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Change you can believe in !!!


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One of the biggest accomplishments of the president, in his own words, is managing to push the official (U-3) unemployment rate, from its post-Lehman high of 10% hit in October 2009 to only 6.6% as of January 2014 as Friday's jobs report revealed. This rapid drop in unemployment - call it the "Obama Recovery" - caught none other than the Fed completely unaware, whose 6.5% unemployment rate tightening threshold is now in tatters, as it the credibility of the Fed's forward guidance as the Fed will have no choice but to scrap all unemployment QE ending, rate hiking "thresholds" at its next FOMC meeting.

 

So what happened to the unemployment rate that it dropped so fast it surprised and embarrassed even the "venerable" Federal Reserve, which had initially expected a 6.5% unemployment rate some time in 2015. To get the answer we go back in time to the last (and only previous) time when the US unemployment rate dropped from roughly 10%, which was in June 1983, to 6.6%, which took place three and half years later, in December 1986 - let's call it the "Reagan Recovery" in short.

 

Here is how the old normal compares to the "New Normal."

 

- US unemployment dropped from 10.1% to 6.6% between June 1983 and December 1986: an interval of 43 months.

- US unemployment dropped from 10.0% to 6.6% between October 2009 and January 2014: an interval of 52 months.

So far so good: one can expect the "Obama Recovery" from the Great Financial Crisis to take a little bit longer than "Reagan's."

 

But what about the internals. This is where things start getting weird.

First, we look at the number of actual jobs added (according to the Establishment survey) from the 10% point at the peak to the 6.6% at the bottom. What we find is that despite the US workforce being over 30% larger today than it was 28 years ago, it took far less actual jobs created to drop the unemployment rate by 3.4%. Specifically, while the "Reagan Recovery" resulted in the creation of 10.5 million jobs, the "Obama Recovery" achieved the same low unemployment rate with only 7.5 million jobs added.

 

Jobs%20Added%2086%20vs%2014_0.jpg

 

The difference between the Old and New Normal is even more acute when one looks at the change in average monthly job gains over the "recovery" period: as noted, in 1986 the duration of the rate drop period was 43 months, where currently it has taken 52 months. This means that the Obama recovery has resulted in just 145K job additions on average per month while the unemployment rate has dipped from 10.0% to 6.6%, compared to the far more impressive 244K - and indicative of a real recovery - that marked the 1983-1986 period.

 

Avg%20number%20jobs%20per%20month_0.jpg

 

However, nowhere is the distinction more acute when comparing the two "recoveries", then when one looks at the underlying population and labor force trends.

First, here is what a normal recovery looks like: during the Reagan Years, the Civilian, Non-institutional population - or the total number of Americans eligible for work whether they are part of the labor force or not - increased by 7.4 million, while the labor force increased by 6.7 million - as close to a linear relationship as possible, and also a correlation which any rational person would expect.

So how about the Obama recovery: well, we find that between October 2009 and January 2014, the civilian, non-institutional population rose by 10.4 million, to be expected considering the far greater general population of the US - it is also a number which, on average, increases by about 230K or so every month. So what about the labor force? It is here that things get zany (as we predicted they would many years ago), because it is here that the Obama Recovery has somehow only managed to add a paltry 1.7 million people to the workforce: from 153.8 million to 155.5 million!

 

Labor%20Force%20Change%2086%20vs%2014_0.

 

Of course, the above unleashes the avalanche of "demographic" excuses which we have all grown to know and laugh at, because when economists can't explain something, they promptly fall back to patently false "justifications" - recall that as we explained the collapse in the labor force has very little to do with demographics, something which the BLS itself thought as recently as 2004 when it projected a rising labor force participation into the coming years only to readjust it lower in the coming years.

 

The real reason for this ongoing collapse in the labor force, is the same that the CBO used to explain why - in politically correct terms - Obamacare will adversely impact the labor force over the next decade: Americans will have to earn less to get full coverage, or said otherwise, they are less incentivized to work more. This is precisely the US welfare state at work, and when one extends the Obamacare "rationale" one sees that the administration's core goal is to make increasingly more people reliant on handouts than on labor, as we explained in "When Work Is Punished: The Tragedy Of America's Welfare State" in which we showed why "for increasingly more in America, it is more lucrative to sit, do nothing, and collect various welfare entitlements, than to work" as can be seen in the "welfare cliff" charts below

 

welfare%20cliff_0.jpg

 

CBO%20disposable%20income_0.jpg

 

Alas, that is the real reason why the labor force collapse continues and will continue even as America enters its next recession. Or depression.

 

So what happens when one renormalizes the unemployment rate calculation and uses a 30 year average labor force participation rate as a constant instead of a variable to be plugged by the BLS to goalseek a desired result? This happens:

 

Real%20Unemp%20Rate_0.jpg

 

What the chart above shows is that the "real" unemployment rate in October 2009 was 11.2%. Where is it now? 11.1%.

 

And there is your "Obama Recovery", when stripped of all the fancy veneer and TOTUSed propaganda, right there.

 

http://www.zerohedge.com/news/2014-02-08/what-happened-last-time-unemployment-rate-dropped-much

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Thanks for the informative post... I think we need to study wealth distribution also.. It makes sense that those making more are paying for those making less. This keeps a low cost labor force so the wealthy can make more profits.. It is interesting that we subsidize this low cost labor force and that employers won't pay for what it actually takes to keep an employer in adequate social status so that they can be productive. If anything conservatives should be pleased with the current arrangement

 

Conservatives aren't pleased. Corporatists are. You have the two confused.

 

The more rules government puts into place, the more subsidies and mandates there are that cause distortions in the free market.

 

The key thing is this (and you haven't figured it out yet). Government is the CAUSE of these problems, not the solution to the problems.

 

Our tax code is so big, it looks like a big bowl of spagetti. Most can't keep track of all the little rules and regulations.

 

So the big company can hire an army of accountants to interpret and adhere to the 3000 page healthcare and consumer protection bills. The little company can't. It just gets blinded by Washington DC regulators and goes out of business, either by the force of regulators or on it's own by going bankrupt. Regulation can now be used as a weapon to drive your competition (the little guy) out of business. Those are the unintended consequences of more and more government, policy, and bureaucracy.

 

50 years ago, you could have started a new car company to compete on the world stage. You just had to put a team of engineers together.

 

Could you do that today given: http://www.regulations.gov/#!home

 

Not a chance. Big government has eliminated most of the competition and it's driving the marketplace into the ground. Not good in a global economy.

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