Date: January 12, 2014

Employment Report Disappoints

The overly anticipated employment report showed a disappointing 74,000 jobs being created in December. I have already heard the pundits argue away ad nauseam this report as an outlier that will be revised higher in subsequent months, something I don’t rule out. However, they also reason that all is great and our economy is about to go into warp speed.

I could not disagree more as I have since the economy bottomed in 2009. All was not ok in 2009 or 2010 or 2011 or 2012 or 2013 and not now. We continue to live through a very typical post economic crisis recovery that will a full economic cycle to normalize. As I have said ad nauseam, when we get to the other side of the next recession, all will be back to whatever normal is, but that is a ways away.

Even if Friday’s number wasn’t pathetic at 74,000, the biggest concern is that the participation rate considers to hit multi decade lows. The unemployment rate may have dropped to 6.7%, but it got that way because workers are leaving the pool. They have stopped looking for work and are no longer included. The participation rate is down to the worst levels since 1978, certainly not an enviable time in our history when President Carter and the Fed made disastrous mistakes with our economy.

Moreover, according to the USA Today, we have now seen only the third time since 1948 when the participation rate has shrunk year over year. Of course, many of the perma bullish pundits explain all this away as demographics instead of despondency of the inability to find a job. I am not an economist and not an expert on the issue, but even if it is a combination of both, it is cause for concern.



Paul Schatz, President, Heritage Capital