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How False Economic Signals Confuse Investors
Employment Numbers are Still Difficult
U.S. Bureau of Labor Statistics: U.S. Unemployment rises slightly to 7.9 Percent in October, U.S. total non-farm payroll employment increased by 171,000 in October, and the unemployment rate was essentially unchanged at 7.9 percent and the number of unemployed persons (12.3 million) were essentially unchanged in October, following declines in September.
The media has jumped on these numbers and prophecies of a dramatic fall in economic activity in the USA has been trumpeted. In reality, there has been a slowdown inmost economic measurement numbers.
The Real Facts
The real facts speak a different story. From an unemployment high of almost 10% in 2010, the monthly figures as shown on a monthly chart, show a continuing and gradual decline in unemployment throughout the period. The decline is gradual with minor bumps up and down. October fits well in this pattern.
This is a classic pattern during a recovery, with employment gradually recovering, but slower than the general recovery. Employment recovery always lags economic recovery. Yet listening to the media, paints a different and negative picture.
One has to be aware that a news headlines saying "The Recovery is Gradually Continuing" will not attract any listeners, nor any advertisers. But fear attracts attention. A headline inducing fear is always better than a headline painting an accurate boring picture.
Will Payrolls Continue to be Cut
As our world changes and as the way we work changes radically with changes in communications, the old way of calculating unemployment should also change, but it does not. We are still influenced by unemployment calculations are based on factors that are outdated and highly inaccurate.
Consider that union membership dropped dramatically over recent decades and continues to drop throughout the recovery. There are many reasons for this, including the intransigence of unions and the fact that unions drove millions of jobs overseas in the interests of protecting a few remaining union employed members. Unfortunately for those unionized workers, and for the American middle class that they hope to represent, economic reality is just catching up, and artificially pushed up wages may be enforceable in a local community, but work competition soon drives those jobs elsewhere, usually overseas.
Consider that working from home and starting new businesses is so much easier now than ever before. The internet has leveled the playing field, and people everywhere are starting their own enterprises. More and more people are working as contractors so that their time is their own. There are websites that offer a stream of contracts for independent work every day. Contractors bid on those jobs. Employees are not involved. Per diem work is more profitable for all parties, is more productive for all parties, and the inefficiencies of paying people the same rate for good work as for bad work, is giving impetus to this trend.
All USA Economic Numbers Are Up
Headlines do not appear that scream "Car Sales are at Record Highs", but they are.
Headlines do not scream "The Highest Level of New Housing Starts Since 2007", but it is.
Headlines do not say "Jobs are Returning to the USA from Overseas, including every industry from Auto Manufacturers to Call Centers", but they are. Labor costs are moderating in the USA which is again becoming competitive.
In so many sectors, the recovery is proceeding as every recovery from every downturn proceeds.
The European Monetary Crisis
An interesting little story from Hungary. Listeners to the media are convinced that Europe will soon disintegrate, because of the massive debts there. Yet, no country has defaulted in spite of so many headlines claiming the EU is finished. Instead, stories seem to be moderating as the European countries gradually reduce their spending and try to bring their affairs into some sort of order.
It isn't pleasant, but it is happening. The following is a example of the new mindset in Europe. No longer is the general feeling of the population that government should provide everything and provide bountiful lives for all citizens. Now people's attitudes are changing. The following story is but a small but telling example.
Hungary for Chinese?
Lawmakers in indebted European Union member Hungary are waving the prospect of a passport at well-heeled foreign investors. Proposed legislation listed on parliament's web site would grant permanent residency and ultimately Hungarian citizenship to outsiders who buy at least 250,000 euros worth of government bonds.
Hungary has billions of euros worth of foreign currency debt maturing in the next few years and has explored a variety of ways to refinance. The move, backed by the ruling government party, is designed to attract new investors.
The proposed legislation calls for the debt management office to issue special "residency bonds" to foreigners. Holders of at least a quarter of a million euros' worth of the paper would get preferential immigration treatment. One of the authors of the proposal said Chinese investors were specifically targeted.
What is Really Happening
The world is slowly but surely digging its way out of the mess created by the overindulgence of the early 2000's and of the profligate creation of money by the US Fed. Slowly but surely normality is returning.
Investors should note that investing now, is investing at the bottom of the economic cycle. This is a very positive time to invest.