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June 1, 2001
On the first Friday each month the Department of Labor reports employment data for the preceding month. Today's crucial data constitute a cruel capitalist joke... but, on the bright side, lower mortgage rates.
The DOL today announced that the unemployment rate fell from 4.5% to 4.4%. At the news, traders world-wide reached for the sell-it-all-fast button, paused, and said a collective "Huh?"
A drop in unemployment would signal a miraculous rebound in the economy, in turn meaning the Fed had already overdone its easing campaign and inflation would be here any second if not already and any fool of a trader who had bought a bond or mortgage in hopes of a slow economy would be... would be shot, or demoted to stockbroker.
Shortly after the initial whazzat, after contemplating a fate worse than death, traders got it: the DOL's data had mangled the actual economic situation. Amidst a rush of extraordinary invective (trust me... "[Deleted] idiot government [deleted] dweebs can't count their [deleted] fingers."), traders began to buy.
Here's the cruel joke. In order to compute the unemployment rate, you have to count the number of people who are unemployed, and then divide that number by the "work force." Way back in the '70's, I think, the DOL refined its definition of the work force to exclude the long-term unemployed, figuring that at some point such people were no longer available for work, and therefore not truly "unemployed". They had become unemployable, retired, or reached some other semi-permanent non-working condition.
This nifty refinement has one little flaw: at some unpredictable moment in most economic downturns a portion of the unemployed work force becomes so depressed looking for a job that they stop looking. If a work force member answers a DOL surveyor, "Well, I was making aluminum, but all the power's goin' to California, and there's nothin' I can do", then that worker is no longer unemployed, as he has dropped out of the workforce.
So has the ex-dot-commer, the ex-fiber-optic-cable technician, and the ex-tech-IPO investment banker.
In May, some 250,000 people dropped out of the work force this way, and the unemployment rate "fell."
No way: it's rising. The purchasing managers' index crumbled to 42.1, reversing springtime hints of recovery; and Asian and European economies are showing new weakness.
There is no sign of outright recession, but there isn't much forward momentum, either. The stock market is way ahead of itself, presuming a recovery, and mortgages suddenly look like pretty good investments -- which should keep low-fee 30-year loans safely below 7.50% until there is some authentic news of economic recovery.
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