Friday, April 1, 2011

Why I Knew Back in December Unemploymnet Was Headed Under 9.0%

I'm the first to admit that the unemployment numbers put out by the Bureau of Labor Statistics are only a rough estimation, at best, as to what is going on in the economy. I think the most we can really gain from the numbers is direction trend and little else.

That said, the direction in unemployment is clearly down (for the moment).

Nonfarm payrolls rose 216,000 last month, According to the Labor Department. It was the largest increase since May. January and February employment figures were revised to show 7,000 more jobs than previously reported. The official BLS numbers show unemployment now at 8.8%.

This improvement in the unemployment numbers should not come as a surprise to long-time EPJ readers. In December 2010, I wrote a column, Why Mish Is Wrong About Unemployment, in it I took an opposing view to  Mike "Mish" Shedlock's bearish view on employment. (It's hard to remember now, but there were a lot of people bearish about employment in December).I concluded:
It's very difficult to forecast exact numbers in a complex economy like the United States, but trends are a little clearer to see. Pessimistic forecasts for unemployment appear to way off for 2011. The employment picture is going to improve dramatically in 2011 with unemployment at some point significantly under 9%
To get my thinking back then, you should read the entire column, but the short version is that there really is a business cycle. It is totally created and manipulated by the Federal Reserve, and if you watch their manipulations of money supply, as I do, you will have a pretty damn good idea where the economy is headed.

Right now, we are at an inflection point in money supply growth, and there is a small chance this may end the improvement in the unemployment numbers. Most likely, however, the Fed printing presses are back on at high speed (after a bit of slowdown in the last couple of months), which will mean the trend in unemployment will continue to show improvement. As I said, I watch the money supply numbers very closely along with some reserve data, and the picture should be more clear in the next few weeks as to whether the trend in lower unemployment continue. My guess is that money growth will continue, but I really just let the money numbers speak for themselves. Trends always develop in the money supply numbers before they do in the overall economy.


  1. Mr. Wenzel,

    Isn't some of the decline in the official unemployment rate also due to reduced labor force participation? If people stop looking for work because they are so discouraged, they essentially disappear.

  2. The rate of participation in the labor market was unchanged month over month

  3. The labor force actually rose more than the general population, indicating the market has improved enough to draw some of the unemployed back into the pool of workers.

    But, overall, what you want to do is look at a general trend versus very exact numbers. The numbers are not that exact!

    On this note, the gain in jobs was relatively broad-based, which is another positive sign.

  4. Wow, you know we are truly near a market top when even you say the economy is improving! whats next dow 30k? Home prices will never decline? please, this will end up just like every other boom we have experienced.

  5. Mr. Wenzel:

    Where do I find the money supply numbers you reference?

    Jim Meers

  6. I break the numbers down in the EPJ Daily Alert, the raw numbers are at the Fed web site.

  7. What is your opinion of shadowstats and their numbers showing unemployment at something like 20+%?