“Great Job Numbers”

“Great job numbers.”

Here the president refers to June’s unemployment report, out this morning.

The United States economy took on 4.8 million nonfarm jobs last month — a record number.

We are further informed that the unemployment rate has fallen to 11.1%.

As is custom, a Dow Jones survey of economists botched it badly.

These blind soothsayers soothsaid 2.9 million jobs… and 12.4% unemployment.

“Today’s announcement proves that our economy is roaring back,” the president continued. “It’s coming back extremely strong.”

Mr. Trump’s delirium was broadly shared…

“The 4.8 million rise in nonfarm payrolls in June provides further confirmation that the initial economic rebound has been far faster than we and most others anticipated,” gushed Michael Pearce, senior U.S. economist for Capital Economics.

“A second consecutive large upside surprise to hiring relative to consensus confirms our view that the reopening rebound would be much more robust than most expected a couple months ago,” chortled Citi economist Andrew Hollenhorst.

But is today’s report as lovely as these gentlemen claim?

A leading question perhaps. The answer nonetheless follows.

But first… how did the stock market take this morning’s news?

The Dow Jones was immediately up and away 232 points. The other major indexes were also up, also away.

But the gravity of additional news soon tugged them earthward…

Florida authorities announced 10,000 fresh coronavirus infections this morning — a “healthy” number to be certain.

This after the United States reported over 50,000 new infections yesterday. That is a record amount… incidentally.

And so the economic lights that have been winking on in many locations… may once again wink off.

Thus today, stocks that would prosper from a rapid economic recovery absorbed the heartiest slatings.

First among these were airline and cruise line stocks.

The major indexes nonetheless maintained the vertical…

The Dow Jones posted a 92-point gain on the day. The S&P added 14 points of its own; and the Nasdaq, 53.

But can you trust today’s unemployment numbers?

Like June’s, May’s unemployment report was likewise a “blowout.”

Yet the Bureau of Labor Statistics (BLS) itself advised you to look beyond the headline number… and glance the small print.

That is because BLS confessed to a “misclassification error.”

Many workers had been previously listed as unemployed on temporary layoff.

Yet in the May survey these same workers were listed as “employed but absent from work.”

That is, they were listed as employed — though their circumstances may not have changed one jot since March or April.

Sort them into the unemployment column… and BLS conceded actual unemployment may have run three full percentage points higher than the official 13.3%.

Now roll the calendar forward one month…

Buried under many inches of print today — near the very foot of a CNBC article — we learn the following:

The headline unemployment rate was understated slightly due to counting errors at the Bureau of Labor Statistics. Workers who still have jobs but have not been working are being counted as employed and even though they are supposed to be considered unemployed under BLS rules.

And so June’s report features the identical “miscalculation error” as May’s report.

Yet we are assured that June BLS number-counting improved drastically:

However, the BLS said that discrepancy “declined considerably” in June, making the actual unemployment rate only about 1 percentage point higher than the reported level.

Thus June unemployment would read 12.1% — not 11.1%.

In either event… the United States economy has killed nearly 14.7 million jobs since February.

And unemployment remains the highest since the Great Depression.

Nearly half of working age American adults — some 47% — are presently idle, their hands the devil’s workshop.

Says Torsten Slok, Deutsche Bank’s chief economist:

To get the employment-to-population ratio back to where it was at its peak in 2000 we need to create 30 million jobs.

30 million jobs!

Meantime, the Department of Labor reported today that another 1.4 million Americans filed onto unemployment lines last week.

Yet let them eat cake, says the stock market…

Its assault upon its February peaks continues yet, the craggy heights within sight.

The Nasdaq has vaulted 30% this past year — despite the fiercest economic downdraft since the Great Depression.

Never before has the stock market risen so loftily above the economy that supposedly supports it.

We have credited the Federal Reserve with responsibility.

But does the Federal Reserve alone account for the stock market delirium?


Brian Maher
Managing editor, The Daily Reckoning

The Daily Reckoning