Sunday, October 5, 2014

5.9% and why it doesn't matter

10/3/2014 Portland, Oregon – Pop in your mints…
Today the BLS reported that payrolls grew in September and that the stated unemployment rate dropped to 5.9%.  They also published the labor force participation at 62.7%.  The handy chart below from the folks at Business Insider shows how steeply labor force participation has dropped over the past five years.
Labor Participation Courtesy of BI
Labor Participation Courtesy of BI
Labor Market Participation aside, the 5.9% unemployment is exciting for banks.  On one hand, it can be seen as a sign that more people are working and theoretically becoming creditworthy.  This is big because consumers with deposits are cherished in the Basel III framework that they are painfully working their investment ladders into.
On the other hand, it is seen as just high enough that the Federal Reserve will not raise short term interest rates for fear of “derailing the recovery” or whatever phrase Janet Yellen chooses to employ in her latest effort to mask the brutal fact that they are continuing to provide money free of charge to a painfully inept banking cartel.
While much will be written about today’s “Goldilocks” job report, it matters not in terms of Fed policy.  The Fed will continue to offer money free to banks until they are certain that Basel policy reforms will not inadvertently cause (rather than prevent, as they are designed to do) the financial crisis.  Meanwhile, in the real world, the cost of labor, meaning the cost of hiring someone who can actually perform a specific task, is about to skyrocket.
The reason for this is that there remain severe imbalances in the labor market caused by recent advances in technology, namely cloud based administrative services and logistics, which are now colliding with a relative decline in the recent productivity gain that said technology was providing.  While large productivity gains having been the norm, there is soon to be a lack of persons who have the requisite skills to run such systems efficiently, which means that those productivity gains will at a minimum not continue and may even be lost.
There is also another labor undercurrent that the BLS data does not capture.  This is the large scale disruption of entire industries that the cloud and logistics revolution is enabling.
Indeed, there is much more to the labor market than a tidy percentage point can express, as nearly five years of ZIRP is pushing the division of labor to new extremes.  Employers, Employees, and the BLS may soon become archaic terms, as American Society moves towards outsourcing on steroids.
Today’s 5.9% is little more than bad information, unless of course, you are a banker, in which case it means that the Goldilocks days are here again, and the Fed’s subsidy, a license to strip mine the earth that is provided on the backs of its inhabitants and nature herself, will continue until further notice.
Stay tuned and Trust Jesus.
Stay Fresh!
David Mint
Key Indicators for October 3, 2014