage loan bases and lingering questions about MBS liability. Plus, the returns have not been very attractive, thanks to Federal Reserve created synthetic demand for MBS.

We need to get a good count of the real unemployment rate so that we may target those struggling Americans for training and other forms of support. It’s time for Americans to go the extra mile and to give our struggling brothers a leg up before they fall down for good. I believe if this situation were better understood, the SPDR S&P 500 (NYSE: SPY) and the SPDR Dow Jones Industrials (NYSE: DIA) would not be quite as hot as they have been this year. But the truth always comes to the surface, so we have an opportunity to preserve the situation if we act on long-term unemployment rather than stand by waiting for it to heal or go away.

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.

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