The Expansionary Times

The Examiner

Yellen, Citing Labor "Slack," Could Keep Rates Near Zero Through 2015

Yellen, Citing Labor "Slack," Could Keep Rates Near Zero Through 2015


August 4, 201410:29 AM MST

According to today's Wall Street Journal, Federal Reserve Chair Janet Yellen will have to make tough decisions over the next year. Because of challenging economic conditions, "the next 12 months will test her nerves and judgment," states WSJ analyst Jon Hilsenrath.




Most economists believe that Janet Yellen and the Federal Reserve will raise interest rates in the near future. However, Yellen and company can point to a number of disturbing trends in employment, housing, and car sales to justify the Fed maintaining zero-interest rates well beyond 2015.




Yellen has already stated that she and other Fed officials are not as optimistic about Americans' employment prospects as academics and politicians seem to be.




According to Reuters, Yellen believes that the much-ballyhooed sharp drop in the unemployment rate "has masked substantial weakness in the labor market." She constantly refers to what she labels "slack" in the employment picture.




Anyone looking for a well-paying full-time job can relate to Yellen's skepticism regarding recent jobs numbers. The labor participation rate is at all-time lows. Only about 58% of the overall working age population actually has a job. By comparison, in 2000 65% of the population had a job, and the unemployment figure was 4%.




One troubling bit of news released by the Bureau of Labor Statistics concerns the total number of hours worked by Americans. According to the report, "workers in the U.S. business sector worked virtually the same number of hours in 2013 as they had in 1998—approximately 194 billion labor hours."




However, the US population has grown by 35 million since 1998. Millions more people are available to work, yet the number of hours worked by Americans has not increased since 1998.



In real terms, this translates into millions of positions "not created" for all these new potential workers.




Lost in the hoopla over the July employment report was the fact that the 25-54 age group lost 142,000 jobs. Workers in that age group traditionally have the highest participation rates, make the highest salaries and are the greatest contributors to the nation's economic growth. They are also critical to the continued health of social safety nets such as Social Security and Medicare. This group's jobs woes are being felt throughout the economy, especially in the housing and auto sectors.




Ironically, it was the 55+ ages group that accounted for much of the jobs increase in July. Many in this group were looking forward to retiring sometime over the next decade. Instead, they are prematurely becoming displaced from their high-income careers and are now forced to work in low-paying, temp positions, if they are lucky to land one.




One of the more disturbing aspects of the economic "new normal" is the literal collapse of


the US new homes market. About 400,000 new homes will be sold in 2014, down from about


1.5 million in the mid-2000s.




Worse, Americans will purchase fewer new homes in 2014 than they did in 1963, over half a century ago, when the population stood at 189 million, compared to 319 million in 2014.




We hear much about the "revived" auto industry. Economists point to the fact light vehicle sales in the US are expected to reach about 16 million cars sold in 2014. They fail to mention that car dealers are selling no more cars than they did 30 years ago. Americans purchased 16 million cars in 1986, when the US population was a much 240 million. Instead of buying cars, Americans are holding on to their current automobiles for a record 11.4 years.




Auto companies are increasingly selling new cars to sub-prime borrowers, many of whom will eventually default on their over-sized six-year car loans. For this reason many economists believe we are witnessing an " auto-loan" bubble that might burst this year or next.




Media pundits, academics, and politicians, as well as Wall St. investment counselors seem oblivious to these troubling indications of US economic stagnation.




However, Federal Reserve Chair Janet Yellen, when considering when and if to raise the Fed's interest rates, cannot afford the luxury of ignoring these danger signs. A mistake by Yellen and the Fed could throw the stock market, and the US and global economy, into a downward spiral.



Chapwood, Shadowstats say US inflation much higher than official figure

Chapwood, Shadowstats say US inflation much higher than official figure


February 15, 20154:46 PM MST

Shadowstats and Chapwood Index Say Inflation Higher Than Estimated

Ask the economists at the Bureau of Labor Statistics, and they will tell you in no uncertain terms that prices in the US are rising at a manageable pace, less than 2 percent per year. But many private investment houses and analysts are challenging the official inflationcount, claiming that the price of most goods is increasing at a rate several times the government's official estimate.


The Chapwood Index of inflation was developed by a private investment house to help its clients navigate the rocky waters of the US economy. While Chapwood Investments, the firm compiling this Index, updates its clients on inflation periodically throughout the year, it has been releasing to the public its inflation estimate only on an annual basis.


Over the last few years, the Chapwood Index indicates that real inflation in the US is averaging close to 10%. The Chapwood Index just released its 2014 numbers a few days ago. The report reveals a disturbing pattern.


According to Chapwood, in New York City prices increased by a whopping 12.4 percent in 2014. Other metro-areas exhibited the same massive increase in prices: Los Angeles, 12.1 percent, Chicago, 10.9 percent, and San Diego, 13.1 percent. Inflation in the 50 American cities represented in the Index varied between 8 percent to 13 percent.


The Chapwood Index arrives at these numbers by measuring the price changes of over 4000 items commonly purchased by Americans, and compares these prices year to year, region by region.


Among the items measured are Starbucks coffee, gasoline, Advil, taxes, dry cleaning, tolls, movie tickets, fast-food restaurants, computer paper, internet service, toothpaste, oil changes, car washes, pizza, Gymboree lessons, mobile phone service, cable TV, home repairs, laundry detergent, light bulbs, school supplies, pet food, underwear and certain magazines.

The Index also includes health care. The increased costs associated with Obamacare, such as higher premiums and deductibles, are certainly contributing to the accelerating cost of living.




Another organization, Shadowstats, calculates inflation simply by using the same method of measuring price changes that the government employed around 30 years ago. Over the years, as theBLS continued to modify the way it measured price changes, the official inflation number headed downward, and is now well under 2 percent.




Using the older US government measurement formula,Shadowstats has found that inflation is running around 9 percent annually.




So who to believe? It is important to remember that the official CPI is the number the government uses to calculate how much Social Security and other benefits will be increased each year. If Social Security benefits grew annually at the same rate as inflation as measured by Shadowstats and the Chapwood Index, around 9 percent or 10 percent, or even at a milder 4 percent, the government would be hard put to fund these programs without raising taxes and/or increasing the deficit.




As it is, programs such as Social Security and Medicare are facing unfunded mandates in the hundreds of trillions over the next decades.




According to Ed Bukowsky, managing partner of Chapwood Investments, because of high inflation "Individual purchasing power is sinking in quicksand, and people are unable to maintain their current lifestyle."




These are strong words. However, it shows that consumers and investors must understand why they feel like their standard of living is suffering, why they are increasingly unable to afford to engage in some of the niceties of life, such as occasionally eating out, attending a movie (which in many cities is heading toward $15 or higher), or going on a vacation.




Until the the nation comes to grips with the reality of accelerating price inflation, the broad middle class will continue to lose ground year after year.



Most New Jobs Going to Older Adults, As Younger Groups Lose Ground

Most New Jobs Going to Older Adults, As Younger Groups Lose Ground


October 6, 20149:00 AM MST

According to the Bureau of Labor Statistics (BLS) September monthly employment report, most new jobs are going to adults 54 years of age and older, and those jobs are in the traditionally lower wage fields such as retail, food services, and hospitality. Meanwhile, younger adults are seeing job opportunities disappear.


The BLS figures show that job creation is lagging behind the growth of the US working age population. Since 2008, while the available labor pool has grown by 14 million people, the US civilian labor force has grown by only one million people. This chasm between those available to work and the number of jobs is growing rapidly.


The number of adults either not in the labor force or unemployed is102 million people, an eye- popping 41% of the adult population.


The question is obvious: Who's going to support that large segment of the adult population?


It is assumed that those not in the labor force can turn to government safety net programs such as Medicaid, welfare, Social Security, disability insurance, Obamacare, unemployment insurance and Medicare for support.


Ultimately the government depends on revenue streams from its tax base to fund these programs. And historically the bulk of such tax revenues have come from the 25-to-54-year-old age cohort. Unfortunately, this cohort is itself facing a difficult job market, and thus cannot be depended on to generate sufficient tax revenues in the future.


Since 2008, this core group has lost 2.04 million jobs adjusted for population. This 25-54 demographic lost 10,000 jobs last month, and over 100,000 in July.


So who did actually get hired in September to account for the 248,000 jobs created?


Most of the new jobs went to workers between the ages of 54 and 69, the only age cohort whose labor participation rate has been improving during the post-2008 "recovery." Many boomers cannot afford to retire, so when they are downsized out of their high-paying positions, they take any jobs they can to offset the loss of income. Most find it impossible to exist solely on Social Security benefits which are currently averaging $1294 per month, according to government figures.

This might explain why four out of the top five of September's largest job additions were in lower paying and minimum wage fields, including temp help, retail trade, food services, hospitality, and health care. Retirees, both of the voluntary and involuntary variety, often find themselves having to take jobs in these fields as minimum wage waiters, groundskeepers, store clerks, and temps. As people live longer than ever, they must find ways to support themselves beyond the normal retirement age.




As the BLS monthly jobs reports continue to remind us, a good job is hard to find. Is it any wonder 72% of Americans in a recent survey said that the US is still in a recession?



Weak US Economic Data Forces Federal Reserve to Postpone Rate Hike

Weak US Economic Data Forces Federal Reserve to Postpone Rate Hike


April 19, 20151:08 PM MST

This week the Federal Reserve, citing fundamental weaknesses throughout the US economy, announced that it would not raise interest rates anytime in the near future.


By postponing rate hikes but again, the Fed is quietly signalling its agreement with the growing consensus of economists and investment managers that the US economy, buffeted by the same economic headwinds that are sending Europe and Japan into near-recessions and slowing China's growth, is in considerable trouble.


On Friday April 18th these fears sent financial markets in Asia, Europe, and the US into turmoil. The Dow, down 279 points, is lower than it was in November 2014.


There are few bright spots in this economy. Hiring in the US has slowed significantly in March. Consumer spending has been dropping over the last half-year. Industrial output is in a downward trend. The home construction industry has been in a veritablerecession for the last several years.


Worse, the Atlanta Federal Reserve forecasts that GDP growth in the first quarter of 2015 might come in as low as 0.1 percent. Some fear that number might be adjusted down even lower and reveal a US economy actually in contraction. This would be the second time in a year that nation's economy has contracted instead of expanded--the GDP declined by 3 percent in early 2014.


According to Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, “Data available for the first quarter of this year have been notably weak." This weakness is "giving rise to heightened uncertainty about the track the economy is on.”


The next "target date" for raising interest rates will most likely be September, 2015. Between now and then there is plenty for the Fed to ponder.


The US debt is headed toward $20 trillion dollars, and now stands at a record 104 percent of GDP. The number of Americans out of work has just topped 93 million. Masses of millennials are unemployed or underemployed. Wages are shrinking. Americans are buying fewer new homes than they did in 1963, when the population was only 180 million. Corporate profits are weak. Tapped-out Americans must now find the money to pay skyrocketing health

care premiums and deductibles.

However, the Fed is in a bind. Its zero-interest rate policy has become a hidden tax on the middle class, robbing Americans of trillions in lost interest payments on savings since 2009. But if the Fed raises interest rates, it is feared that investors might rapidly move money out of stocks and into safer fixed-income instruments such as bonds or money market funds.




Clearly, the already weak US economy could fall into recession this year or next if the correct monetary and fiscal policies are not forthcoming.




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