Mish's Global Economic Trend Analysis

US Defense Secretary Admits "Iran Not Trying to Develop Nuclear Weapon"
Ethanol Subsidies Ended January 1, 2012. Will that Raise or Lower Gasoline Prices at the Pump?
Help Wanted, Precisely One Opening; Maintain a Single Chair; Salary $38,500; Travel Required
What If We Could Turn Back the Hands of Time and Make One Simple Change?
Fundamental and Mathematical Case for Structurally High Unemployment for a Decade; Shrinking Job Opportunities and the Jobs Gap; The Real Employment Situation

US Defense Secretary Admits "Iran Not Trying to Develop Nuclear Weapon"

Posted: 09 Jan 2012 08:24 PM PST

All the tin hats that disputed Ron Paul's position that Iran was not developing nuclear weapons can now hear the same thing from US Secretary of Defense. Please consider Panetta admits Iran not developing nukes.

U.S. Defense Secretary Leon Panetta let slip on Sunday the big open secret that Washington war hawks don't want widely known: Iran is not developing nuclear weapons.

Appearing on CBS's Face the Nation on Sunday, Panetta admitted that despite all the rhetoric, Iran is not pursuing the ability to split atoms with weapons, saying it is instead pursuing "a nuclear capability."

That "capability" falls in line with what Iran has said for years: that it is developing nuclear energy facilities, not nuclear weapons.

"I think the pressure of the sanctions, the diplomatic pressures from everywhere, Europe, the United States, elsewhere, it's working to put pressure on them," Panetta explained on Sunday. "To make them understand that they cannot continue to do what they're doing. Are they trying to develop a nuclear weapon? No. But we know that they're trying to develop a nuclear capability, and that's what concerns us. And our red line to Iran is, do not develop a nuclear weapon. That's a red line for us."

Face the Nation Video

Link if video does not play: Iran Not Developing Nuclear Weapons

That admission by Defense Secretary Panetta proves just how preposterous the US position is. Hopefully Europe has second thoughts over the absurd embargo it is considering later this month.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Ethanol Subsidies Ended January 1, 2012. Will that Raise or Lower Gasoline Prices at the Pump?

Posted: 09 Jan 2012 01:50 PM PST

A major part of the United States' misguided policy on ethanol usage came to an end as the $6 billion-a-year ethanol subsidy dies

America's corn farmers have been benefiting from annual federal subsidies of around $6 billion in recent years, all in the name of ethanol used as an additive for the nation's vehicles.

That ends on Jan. 1, when the companies making ethanol will lose a tax credit of 46 cents per gallon, and even the ethanol industry is OK with it -- thanks in part to high oil prices that make ethanol competitive.

Subsidized since 1979 as a homegrown fuel cleaner than gasoline, corn ethanol had plenty of opponents, environmentalists among them.

Environmentalists question the cleaner energy premise -- adding factors like tractor diesel emissions and fertilizer runoff make it dirtier, they say.

"Corn ethanol is extremely dirty," Michal Rosenoer, biofuels manager for Friends of the Earth, said in heralding the tax credit's demise. "It leads to more climate pollution than conventional gasoline, and it causes deforestation as well as agricultural runoff that pollutes our water."

Opponents also see corn ethanol, which now takes a larger share of the U.S. corn crop than cattle, hogs and poultry, as a factor in driving food prices higher.

"The end of this giant subsidy for dirty corn ethanol is a win for taxpayers, the environment and people struggling to put food on their tables," Rosenoer added.

But there's a nearer-term battle brewing over corn-based ethanol. A 2005 law requires that 7.5 billion gallons of renewable fuel be produced by 2012 -- 6.25 billion gallons were produced in 2011. A 2007 revision gradually increases that to 36 billion gallons by 2022.

AAA Predicts 4 Cent Rise in Gasoline Prices

Please consider End of ethanol subsidy expected to bring higher gas prices

In January, the federal government is stopping a 45-cent-a-gallon subsidy to ethanol producers, who will pass that extra expense to drivers who buy ethanol-supplemented gas, said AAA Carolinas spokesman Tom Crosby. Extra costs at the pump will amount to about 4 cents, he said.

Not So Fast

The Brazilian Sugar Cane Association reports Congressional recess means the end of three decades of US tariffs on imported ethanol

For the first time in more than three decades of generous US government subsidies for the domestic ethanol industry, coupled with a steep tariff on imports, the United States market will be open to imported ethanol as of January 1st, 2012, without protectionist measures. Today's adjournment of the 112th Congress means both the US$0,54 per gallon tax on imported ethanol and a corresponding tax credit of US$0,45 per gallon for blenders, the VEETC (Volumetric Ethanol Excise Tax Credit), will expire as expected on December 31st.

"With Congress in recess, there are no opportunities for further attempts to prolong the tax credit or the tariff, so we can confidently say these support mechanisms will be gone at the end of 2011," said the Washington Representative for the Brazilian Sugarcane Industry Association (UNICA), Leticia Phillips. This means that in 2012, the world's largest fuel consuming market will be open to imports of less costly and more efficient ethanol, including sugarcane ethanol produced in Brazil, recognized since 2010 by the US Environmental Protection Agency (EPA) as an advanced biofuel because of its verified reduction of up to 90% in greenhouse gas emissions compared to gasoline.

If attempts in Congress to prolong the tax credit had been successful, the subsidy package now about to expire would continue to cost American taxpayers about US$6 billion per year. As for the tariff, meant primarily to keep Brazilian sugarcane ethanol out of the US market, its demise should reinforce fact-based assessments about the various feedstocks used around the world to produce ethanol, according to UNICA President Marcos Jank.

45 Cent Subsidy Ends, So Does 54 Cent Tariff

With the tariff ending, price of imported ethanol should drop by 54 cents per gallon. The net effect of the end of expiring bill, all thing being equal (which they won't be), should be a 9 cent drop in price of ethanol.

Federal and State Ethanol and Biodiesel Requirements

Please consider Federal and State Ethanol and Biodiesel Requirements

Minnesota, a major producer of ethanol, has required all gasoline to contain at least 7.7 percent ethanol since 1997. Hawaii requires 85 percent of its gasoline to contain 10 percent ethanol, effective on April 2, 2006. The intention of the law is to spur local production of ethanol from sugar, but the ethanol could also come from the U.S. mainland or from Brazil.

Minnesota was also the first State to require biodiesel blending into diesel fuel, at 2 percent by volume. The requirement became effective in mid-2005, when two new biodiesel plants, each with 30 million gallons per year capacity, began operation in the State. The law was waived several times because of quality problems with the biodiesel, but it is again in effect.

Washington requires 2 percent ethanol in gasoline and 2 percent biodiesel in diesel fuel no later than November 30, 2008. The requirement will increase to 5 percent once the State can produce biodiesel equal to 3 percent of its diesel demand.

Louisiana enacted a requirement for 2 percent ethanol in gasoline and 2 percent biodiesel in diesel fuel, once sufficient capacity is built in-State. Assuming that Louisiana's 2-percent and Washington's 5-percent requirements are triggered, Louisiana, Minnesota, and Washington will require 102 million gallons of biodiesel in 2012 and 146 million gallons in 2030.

State Mandated Ethanol Usage

As noted above, some states mandate its usage, others don't. Mandating various blends adds to the price, due to inefficiencies. Moreover, given that ethanol from corn makes no environmental sense, promoting the idea is absurd.

The California Energy Commission Consumer Energy Center states

Most ethanol used for fuel is being blended into gasoline at concentrations of 5 to 10 percent. In California, ethanol has replaced methyl tertiary butyl ether (MTBE) as a gasoline component. More than 95 percent of the gasoline supplied in the state today contains 6 percent ethanol. There is a small but growing market for E85 fuel (85 percent ethanol and 15 percent gasoline) for use in flexible fuel vehicles (FFVs), several million of which have been produced by U.S. automakers. But E85 is primarily found in the Midwest in corn-producing states. Ethanol is also being used to formulate a blend with diesel fuel, known as "E-Diesel", and as a replacement for leaded aviation gasoline in small aircraft.

All gasoline vehicles in use in the U.S. today can accept gasoline blended with up to 10 percent ethanol (sometimes called gasohol). Flexible Fuel Vehicles (VVFs) are cars and trucks that can use any level of ethanol up to 85 percent. They're built with special fuel system components designed to be compatible with higher ethanol concentrations.

Calculating the Savings

For California then, assuming Brazil supplies the ethanol 9 cents cheaper, and the ethanol content of gasoline is 6%, California prices might drop about a half-cent per gallon. In states where the ethanol content is 10%, the price should drop nine-tenths of a cent per gallon.

However, this assumes Brazil supplies 100% of US ethanol and that is not a realistic assumption even if it makes good environmental and economic sense.

More than likely costs go up a couple pennies rather than the 4 cents calculated by the AAA. However, any price hikes on gasoline would be more than made up for by the drop in corn prices which in turn will pass through to grain-fed beef, corn flakes, etc.

Regardless of what happens to prices, ending all tariffs and letting the free market set prices is a very good thing in and of itself. Unfortunately, inane state rules and still intact federal rules mandating ever-increasing amounts of biofuels in gasoline formulations are still in control even though the subsidies ended.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Help Wanted, Precisely One Opening; Maintain a Single Chair; Salary $38,500; Travel Required

Posted: 09 Jan 2012 11:04 AM PST

Are you able and willing to maintain a chair for 25,000 British pounds per year (approximately $38,500). Not just any chair. Specifically this one-person chair (as shown from the back).

Inquiring minds may be asking "whose chair is it?" That's a good question too.

The chair belongs to Stephen Hawking, the world's greatest physicist.

Hawking is known for his contributions to the fields of cosmology and quantum gravity, especially in the context of black holes.

He has a motor neurone disease that is related to amyotrophic lateral sclerosis (ALS), a condition that has progressed over the years and has left him almost completely paralysed since 1974.

ALS is commonly known in the United States as Lou Gehrig's disease.

Stephen William Hawking
8 January 1942 (age 69)
Oxford, England

At left: Stephen Hawking at NASA, 1980s

Hawking's illness is markedly different from typical ALS because if confirmed Hawking's case would make for the most protracted case ever documented. A survival for more than ten years after diagnosis is uncommon for ALS; the longest documented durations, other than Hawking's, are 32 and 39 years and these cases were termed benign because of the lack of the typical progressive course.

Image and above text from Wikipedia. Please click on the above link. There is much more to the story, and it's fascinating.

Could You be the Hawking's Next Technical Assistant?

An ad on Hawking's website asks Could You be the Hawking's Next Technical Assistant?

The post is more accurately described by the title "Technical Assistant to Stephen Hawking." It is not a PhD or Post-Doc position for academics looking to study physics, but a purely technical post to allow Prof. Hawking to function within the physics community and as a public speaker.

The original purpose of this position was "to aid Professor Hawking in those areas which he has difficulty due to his disability." The job has since expanded and now includes:

Managing national and international travel for Prof. Hawking and his care team. Expect to spend around 3 months per year abroad!

Development and maintenance of Professor Hawking's communication and speech systems

Procurement and maintenance of his wheelchairs and accessible van

Preparation of lecture graphics and public speaking

Dealing with the media and press

Answering inquiries from the public and maintaining the website

The post requires a wide range of skills, most importantly:

Ability to work under pressure

Maintenance of "black box" systems with no instruction manual or technical support

Computer literacy

Electronics knowledge

Ability to speak to a large audience

Ability to show others how to use complex systems

The role of 'Graduate Assistant to Professor Hawking' is funded as a research post at the University of Cambridge. Normally it has been under a 12 month contract, although recent graduate assistants have stayed on for several years.

Stephen Hawking seeks help to make voice heard

Yahoo!Finance reports Stephen Hawking seeks help to make voice heard

Can you help make Stephen Hawking's voice heard?

The famed British physicist is seeking an assistant to help develop and maintain the electronic speech system that allows him to communicate his vision of the universe. An informal job ad posted to the famed physicist's website said the assistant should be computer literate, ready to travel, and able to repair electronic devices "with no instruction manual or technical support."

Hawking has long struggled against amyotrophic lateral sclerosis, a disease which left him almost completely paralyzed.

He lost his real voice in a tracheotomy in 1985, but a wheelchair-mounted computer helps synthesize speech by interpreting the twitches of his face. The synthesizer's robotic monotone has become nearly as famous as Hawking himself, but the computer — powered by batteries fastened to the back of Hawking's wheelchair — isn't just for speaking.

Hawking's website says that the job's salary is expected to be about 25,000 pounds ($38,500) a year.

Media Appearances, Movies, Music

Wikipedia reports ...

In Hawking's many media appearances, he appears to speak fluently through his synthesiser, but in reality, it is a tedious drawn-out process. Hawking's setup uses a predictive text entry system, which requires only the first few characters in order to auto-complete the word, but as he is only able to use his cheek for data entry, constructing complete sentences takes time. His speeches are prepared in advance, but having a live conversation with him provides insight as to the complexity and work involved. During a TED Conference talk, it took him seven minutes to answer a question.

Hawking has played himself on numerous television shows and has been portrayed in many more. He has played himself on a Red Dwarf anniversary special, played a hologram of himself on the episode "Descent" of Star Trek: The Next Generation, appeared in a skit on Late Night with Conan O'Brien, and appeared on the Discovery Channel special Alien Planet. He has also played himself in several episodes of The Simpsons and Futurama, and has had an action figure made of his Simpsons likeness. In 2008, Hawking was the subject of and featured in the documentary series Stephen Hawking, Master of the Universe for Channel 4. In September 2008, Hawking presided over the unveiling of the 'Chronophage' (time-eating) Corpus Clock at Corpus Christi College Cambridge. His actual synthesiser voice was used on parts of the Pink Floyd song "Keep Talking" from the 1994 album The Division Bell, as well as on Turbonegro's "Intro: The Party Zone" on their 2005 album Party Animals, Wolfsheim's "Kein Zurück (Oliver Pinelli Mix)". When he was portrayed on episodes of Family Guy, the voice was actually done by a speech synthesiser on a Macintosh computer, according to DVD commentary. He was portrayed in an episode of the Dilbert cartoon. In The Fairly OddParents, it is mentioned that he was Denzel Crocker's college roommate. As well as being fictionalised as nerdcore hip hop artist MC Hawking, he was impersonated in duet with Richard Cheese on a cover of "The Girl Is Mine". He was also portrayed in the movie Superhero Movie by Robert Joy. In the TV series Dark Angel Logan's technology savvy colleague Sebastian is characterised with many similarities to the actual physicist.

Here is an interesting update on Geekologie showing an image of Stephen Hawking weightless.
The link to the official opening is down, but I cannot find news an assistant was found. Perhaps they have closed the application process even if the slot is not filled.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

What If We Could Turn Back the Hands of Time and Make One Simple Change?

Posted: 09 Jan 2012 08:51 AM PST

What if we could turn back the clock to the year 2000 and elect a different president for 8 years? What if we elected Ron Paul?

There would be no Fed and we would have sound money.
Fannie Mae and Freddie Mac would have been dismantled.
The big three rating agencies (Moody's, Fitch, and S&P) would not be officially government recognized and rating agencies in general would have been paid on the basis of how well they do their job, not on volume generated by being "officially recognized".
There would have been no housing bubble (or one much smaller).
Ron Paul certainly would not have signed the Medicare bill Bush signed or the Healthcare bill Obama signed..
The US would not have wasted over a trillion dollars in Iraq.
The US would not have had troops stationed in Saudi Arabia and since that was Bin Laden's biggest gripe, there may not have been a 911 attack in the first place.
Davis Bacon and prevailing wage laws would have been scrapped lowering costs to cities and states to provide services.
Cities and states would not be in such bad financial position.
Ron Paul would have ended collective bargaining of public unions
The public union pension crisis would not be as big.
We would actually have smaller government instead of lip service from other Republicans on providing smaller government
People would have lower taxes and more of their own money to spend.
The insane war on drugs would be over and our prisons would not be overflowing at enormous expense to taxpayers
The US would be defending its borders instead of being the world's policeman

I can go on and on. It's amazing how much attention has been focused on things Ron Paul did not even say, instead of things he has consistently stood for. He is the only Republican candidate (actually the only candidate from any party) that has a high level of consistency on critical issues.

I have been thinking about this for days actually, and decided to write it up in response to this must see video by Judge Andrew Napolitano on Fox News.

Link If Video Does Not Play: What If "They" Are Lying to Us about Ron Paul?

President Obama and Mitt Romney are Nearly One and the Same

Interesting, Judge Napolitano makes the same suggestion that I have made several times: President Obama and Mitt Romney are Nearly One and the Same!

Except on fringe issues there is no practical difference between Obama and Mitt Romney. The health care act Obama crammed down everyone's throat was based on ideas Romney put in place as governor.

Moreover, there is little difference between George Bush and President Obama on wars, on trade, on sanctions, on tariffs, on bailouts, on banks, on drugs, on education, on jobs, and on spending.There is a difference on abortion (a fringe issue), and on public unions.

Except for an exceptionally hard stance on abortion, there is even less difference between Rick Santorum and President Obama as noted by the Cato Institute in Santorum's Big-Government Conservatism.

There is no doubt that Santorum is deeply conservative on social issues. He is ardently anti-abortion, even in cases of rape and incest, and no one takes a stronger stand against gay rights. In fact, with his comparison of gay sex to "man on dog" relationships, Santorum seldom even makes a pretense of tolerance. While that sort of rhetoric may play well in Iowa pulpits, it will be far less well received elsewhere in the nation.

Santorum's voting record shows that he embraced George Bush–style "big-government conservatism." For example, he supported the Medicare prescription-drug benefit and No Child Left Behind.

He never met an earmark that he didn't like. In fact, it wasn't just earmarks for his own state that he favored, which might be forgiven as pure electoral pragmatism, but earmarks for everyone, including the notorious "Bridge to Nowhere." The quintessential Washington insider, he worked closely with Tom DeLay to set up the "K Street Project," linking lobbyists with the GOP leadership.

He voted against NAFTA and has long opposed free trade. He backed higher tariffs on everything from steel to honey. He still supports an industrial policy with the government tilting the playing field toward manufacturing industries and picking winners and losers.

In fact, Santorum might be viewed as the mirror image of Ron Paul. If Ron Paul's campaign has been based on the concept of simply having government leave us alone, Santorum rejects that entire concept. True liberty, he writes, is not "the freedom to be left alone," but "the freedom to attend to one's duties to God, to family, and to neighbors." And he seems fully prepared to use the power of government to support his interpretation of those duties.

Fake Conservatives

Ron Paul is the true constitutional conservative. Newt Gingrich, Mitt Romney, and Rick Santorum are fakes. I will not vote for Mitt Romney if nominated, nor Rick Santorum.. Nor will I vote for Newt Gingrich. What did Gingrich accomplish as Speaker of the House?

I would vote for Ron Paul or Jon Huntsman if nominated. Otherwise, if Republicans keep nominating fake conservatives and war-mongers that pay lip service to small government, I will keep writing in Ron Paul as I did in the last two presidential elections.

Some may say writing in Ron Paul will only serve to reelect President Obama. I say so what?

In spite of all the talk (and a few differences on social issues), there is no practical difference on major economic matters, foreign policy, war-mongering, or big government between the Republican candidates (except Ron Paul and Jon Huntsman), and President Obama.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Fundamental and Mathematical Case for Structurally High Unemployment for a Decade; Shrinking Job Opportunities and the Jobs Gap; The Real Employment Situation

Posted: 09 Jan 2012 12:59 AM PST

Since 2008 I have been stating the US would have "Structurally High Unemployment for a Decade".

Indeed, based on historical trends in labor force growth, the expected unemployment rate for the number of jobs created during the recovery would be well north of 11%. Yet, the unemployment rate is currently an artificially "low" 8.5% (not that 8.5% is anything to brag about).

To show how difficult it will be to bring that rate down, let's take a look at job growth (or losses), for the last three decades (numbers in thousands).

1970's Job Growth

Year	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec	Avg
1970	-64	126	151	-105	-226	-94	27	-123	17	-430	-110	381	-38
1971	76	-61	54	178	210	6	63	52	252	22	202	264	110
1972	337	207	293	218	304	293	-51	428	131	404	293	305	264
1973	350	397	269	170	190	240	25	255	115	324	304	126	230
1974	69	149	42	89	163	55	32	-15	-5	13	-368	-602	-32
1975	-360	-378	-270	-186	160	-104	249	386	78	303	144	338	30
1976	489	311	232	244	18	65	170	158	188	13	332	211	203
1977	244	295	404	339	359	399	348	238	458	262	379	235	330
1978	187	353	513	702	346	442	254	276	137	336	437	283	356
1979	137	243	426	-62	372	318	106	82	27	157	94	95	166
Decade Annual Avg													162

1980's Job Growth

Year	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec	Avg
1980	131	79	112	-145	-431	-320	-263	260	113	280	256	195	22
1981	95	67	104	74	10	196	112	-36	-87	-100	-209	-278	-4
1982	-327	-6	-129	-281	-45	-243	-343	-158	-181	-277	-124	-14	-177
1983	225	-78	173	276	277	378	418	-308	1114	271	352	356	288
1984	447	479	275	363	308	379	312	241	311	286	349	127	323
1985	266	124	346	195	274	145	189	193	204	187	209	168	208
1986	123	107	93	188	125	-93	318	113	346	187	186	204	158
1987	171	232	249	338	227	171	346	170	229	492	231	294	263
1988	94	452	276	245	227	363	223	121	340	268	339	289	270
1989	262	258	192	173	118	117	39	47	249	111	277	95	162
Decade Annual Average													151

1990's Job Growth

Year	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec	Avg
1990	342	245	215	40	149	17	-42	-208	-82	-161	-144	-60	26
1991	-119	-306	-160	-211	-128	87	-47	15	35	12	-58	23	-71
1992	49	-66	50	158	126	60	71	141	35	177	140	211	96
1993	310	242	-51	309	265	173	295	161	241	277	261	308	233
1994	268	201	462	353	331	315	363	300	354	207	423	274	321
1995	321	209	222	162	-16	231	79	271	245	147	148	131	179
1996	-19	434	263	161	323	278	232	196	220	243	296	167	233
1997	230	301	312	291	256	253	283	-18	508	339	303	299	280
1998	270	189	144	277	401	212	119	352	218	193	284	342	250
1999	121	410	106	376	213	266	291	192	202	408	294	294	264
Decade Annual Avg													180

2000's Job Losses!

Year	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec	Avg
2000	249	121	472	286	225	-46	163	3	122	-11	231	138	163
2001	-16	61	-30	-281	-44	-128	-125	-160	-244	-325	-292	-178	-147
2002	-132	-147	-24	-85	-7	45	-97	-16	-55	126	8	-156	-45
2003	83	-158	-212	-49	-6	-2	25	-42	103	203	18	124	7
2004	150	43	338	250	310	81	47	121	160	351	64	132	171
2005	136	240	142	360	169	246	369	195	63	84	334	158	208
2006	281	317	287	182	11	80	202	185	156	-8	205	180	173
2007	203	88	218	79	141	67	-49	-26	69	91	127	84	91
2008	13	-83	-72	-185	-233	-178	-231	-267	-434	-509	-802	-619	-300
2009	-820	-726	-796	-660	-386	-502	-300	-231	-236	-221	-55	-130	-422
Decade Annual Avg													-10

2010's Job Growth

Year	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec	Avg
2010	-39	-35	192	277	458	-192	-49	-59	-29	171	93	152	78
2011	68	235	194	217	53	20	127	104	210	112	100*	200*	136
* : preliminary													108

Bear in mind those tables are from the BLS establishment survey data while the unemployment rate is based off a phone survey. Nonetheless, with sufficient time (and BLS revisions), the results merge.

According to Fed chairman Ben Bernanke (and I believe he is correct on this point) it currently takes about 125,000 jobs a month to hold the unemployment rate steady, down from about 150,000 in 2000. I expect that number to drop for a few more years due to boomer demographics, but the key point is the number is positive not negative.

The only reason unemployment rate has dropped recently is because BLS surveys say the number is negative (a shrinking labor force).

Based on historical data and Bernanke's estimates, one would have expected the unemployment rate to have risen during 2010 and peaked mid-2011. Instead, the unemployment rate fell from 10 to 8.5.

The Real Employment Situation

With that backdrop on historical job trends, please consider an excellent article by Lance Roberts of Streettalk Live: The Real Employment Situation Report For December 2011

If you take a look at the actual number of those "counted" as employed, that number has risen from the recessionary trough. However, in reality, employment is still far below the long term historical trend. Currently, the deviation from the long term trend is the widest on record and has made very little improvement.

In order for the country to return to the long-term trend of employment by 2020, we will need to be creating nearly 250,000 jobs each month. This, of course, is a far cry from 200,000 that we saw this month. With the employment-to-population ratio remaining at levels not seen since 1984, the real pressure on the economy remains focused on the consumer.

There are two very negative ramifications of this large and "available" labor pool. The first is that the longer an individual remains unemployed, the more the degradation in job skills weighs on future employment potential and income. The second, and most importantly, is that, with a high level of competition for existing jobs, wages remain under significant downward pressure.

Business owners are highly aware of the employment and business climate, and regardless of the ranting and raving about the "cash on the sidelines", businesses are not operated as charities. Business owners are milking the current employment climate for all it is worth in order to maintain profitability. With high competition levels for existing jobs, and the impeding threat of job loss for those working, employers can work employees longer hours at less pay. This is great for profit margins, and workers won't complain because there are plenty of individuals that will be happy to take their job and do it for less pay.

This impact on wages, as other inflationary pressures rise, hits the consumer where it hurts the most. We have discussed the fact that recent declines in wages and salaries combined with the rising costs of food and energy are consuming more of the household income. This bleed on incomes has led to significant slides in the personal savings rate and the ability for the consumer to continue to spend outside of the main necessities to meet their basic standard of living. This pattern is unsustainable, and sharp decreases in personal savings rates have historically been precursors to the onset of recessions.

Employment Trends Since 1955

In Employment Trends Since 1955 I posted a chart from reader Tim Wallace that conveys the same idea in a different way.

Employment Trends

click on chart for sharper image

Wallace writes ....

Hello Mish

On today's labor report: Note how the labor force has flat lined for four years even though population growth has averaged 1.5 million for the past 55 years. From 1993 to 2007 population growth was 1.7 million per year!

Thus, the labor force should not suddenly turn flat since retirements do not even come close to explaining the chart. Yet, suddenly the work force has just been frozen in time although the population continues on the same upward trend.

The work force is literally one million smaller than during Bush's last year in office. This is statistically impossible, at least judging from historic trends.

We also are still 5.6 million people below the employment number of the peak year in 2007. So, practically speaking we have approximately 11.6 million more people unemployed than in 2007.

If we add the additional 6 million that should be counted as available for the labor force, the unemployment number at the U-3 level surges past 11% as you have said numerous times.

Tim

Shrinking Job Opportunities and the Jobs Gap

Let's look at the same data still one more way.

Please consider Shrinking Job Opportunities: The Challenge of Putting Americans Back to Work

The December Jobs Gap

As of December, our nation continues to face a "jobs gap" of 12.1 million jobs, down by 67,000 jobs from November.

The chart below shows how the jobs gap has evolved since the start of the Great Recession in December 2007, and how long it will take to close under different assumptions for job growth. The solid line shows the net number of jobs lost since the Great Recession began. The broken lines track how long it will take to close the jobs gap under alternative assumptions about the rate of job creation going forward.

If the economy adds about 208,000 jobs per month, which was the average monthly rate for the best year of job creation in the 2000s, then it will take until March 2024—over 12 years—to close the jobs gap. Given a more optimistic rate of 321,000 jobs per month, which was the average monthly rate for the best year of job creation in the 1990s, the economy will reach pre-recession employment levels by February 2017—not for another five years.

Statistically Impossible IFs.

Based on the data tables from the BLS that I posted at the top of this article, each of those dashed line in the above chart represents a statistically impossible IF.

The economy is certainly not going to average 472,000 jobs per month for two years. Nor will it add 321,000 jobs a month for six straight years. Finally, the economy is not going to add 208,000 jobs a month, every month, for the next 12 years.

Indeed, one cannot find any 10-year period in which the economy added that number of jobs. The best 10-year period I can find is 195,000 jobs per month from 1991-2000, overlapping decades by 1 year (during the internet boom with hugely falling interest rates and Greenspan's foot on the gas pedal nearly every step of the way).

Fundamental Case for Structurally High Unemployment

At the height of the internet bubble with a nonsensical Y2K scare on top of that, the economy managed to gain 264,000 jobs a month.
At the height of the housing bubble in 2005, the economy added 208,000 jobs a month.
At the height of the commercial real estate bubble with massive store expansion, the economy added somewhere between 91,000 and 173,000 jobs per month depending on where you mark the peak.

Neither the housing boom, nor the commercial real estate boom is coming back. Nor is there going to be another internet revolution.

Moreover, debt levels are high and millions are trapped in their homes, unable to move. Boomers in retirement or headed for retirement have insufficient savings so one cannot expect a spending boom of any kind. Instead, one can expect boomers to draw down on their savings (assuming that have any savings).

In conclusion, the only way the unemployment rate can substantially decline from here is if millions more drop out of the labor force, thereby creating an even bigger "gap" between reality and the BLS's alleged unemployment rate.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Monday, January 9, 2012

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

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