Mish's Global Economic Trend Analysis

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• US Defense Secretary Admits "Iran Not Trying to Develop Nuclear Weapon"
• Ethanol Subsidies Ended January 1, 2012. Will that Raise or Lower Gasoline Prices at the Pump?
• Help Wanted, Precisely One Opening; Maintain a Single Chair; Salary $38,500; Travel Required
• What If We Could Turn Back the Hands of Time and Make One Simple Change?
• Fundamental and Mathematical Case for Structurally High Unemployment for a Decade; Shrinking Job Opportunities and the Jobs Gap; The Real Employment Situation

US Defense Secretary Admits "Iran Not Trying to Develop Nuclear Weapon" Posted: 09 Jan 2012 08:24 PM PST All the tin hats that disputed Ron Paul's position that Iran was not developing nuclear weapons can now hear the same thing from US Secretary of Defense. Please consider Panetta admits Iran not developing nukes. U.S. Defense Secretary Leon Panetta let slip on Sunday the big open secret that Washington war hawks don't want widely known: Iran is not developing nuclear weapons. Appearing on CBS's Face the Nation on Sunday, Panetta admitted that despite all the rhetoric, Iran is not pursuing the ability to split atoms with weapons, saying it is instead pursuing "a nuclear capability." That "capability" falls in line with what Iran has said for years: that it is developing nuclear energy facilities, not nuclear weapons. "I think the pressure of the sanctions, the diplomatic pressures from everywhere, Europe, the United States, elsewhere, it's working to put pressure on them," Panetta explained on Sunday. "To make them understand that they cannot continue to do what they're doing. Are they trying to develop a nuclear weapon? No. But we know that they're trying to develop a nuclear capability, and that's what concerns us. And our red line to Iran is, do not develop a nuclear weapon. That's a red line for us." Face the Nation Video Link if video does not play: Iran Not Developing Nuclear Weapons That admission by Defense Secretary Panetta proves just how preposterous the US position is. Hopefully Europe has second thoughts over the absurd embargo it is considering later this month. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Ethanol Subsidies Ended January 1, 2012. Will that Raise or Lower Gasoline Prices at the Pump? Posted: 09 Jan 2012 01:50 PM PST A major part of the United States' misguided policy on ethanol usage came to an end as the $6 billion-a-year ethanol subsidy dies America's corn farmers have been benefiting from annual federal subsidies of around $6 billion in recent years, all in the name of ethanol used as an additive for the nation's vehicles. That ends on Jan. 1, when the companies making ethanol will lose a tax credit of 46 cents per gallon, and even the ethanol industry is OK with it -- thanks in part to high oil prices that make ethanol competitive. Subsidized since 1979 as a homegrown fuel cleaner than gasoline, corn ethanol had plenty of opponents, environmentalists among them. Environmentalists question the cleaner energy premise -- adding factors like tractor diesel emissions and fertilizer runoff make it dirtier, they say. "Corn ethanol is extremely dirty," Michal Rosenoer, biofuels manager for Friends of the Earth, said in heralding the tax credit's demise. "It leads to more climate pollution than conventional gasoline, and it causes deforestation as well as agricultural runoff that pollutes our water." Opponents also see corn ethanol, which now takes a larger share of the U.S. corn crop than cattle, hogs and poultry, as a factor in driving food prices higher. "The end of this giant subsidy for dirty corn ethanol is a win for taxpayers, the environment and people struggling to put food on their tables," Rosenoer added. But there's a nearer-term battle brewing over corn-based ethanol. A 2005 law requires that 7.5 billion gallons of renewable fuel be produced by 2012 -- 6.25 billion gallons were produced in 2011. A 2007 revision gradually increases that to 36 billion gallons by 2022. AAA Predicts 4 Cent Rise in Gasoline Prices Please consider End of ethanol subsidy expected to bring higher gas prices In January, the federal government is stopping a 45-cent-a-gallon subsidy to ethanol producers, who will pass that extra expense to drivers who buy ethanol-supplemented gas, said AAA Carolinas spokesman Tom Crosby. Extra costs at the pump will amount to about 4 cents, he said. Not So Fast The Brazilian Sugar Cane Association reports Congressional recess means the end of three decades of US tariffs on imported ethanol For the first time in more than three decades of generous US government subsidies for the domestic ethanol industry, coupled with a steep tariff on imports, the United States market will be open to imported ethanol as of January 1st, 2012, without protectionist measures. Today's adjournment of the 112th Congress means both the US$0,54 per gallon tax on imported ethanol and a corresponding tax credit of US$0,45 per gallon for blenders, the VEETC (Volumetric Ethanol Excise Tax Credit), will expire as expected on December 31st. "With Congress in recess, there are no opportunities for further attempts to prolong the tax credit or the tariff, so we can confidently say these support mechanisms will be gone at the end of 2011," said the Washington Representative for the Brazilian Sugarcane Industry Association (UNICA), Leticia Phillips. This means that in 2012, the world's largest fuel consuming market will be open to imports of less costly and more efficient ethanol, including sugarcane ethanol produced in Brazil, recognized since 2010 by the US Environmental Protection Agency (EPA) as an advanced biofuel because of its verified reduction of up to 90% in greenhouse gas emissions compared to gasoline. If attempts in Congress to prolong the tax credit had been successful, the subsidy package now about to expire would continue to cost American taxpayers about US$6 billion per year. As for the tariff, meant primarily to keep Brazilian sugarcane ethanol out of the US market, its demise should reinforce fact-based assessments about the various feedstocks used around the world to produce ethanol, according to UNICA President Marcos Jank. 45 Cent Subsidy Ends, So Does 54 Cent Tariff With the tariff ending, price of imported ethanol should drop by 54 cents per gallon. The net effect of the end of expiring bill, all thing being equal (which they won't be), should be a 9 cent drop in price of ethanol. Federal and State Ethanol and Biodiesel Requirements Please consider Federal and State Ethanol and Biodiesel Requirements Minnesota, a major producer of ethanol, has required all gasoline to contain at least 7.7 percent ethanol since 1997. Hawaii requires 85 percent of its gasoline to contain 10 percent ethanol, effective on April 2, 2006. The intention of the law is to spur local production of ethanol from sugar, but the ethanol could also come from the U.S. mainland or from Brazil. Minnesota was also the first State to require biodiesel blending into diesel fuel, at 2 percent by volume. The requirement became effective in mid-2005, when two new biodiesel plants, each with 30 million gallons per year capacity, began operation in the State. The law was waived several times because of quality problems with the biodiesel, but it is again in effect. Washington requires 2 percent ethanol in gasoline and 2 percent biodiesel in diesel fuel no later than November 30, 2008. The requirement will increase to 5 percent once the State can produce biodiesel equal to 3 percent of its diesel demand. Louisiana enacted a requirement for 2 percent ethanol in gasoline and 2 percent biodiesel in diesel fuel, once sufficient capacity is built in-State. Assuming that Louisiana's 2-percent and Washington's 5-percent requirements are triggered, Louisiana, Minnesota, and Washington will require 102 million gallons of biodiesel in 2012 and 146 million gallons in 2030. State Mandated Ethanol Usage As noted above, some states mandate its usage, others don't. Mandating various blends adds to the price, due to inefficiencies. Moreover, given that ethanol from corn makes no environmental sense, promoting the idea is absurd. The California Energy Commission Consumer Energy Center states Most ethanol used for fuel is being blended into gasoline at concentrations of 5 to 10 percent. In California, ethanol has replaced methyl tertiary butyl ether (MTBE) as a gasoline component. More than 95 percent of the gasoline supplied in the state today contains 6 percent ethanol. There is a small but growing market for E85 fuel (85 percent ethanol and 15 percent gasoline) for use in flexible fuel vehicles (FFVs), several million of which have been produced by U.S. automakers. But E85 is primarily found in the Midwest in corn-producing states. Ethanol is also being used to formulate a blend with diesel fuel, known as "E-Diesel", and as a replacement for leaded aviation gasoline in small aircraft. All gasoline vehicles in use in the U.S. today can accept gasoline blended with up to 10 percent ethanol (sometimes called gasohol). Flexible Fuel Vehicles (VVFs) are cars and trucks that can use any level of ethanol up to 85 percent. They're built with special fuel system components designed to be compatible with higher ethanol concentrations. Calculating the Savings For California then, assuming Brazil supplies the ethanol 9 cents cheaper, and the ethanol content of gasoline is 6%, California prices might drop about a half-cent per gallon. In states where the ethanol content is 10%, the price should drop nine-tenths of a cent per gallon. However, this assumes Brazil supplies 100% of US ethanol and that is not a realistic assumption even if it makes good environmental and economic sense. More than likely costs go up a couple pennies rather than the 4 cents calculated by the AAA. However, any price hikes on gasoline would be more than made up for by the drop in corn prices which in turn will pass through to grain-fed beef, corn flakes, etc. Regardless of what happens to prices, ending all tariffs and letting the free market set prices is a very good thing in and of itself. Unfortunately, inane state rules and still intact federal rules mandating ever-increasing amounts of biofuels in gasoline formulations are still in control even though the subsidies ended. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Help Wanted, Precisely One Opening; Maintain a Single Chair; Salary $38,500; Travel Required Posted: 09 Jan 2012 11:04 AM PST Are you able and willing to maintain a chair for 25,000 British pounds per year (approximately $38,500). Not just any chair. Specifically this one-person chair (as shown from the back). Inquiring minds may be asking "whose chair is it?" That's a good question too. The chair belongs to Stephen Hawking, the world's greatest physicist. Hawking is known for his contributions to the fields of cosmology and quantum gravity, especially in the context of black holes. He has a motor neurone disease that is related to amyotrophic lateral sclerosis (ALS), a condition that has progressed over the years and has left him almost completely paralysed since 1974. ALS is commonly known in the United States as Lou Gehrig's disease. Stephen William Hawking 8 January 1942 (age 69) Oxford, England At left: Stephen Hawking at NASA, 1980s Hawking's illness is markedly different from typical ALS because if confirmed Hawking's case would make for the most protracted case ever documented. A survival for more than ten years after diagnosis is uncommon for ALS; the longest documented durations, other than Hawking's, are 32 and 39 years and these cases were termed benign because of the lack of the typical progressive course. Image and above text from Wikipedia. Please click on the above link. There is much more to the story, and it's fascinating. Could You be the Hawking's Next Technical Assistant? An ad on Hawking's website asks Could You be the Hawking's Next Technical Assistant? The post is more accurately described by the title "Technical Assistant to Stephen Hawking." It is not a PhD or Post-Doc position for academics looking to study physics, but a purely technical post to allow Prof. Hawking to function within the physics community and as a public speaker. The original purpose of this position was "to aid Professor Hawking in those areas which he has difficulty due to his disability." The job has since expanded and now includes: Managing national and international travel for Prof. Hawking and his care team. Expect to spend around 3 months per year abroad! Development and maintenance of Professor Hawking's communication and speech systems Procurement and maintenance of his wheelchairs and accessible van Preparation of lecture graphics and public speaking Dealing with the media and press Answering inquiries from the public and maintaining the website The post requires a wide range of skills, most importantly: Ability to work under pressure Maintenance of "black box" systems with no instruction manual or technical support Computer literacy Electronics knowledge Ability to speak to a large audience Ability to show others how to use complex systems The role of 'Graduate Assistant to Professor Hawking' is funded as a research post at the University of Cambridge. Normally it has been under a 12 month contract, although recent graduate assistants have stayed on for several years. Stephen Hawking seeks help to make voice heard Yahoo!Finance reports Stephen Hawking seeks help to make voice heard Can you help make Stephen Hawking's voice heard? The famed British physicist is seeking an assistant to help develop and maintain the electronic speech system that allows him to communicate his vision of the universe. An informal job ad posted to the famed physicist's website said the assistant should be computer literate, ready to travel, and able to repair electronic devices "with no instruction manual or technical support." Hawking has long struggled against amyotrophic lateral sclerosis, a disease which left him almost completely paralyzed. He lost his real voice in a tracheotomy in 1985, but a wheelchair-mounted computer helps synthesize speech by interpreting the twitches of his face. The synthesizer's robotic monotone has become nearly as famous as Hawking himself, but the computer — powered by batteries fastened to the back of Hawking's wheelchair — isn't just for speaking. Hawking's website says that the job's salary is expected to be about 25,000 pounds ($38,500) a year. Media Appearances,  Movies, Music Wikipedia reports ... In Hawking's many media appearances, he appears to speak fluently through his synthesiser, but in reality, it is a tedious drawn-out process. Hawking's setup uses a predictive text entry system, which requires only the first few characters in order to auto-complete the word, but as he is only able to use his cheek for data entry, constructing complete sentences takes time. His speeches are prepared in advance, but having a live conversation with him provides insight as to the complexity and work involved. During a TED Conference talk, it took him seven minutes to answer a question. Hawking has played himself on numerous television shows and has been portrayed in many more. He has played himself on a Red Dwarf anniversary special, played a hologram of himself on the episode "Descent" of Star Trek: The Next Generation, appeared in a skit on Late Night with Conan O'Brien, and appeared on the Discovery Channel special Alien Planet. He has also played himself in several episodes of The Simpsons and Futurama, and has had an action figure made of his Simpsons likeness. In 2008, Hawking was the subject of and featured in the documentary series Stephen Hawking, Master of the Universe for Channel 4. In September 2008, Hawking presided over the unveiling of the 'Chronophage' (time-eating) Corpus Clock at Corpus Christi College Cambridge. His actual synthesiser voice was used on parts of the Pink Floyd song "Keep Talking" from the 1994 album The Division Bell, as well as on Turbonegro's "Intro: The Party Zone" on their 2005 album Party Animals, Wolfsheim's "Kein Zurück (Oliver Pinelli Mix)". When he was portrayed on episodes of Family Guy, the voice was actually done by a speech synthesiser on a Macintosh computer, according to DVD commentary. He was portrayed in an episode of the Dilbert cartoon. In The Fairly OddParents, it is mentioned that he was Denzel Crocker's college roommate. As well as being fictionalised as nerdcore hip hop artist MC Hawking, he was impersonated in duet with Richard Cheese on a cover of "The Girl Is Mine". He was also portrayed in the movie Superhero Movie by Robert Joy. In the TV series Dark Angel Logan's technology savvy colleague Sebastian is characterised with many similarities to the actual physicist. Here is an interesting update on Geekologie showing an image of  Stephen Hawking weightless. The link to the official opening is down, but I cannot find news an assistant was found. Perhaps they have closed the application process even if the slot is not filled. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

What If We Could Turn Back the Hands of Time and Make One Simple Change? Posted: 09 Jan 2012 08:51 AM PST What if we could turn back the clock to the year 2000 and elect a different president for 8 years? What if we elected Ron Paul? There would be no Fed and we would have sound money. Fannie Mae and Freddie Mac would have been dismantled. The big three rating agencies (Moody's, Fitch, and S&P) would not be officially government recognized and rating agencies in general  would have been paid on the basis of how well they do their job, not on volume generated by being "officially recognized". There would have been no housing bubble (or one much smaller). Ron Paul certainly would not have signed the Medicare bill Bush signed or the Healthcare bill Obama signed.. The US would not have wasted over a trillion dollars in Iraq. The US would not have had troops stationed in Saudi Arabia and since that was Bin Laden's biggest gripe, there may not have been a 911 attack in the first place. Davis Bacon and prevailing wage laws would have been scrapped lowering costs to cities and states to provide services.  Cities and states would not be in such bad financial position. Ron Paul would have ended collective bargaining of public unions  The public union pension crisis would not be as big. We would actually have smaller government instead of lip service from other Republicans on providing smaller government People would have lower taxes and more of their own money to spend. The insane war on drugs would be over and our prisons would not be overflowing at enormous expense to taxpayers The US would be defending its borders instead of being the world's policeman  I can go on and on.  It's amazing how much attention has been focused on things Ron Paul did not even say, instead of things he has consistently stood for. He is the only Republican candidate (actually the only candidate from any party) that has a high level of consistency on critical issues. I have been thinking about this for days actually, and decided to write it up in response to this must see video by Judge Andrew Napolitano on Fox News. Link If Video Does Not Play: What If "They" Are Lying to Us about Ron Paul? President Obama and Mitt Romney are Nearly One and the Same Interesting, Judge Napolitano makes the same suggestion that I have made several times: President Obama and Mitt Romney are Nearly One and the Same! Except on fringe issues there is no practical difference between Obama and Mitt Romney. The health care act Obama crammed down everyone's throat was based on ideas Romney put in place as governor. Moreover, there is little difference between George Bush and President Obama on wars, on trade, on sanctions, on tariffs, on bailouts, on banks, on drugs, on education, on jobs, and on spending.There is a difference on abortion (a fringe issue), and on public unions. Except for an exceptionally hard stance on abortion, there is even less difference between Rick Santorum and President Obama as noted by the Cato Institute in Santorum's Big-Government Conservatism. There is no doubt that Santorum is deeply conservative on social issues. He is ardently anti-abortion, even in cases of rape and incest, and no one takes a stronger stand against gay rights. In fact, with his comparison of gay sex to "man on dog" relationships, Santorum seldom even makes a pretense of tolerance. While that sort of rhetoric may play well in Iowa pulpits, it will be far less well received elsewhere in the nation. Santorum's voting record shows that he embraced George Bush–style "big-government conservatism." For example, he supported the Medicare prescription-drug benefit and No Child Left Behind. He never met an earmark that he didn't like. In fact, it wasn't just earmarks for his own state that he favored, which might be forgiven as pure electoral pragmatism, but earmarks for everyone, including the notorious "Bridge to Nowhere." The quintessential Washington insider, he worked closely with Tom DeLay to set up the "K Street Project," linking lobbyists with the GOP leadership. He voted against NAFTA and has long opposed free trade. He backed higher tariffs on everything from steel to honey. He still supports an industrial policy with the government tilting the playing field toward manufacturing industries and picking winners and losers. In fact, Santorum might be viewed as the mirror image of Ron Paul. If Ron Paul's campaign has been based on the concept of simply having government leave us alone, Santorum rejects that entire concept. True liberty, he writes, is not "the freedom to be left alone," but "the freedom to attend to one's duties to God, to family, and to neighbors." And he seems fully prepared to use the power of government to support his interpretation of those duties. Fake Conservatives Ron Paul is the true constitutional conservative. Newt Gingrich, Mitt Romney, and Rick Santorum are fakes. I will not vote for Mitt Romney if nominated, nor Rick Santorum.. Nor will I vote for Newt Gingrich. What did Gingrich accomplish as Speaker of the House? I would vote for Ron Paul or Jon Huntsman if nominated. Otherwise, if Republicans keep nominating fake conservatives and war-mongers that pay lip service to small government, I will keep writing in Ron Paul as I did in the last two presidential elections. Some may say writing in Ron Paul will only serve to reelect President Obama. I say so what? In spite of all the talk (and a few differences on social issues), there is no practical difference on major economic matters, foreign policy, war-mongering, or big government between the Republican candidates (except Ron Paul and Jon Huntsman), and President Obama. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Fundamental and Mathematical Case for Structurally High Unemployment for a Decade; Shrinking Job Opportunities and the Jobs Gap; The Real Employment Situation Posted: 09 Jan 2012 12:59 AM PST Since 2008 I have been stating the US would have "Structurally High Unemployment for a Decade". Indeed, based on historical trends in labor force growth, the expected unemployment rate for the number of jobs created during the recovery would be well north of 11%. Yet, the unemployment rate is currently an artificially "low" 8.5% (not that 8.5% is anything to brag about). To show how difficult it will be to bring that rate down, let's take a look at job growth (or losses), for the last three decades (numbers in thousands). 1970's Job Growth Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Avg 1970 -64 126 151 -105 -226 -94 27 -123 17 -430 -110 381  -38 1971 76 -61 54 178 210 6 63 52 252 22 202 264  110 1972 337 207 293 218 304 293 -51 428 131 404 293 305  264 1973 350 397 269 170 190 240 25 255 115 324 304 126  230 1974 69 149 42 89 163 55 32 -15 -5 13 -368 -602  -32 1975 -360 -378 -270 -186 160 -104 249 386 78 303 144 338  30 1976 489 311 232 244 18 65 170 158 188 13 332 211  203 1977 244 295 404 339 359 399 348 238 458 262 379 235  330 1978 187 353 513 702 346 442 254 276 137 336 437 283  356 1979 137 243 426 -62 372 318 106 82 27 157 94 95  166 Decade Annual Avg 162 1980's Job Growth Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Avg 1980 131 79 112 -145 -431 -320 -263 260 113 280 256 195  22 1981 95 67 104 74 10 196 112 -36 -87 -100 -209 -278  -4 1982 -327 -6 -129 -281 -45 -243 -343 -158 -181 -277 -124 -14  -177 1983 225 -78 173 276 277 378 418 -308 1114 271 352 356  288 1984 447 479 275 363 308 379 312 241 311 286 349 127  323 1985 266 124 346 195 274 145 189 193 204 187 209 168  208 1986 123 107 93 188 125 -93 318 113 346 187 186 204  158 1987 171 232 249 338 227 171 346 170 229 492 231 294  263 1988 94 452 276 245 227 363 223 121 340 268 339 289  270 1989 262 258 192 173 118 117 39 47 249 111 277 95  162 Decade Annual Average 151 1990's Job Growth Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Avg 1990 342 245 215 40 149 17 -42 -208 -82 -161 -144 -60  26 1991 -119 -306 -160 -211 -128 87 -47 15 35 12 -58 23  -71 1992 49 -66 50 158 126 60 71 141 35 177 140 211  96 1993 310 242 -51 309 265 173 295 161 241 277 261 308  233 1994 268 201 462 353 331 315 363 300 354 207 423 274  321 1995 321 209 222 162 -16 231 79 271 245 147 148 131  179 1996 -19 434 263 161 323 278 232 196 220 243 296 167  233 1997 230 301 312 291 256 253 283 -18 508 339 303 299  280 1998 270 189 144 277 401 212 119 352 218 193 284 342  250 1999 121 410 106 376 213 266 291 192 202 408 294 294  264 Decade Annual Avg 180 2000's Job Losses! Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Avg 2000 249 121 472 286 225 -46 163 3 122 -11 231 138  163 2001 -16 61 -30 -281 -44 -128 -125 -160 -244 -325 -292 -178  -147 2002 -132 -147 -24 -85 -7 45 -97 -16 -55 126 8 -156  -45 2003 83 -158 -212 -49 -6 -2 25 -42 103 203 18 124  7 2004 150 43 338 250 310 81 47 121 160 351 64 132  171 2005 136 240 142 360 169 246 369 195 63 84 334 158  208 2006 281 317 287 182 11 80 202 185 156 -8 205 180  173 2007 203 88 218 79 141 67 -49 -26 69 91 127 84  91 2008 13 -83 -72 -185 -233 -178 -231 -267 -434 -509 -802 -619  -300 2009 -820 -726 -796 -660 -386 -502 -300 -231 -236 -221 -55 -130  -422 Decade Annual Avg -10 2010's Job Growth Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Avg 2010 -39 -35 192 277 458 -192 -49 -59 -29 171 93 152  78 2011 68 235 194 217 53 20 127 104 210 112 100* 200*  136 * : preliminary 108 Bear in mind those tables are from the BLS establishment survey data while the unemployment rate is based off a phone survey. Nonetheless, with sufficient time (and BLS revisions), the results merge. According to Fed chairman Ben Bernanke (and I believe he is correct on this point) it currently takes about 125,000 jobs a month to hold the unemployment rate steady, down from about 150,000 in 2000. I expect that number to drop for a few more years due to boomer demographics, but the key point is the number is positive not negative. The only reason unemployment rate has dropped recently is because BLS surveys say the number is negative (a shrinking labor force). Based on historical data and Bernanke's estimates, one would have expected the unemployment rate to have risen during 2010 and peaked mid-2011. Instead, the unemployment rate fell from 10 to 8.5. The Real Employment Situation With that backdrop on historical job trends, please consider an excellent article by Lance Roberts of Streettalk Live: The Real Employment Situation Report For December 2011 If you take a look at the actual number of those "counted" as employed, that number has risen from the recessionary trough. However, in reality, employment is still far below the long term historical trend. Currently, the deviation from the long term trend is the widest on record and has made very little improvement. In order for the country to return to the long-term trend of employment by 2020, we will need to be creating nearly 250,000 jobs each month. This, of course, is a far cry from 200,000 that we saw this month. With the employment-to-population ratio remaining at levels not seen since 1984, the real pressure on the economy remains focused on the consumer. There are two very negative ramifications of this large and "available" labor pool. The first is that the longer an individual remains unemployed, the more the degradation in job skills weighs on future employment potential and income. The second, and most importantly, is that, with a high level of competition for existing jobs, wages remain under significant downward pressure. Business owners are highly aware of the employment and business climate, and regardless of the ranting and raving about the "cash on the sidelines", businesses are not operated as charities. Business owners are milking the current employment climate for all it is worth in order to maintain profitability. With high competition levels for existing jobs, and the impeding threat of job loss for those working, employers can work employees longer hours at less pay. This is great for profit margins, and workers won't complain because there are plenty of individuals that will be happy to take their job and do it for less pay. This impact on wages, as other inflationary pressures rise, hits the consumer where it hurts the most. We have discussed the fact that recent declines in wages and salaries combined with the rising costs of food and energy are consuming more of the household income. This bleed on incomes has led to significant slides in the personal savings rate and the ability for the consumer to continue to spend outside of the main necessities to meet their basic standard of living. This pattern is unsustainable, and sharp decreases in personal savings rates have historically been precursors to the onset of recessions. Employment Trends Since 1955 In Employment Trends Since 1955 I posted a chart from reader Tim Wallace that conveys the same idea in a different way. Employment Trends click on chart for sharper image Wallace writes .... Hello Mish On today's labor report: Note how the labor force has flat lined for four years even though population growth has averaged 1.5 million for the past 55 years. From 1993 to 2007 population growth was 1.7 million per year! Thus, the labor force should not suddenly turn flat since retirements do not even come close to explaining the chart. Yet, suddenly the work force has just been frozen in time although the population continues on the same upward trend. The work force is literally one million smaller than during Bush's last year in office. This is statistically impossible, at least judging from historic trends. We also are still 5.6 million people below the employment number of the peak year in 2007. So, practically speaking we have approximately 11.6 million more people unemployed than in 2007. If we add the additional 6 million that should be counted as available for the labor force, the unemployment number at the U-3 level surges past 11% as you have said numerous times. Tim Shrinking Job Opportunities and the Jobs Gap Let's look at the same data still one more way. Please consider Shrinking Job Opportunities: The Challenge of Putting Americans Back to Work The December Jobs Gap As of December, our nation continues to face a "jobs gap" of 12.1 million jobs, down by 67,000 jobs from November. The chart below shows how the jobs gap has evolved since the start of the Great Recession in December 2007, and how long it will take to close under different assumptions for job growth. The solid line shows the net number of jobs lost since the Great Recession began. The broken lines track how long it will take to close the jobs gap under alternative assumptions about the rate of job creation going forward. If the economy adds about 208,000 jobs per month, which was the average monthly rate for the best year of job creation in the 2000s, then it will take until March 2024—over 12 years—to close the jobs gap. Given a more optimistic rate of 321,000 jobs per month, which was the average monthly rate for the best year of job creation in the 1990s, the economy will reach pre-recession employment levels by February 2017—not for another five years. Statistically Impossible IFs. Based on the data tables from the BLS that I posted at the top of this article, each of those dashed line in the above chart represents a statistically impossible IF. The economy is certainly not going to average 472,000 jobs per month for two years. Nor will it add 321,000 jobs a month for six straight years. Finally, the economy is not going to add 208,000 jobs a month, every month, for the next 12 years. Indeed, one cannot find any 10-year period in which the economy added that number of jobs. The best 10-year period I can find is 195,000 jobs per month from 1991-2000, overlapping decades by 1 year (during the internet boom with hugely falling interest rates and Greenspan's foot on the gas pedal nearly every step of the way). Fundamental Case for Structurally High Unemployment At the height of the internet bubble with a nonsensical Y2K scare on top of that, the economy managed to gain 264,000 jobs a month. At the height of the housing bubble in 2005, the economy added 208,000 jobs a month. At the height of the commercial real estate bubble with massive store expansion, the economy added somewhere between 91,000 and 173,000 jobs per month depending on where you mark the peak. Neither the housing boom, nor the commercial real estate boom is coming back. Nor is there going to be another internet revolution. Moreover, debt levels are high and millions are trapped in their homes, unable to move. Boomers in retirement or headed for retirement have insufficient savings so one cannot expect a spending boom of any kind. Instead, one can expect boomers to draw down on their savings (assuming that have any savings). In conclusion, the only way the unemployment rate can substantially decline from here is if millions more drop out of the labor force, thereby creating an even bigger "gap" between reality and the BLS's alleged unemployment rate. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

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