No Doubt, There Really Will Be Two “L’s” In Payrolls

Bad news is good news? The payroll report for November 2020, like those of the previous four months, have only further corroborated and confirmed the untimely death of the recovery. Since actual recovery can take only a “V” shape, then the end of the “V” necessarily means the end of recovery.

In the twisted world of mainstream assumptions, however, fret none. The worse it gets, the more the government will do…to accomplish what, though? Don’t ask, just believe. Richard Clarida, one of the increased number (the only inflation in town; growing ranks of bureaucrats) of Federal Reserve Vice Chairman, is already on the case (thanks M. Simmons).

I will place a high priority on advocating policies that will be directed at achieving not only maximum employment, but also well-anchored inflation expectations consistent with our 2 percent objective. Depending on the course of the virus and the course of the economy, more support from both fiscal and monetary policy may be called for.

The more awake among you have already noticed what the man really says here: the public is catching on how our inflationary tactics won’t lead to any real inflation, because the “stimulus” we’ve already done to this point, despite declaring it massively flood-like, hasn’t stimulated the economy or anything else other than the torrent of incredibly gullible financial media stories.

Clarida’s statement is a confession, not that you would otherwise know it.

More QE and now the outlines of an agreement for more government subsidizing will save an economy perched precariously at a dangerous crossroads after having been left here by the ineffectiveness of QE and tons of government subsidizing. There is madness to this method.

Equity “investors” may be thrilled, but common sense dictates exactly why employers have not been. While monetary policy calls for, and is in part specifically designed to accomplish, share prices driven by the former to influence the economic behavior of the latter, another looming letter “L” yet again disproves the perverse theory.

What the BLS reported today was another sharp slowdown of the economic rebound, one that’s been indicated and catalogued a thousand times over already. The economy is still on its upswing, but that doesn’t mean what it might seem; positive numbers are a necessary but by themselves insufficient condition for full, complete, and meaningful recovery.

The headline Establishment Survey estimated that 245k payrolls were added back during the month of November. This would have barely qualified as a decent number had it occurred at any time during the depressed labor market 2008-19. Showing up, however, in November 2020 with the economy still denied about 10 million payrolls (an amount that remains larger now than the worst month of the Great “Recession”), this is not good at all.

The Household Survey declined by 74k last month, not unusual for this more volatile alternate labor market figure. More importantly, the CPS estimate for the size of the labor force also declined – again. According to these computations, exactly 400k former workers dropped out, telling the BLS they aren’t even bothering to look for work anymore.

This means that, going back all the way to June, only 535k workers have rejoined the labor force of the more than 8 million which had left it during March and April (after just 3.4mm came back in May and June). Though the data covers the economy through November, only half that enormous decline has been recovered even though reopening has been ongoing for seven months.

American workers are not liking what they are seeing.

The primary reason for this unusual (at least when looking at business cycles historically; since GFC1 in 2008, these “L” shaped recoveries are now the base expectation) trend is obvious. The government may have subsidized private business and the private economy unlike anything seen before, but this isn’t the same as stimulating the private economy back to its original state.

The monthly change in private payrolls was nearly the same taken from the Establishment Survey data as it had been estimated from ADP’s sources; the latter, as noted earlier this week, gained just 307k while the former, from the BLS, increased 344k. Both further corroborate the material economic slowdown dating back to around June thus excluding any kind of statistical or random anomaly.

Since, however, the unemployment rate is derived from the Household Survey, it once again improved (interestingly sparking the risk rally in today’s markets) because both parts of the ratio deteriorated; only the labor force declined, therefore the number of unemployed, more than the Household Survey did.

There were, according to these numbers, fewer Americans working in November, and even fewer reporting that they are looking for work, so the unemployment rate falls anyway. Three cheers!

For one thing, the cumulative jobs deficit is materially greater than the comparisons made with February 2020. While the economy has to first work through these still-gigantic job losses, enough time has accumulated that the other deficit begins to matter nearly as much: the jobs that would’ve been gained, and are still necessary, those that only a full recovery would be able to get back.

By November, assuming the same rather lackluster job growth average (private payrolls) as had been estimated from the 18 months prior to February 2020 (during the globally synchronized slowdown of Euro$ #4), there would’ve been something like 1.5 million new private payrolls added after February up through November. Bare minimum to keep with even slowed population growth.

However, at these reduced monthly rates, the labor market, while still improving, is barely matching what “normally” would be happening and thus not even catching up to the cumulative total deficit any longer – and stalling here at, again, greater than the Great “Recession’s” worst case.

And in that case, it was only for a temporary period; the economy fell off sharply late 2008 and early 2009, and though it never fully recovered it didn’t stick around near the bottom month after month, year after year. What we find here is just such a frightening prospect: an economy that experienced 2009-levels of job losses that appear to be permanent, at the very least more than short run (just ask the OECD).

Yet, this is being priced as inflationary good news? No. Risk markets, even bonds (the leveraged short specs), to a small degree, are betting that none of this will matter once the vaccine begins working its way (slowly) through the economy. On top, these awful labor numbers are expected to further stiffen the resolve of politicians who will come riding to the rescue with a fiscal deluge.

All the Economists say so.

It’s a more comforting scenario and pleasing to the default setting of human evolution (this kind of huge negative can never happen, and then when it does we immediately believe this kind of thing could never happen again) than the alternative; that the economy actually has been permanently impaired now twice (economic factors we’ve been warning about this whole time). In that case, what good is a vaccine? How do more subsidies replace businesses that are never coming back? Like 2008, what happens afterward when – permanent shock – an economy just shrinks?

We were still dealing with the fallout from the first time this had happened to the global economy, and now, as all the data points, it repeats this time even more than that first “L.”

That’s how you get share price valuations which make those of the dot-com era seem cute.

No Doubt, There Really Will Be Two “L’s” In Payrolls