Mike Shedlock
Recommend this article

It's time to stop debating whether or not the US or Europe is headed into recession. The facts show the entire global economy is in recession.

Global Recession Supporting Data-Points

  • Euro zone’s manufacturing purchasing managers’ index fell to a two-year low of 49.0 in August, down from a preliminary reading of 49.7. (Business Insider)
  • PMI’s contractions in Ireland, France, Italy, Spain and Greece. (Business Insider)
  • Germany’s manufacturing PMI slowed to its lowest level since September 2009, slumping to 50.9, well below an initial estimate of 52.0. (Business Insider)
  • US Manufacturing ISM ex-inventory Growth in contraction (Mish)
  • Japan's PMI fell at three-month low (Financial Times)
  • PMI Readings in Switzerland, Sweden Drop (Financial Times)
  • British manufacturing PMI falls 49, a 26-month low, in contraction (MarketWatch)
  • Germany private consumption fell for first time since Q4 2009, Manufacturing growth slowest in 23 months (Reuters)
  • Japan Capital Spending Plummets 7.8% In Q2, Expectations were 1% Increase (RTT)
  • US Construction Declines 3.5% vs. Same period in 2010 (US Census Bureau)
  • China exports to US contract, PMI barely above contraction (Reuters)
  • Container traffic at Port of Long Beach drops 3.17% smack in face of normal Christmas season ramp-up (Bloomberg)
  • Canada GDP unexpectedly declines led by a 2.1% drop in exports(Bloomberg)
  • Brazil Unexpectedly cuts interest rates .5% to combat recession.62 of 62 Analysts Miss Call on rate cut (Mish)
  • Taiwan's PMI dropped to 45.2 in August, the lowest reading since January 2009 (Reuters)
  • German economy grew just 0.1 percent in the second quarter (Reuters)
  • Switzerland, economy grew at its slowest pace since 2009, as a record strong Swiss franc also bites into exports. (Reuters)
  • Retail Giant in Australia Warns of Massive Price Deflation and Falling Sales, "Hardest Christmas in Retailer Lives" Coming Up (Mish)
  • US Zero Jobs Growth, Unemployment Rate Flat at 9.1%; Charts, Graphs, Details (Mish)

Ten Things to Remember

  1. Prior stimulus in the US is dead, having run its full course
  2. There is no incentive in the US Congress for more stimulus
  3. Austerity measures have yet to hit Italy and France
  4. Austerity measures will continue to bite Spain, Greece, Ireland
  5. Germany export machine will die without the rest of Europe
  6. QE3 will fail much sooner than QE2 as interest rates already extremely accommodating
  7. Gold may respond well to competitive currency devaluation schemes
  8. The Eurozone is highly likely to breakup although timing is unknown
  9. Global equities and commodities are priced for perfection.
  10. Perfection is not happening.

Additional Reads

Talk of avoiding recession when the global economy is clearly in one and fundamentals are horrendous is sheer lunacy.

In case you missed them, please consider ....

Jobs Report at a Glance

Here is an overview of today's numbers.

  • US Payrolls +0
  • US Unemployment Rate Flat at 9.1%
  • Participation Rate +.1 to 64.0%
  • Actual number of Employed (by Household Survey) rose by 331,000
  • Unemployment rose by 36,000
  • Those not in the labor force dropped by 165,000
  • Civilian population rose by 200,000, Labor Force rose by 366,000
  • Average Weekly Workweek Fell .1 hours to 34.2 hours
  • Average Private Hourly Earnings Fell 3 Cents
  • Government employment decreased by 17,000 - Not Enough


Recall that the unemployment rate varies in accordance with the Household Survey not the reported headline jobs number, and not in accordance with the weekly claims data.

For a change, the labor force actually rose today. This is a welcome sign. However, were it not for people dropping out of the labor force for the past two years, the unemployment rate would be well over 11%.

August 2011 Jobs Report

Please consider the Bureau of Labor Statistics (BLS) August 2011 Employment Report.

Nonfarm payroll employment was unchanged (0) in August, and the unemployment rate held at 9.1 percent, the U.S. Bureau of Labor Statistics reported today. Employment in most major industries changed little over the month. Health care continued to add jobs, and a decline in information employment reflected a strike. Government employment continued to trend down, despite the return of workers from a partial government shutdown in Minnesota.

Unemployment Rate - Seasonally Adjusted



Nonfarm Employment - Payroll Survey - Annual Look - Seasonally Adjusted



Notice that employment is lower than it was 10 years ago.

Nonfarm Employment - Payroll Survey - Monthly Look - Seasonally Adjusted



click on chart for sharper image

Between January 2008 and February 2010, the U.S. economy lost 8.8 million jobs.

Ignoring the effects of the census, in the last 11 months of a recovery 2+ years old, the economy averaged about 117,000 jobs a month. That is very poor as recoveries go.

In the last 4 months the economy has averaged 40,000 jobs a month, a downright pathetic number.

Statistically, 127,000 jobs a month is enough to keep the unemployment rate flat.

Nonfarm Employment - Payroll Survey Details - Seasonally Adjusted



Average Weekly Hours



Index of Aggregate Weekly Hours



Average Hourly Earnings vs. CPI



"Success" of QE2

Over the past 12 months, average hourly earnings have increased by 1.9 percent. The Consumer Price Index for All Urban Consumers (CPI-U) was up 3.6 percent over the year ending in July.

Not only are wages rising slower than the CPI, there is also a concern as to how those wage gains are distributed.

BLS Birth-Death Model Black Box

The BLS Birth/Death Model is an estimation by the BLS as to how many jobs the economy created that were not picked up in the payroll survey.

The BLS has moved to quarterly rather than annual adjustments to smooth out the numbers.

For more details please see Introduction of Quarterly Birth/Death Model Updates in the Establishment Survey

In recent years Birth/Death methodology has been so screwed up and there have been so many revisions that it has been painful to watch.

The Birth-Death numbers are not seasonally adjusted while the reported headline number is. In the black box the BLS combines the two coming out with a total.

The Birth Death number influences the overall totals, but the math is not as simple as it appears. Moreover, the effect is nowhere near as big as it might logically appear at first glance.

Do not add or subtract the Birth-Death numbers from the reported headline totals. It does not work that way.

Birth/Death assumptions are supposedly made according to estimates of where the BLS thinks we are in the economic cycle. Theory is one thing. Practice is clearly another as noted by numerous recent revisions.

Birth Death Model Adjustments For 2011



BLS Back in Outer-Space

Do NOT subtract the Birth-Death number from the reported headline number. That is statistically invalid. However, in my estimation the BLS is back in outer-space.

It is clear the economy is slowing and the BLS model has not picked it up. The model is horrendously wrong at economic turns.

-18,000 may look reasonable but bear in mind that January and July are revision months where the BLS adjusts for prior errors. I believe the BLS has missed another economic turn, and the BLS is terribly wrong following turns.

Household Data



click on chart for sharper image

In the last year, the civilian population rose by 1,772,000. Yet the labor force dropped by 523,000. Those not in the labor force rose by 2,295,000.

Were it not for people dropping out of the labor force, the unemployment rate would be well over 11%.

Table A-8 Part Time Status



click on chart for sharper image

There has been no improvement in part-time employment in a full year. 8.8+ million workers want a full time job and cannot find one.

Table A-15

Table A-15 is where one can find a better approximation of what the unemployment rate really is.



click on chart for sharper image

Distorted Statistics

Given the total distortions of reality with respect to not counting people who allegedly dropped out of the work force, it is hard to discuss the numbers.

The official unemployment rate is 9.1%. However, if you start counting all the people that want a job but gave up, all the people with part-time jobs that want a full-time job, all the people who dropped off the unemployment rolls because their unemployment benefits ran out, etc., you get a closer picture of what the unemployment rate is. That number is in the last row labeled U-6.

While the "official" unemployment rate is an unacceptable 9.1%, U-6 is much higher at 16.2%.

Things are much worse than the reported numbers would have you believe. Moreover, the unemployment rate is barely better than it was a year ago. It would actually be worse than a year ago were it not for people dropping out of the labor force.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Recommend this article

Mike Shedlock

Mike Shedlock is a registered investment advisor representative for Sitka Pacific Capital Management.