Friday, April 04, 2014 - The March Jobs Report

The March Jobs Report
by Sinclair Noe

DOW – 159 = 16,412
SPX – 23 = 1865
NAS – 110 = 4127 (-2.6%)
10 YR YLD - .06 = 2.73%
OIL + .77 = 101.06
GOLD + 15.50 = 1303.30
SILV + .14 = 20.06

Today is a jobs report Friday. Let’s get geeky.

The Labor Department reported nonfarm payrolls increased by 192,000 jobs last month after rising by 197,000 in February (that’s revised from 175,000). The prior 2 months were revised to show 37,000 more jobs than previously estimated; the revisions indicate that the bad winter weather was not a huge problem for the labor market; it did have an effect but not huge, and we certainly shouldn’t hear any more weather related excuses. The unemployment rate was unchanged at 6.7% as more people were looking for jobs. The consensus estimate was 200,000 jobs, so the figures were a little below expectations.

Private employment rose to 116.09 million, finally moving beyond the previous high of 115.98 million recorded at the very start of the recession in January 2008.Total employment is just a little below the pre-financial crisis days; we still have about 437,000 fewer jobs than the peak in 2008, but private employment is now above the peak by 110,000 and at a new all-time high; the difference is that more than a half million government jobs have been cut during that time; also, the population and the labor force has grown over the past 6 years, so the unemployment rate remains fairly high. And the idea is not just to get back to where we were, but to get back to where we should be. Keep in mind, we have 15 million more people now than we did then.

The economy added 533 thousand jobs in Q1 this year compared to 618 thousand in Q1 2013; the bad weather is the excuse for the weaker performance. Still the unemployment rate has dropped from 8.2% in March 2012 to 6.7% now.

The Labor Force Participation Rate was increased in March to 63.2%. This is the percentage of the working age population in the labor force.  And while the participation rate is still low compared to the past 20 years, it is a positive sign that more people are looking for jobs, suggesting they were lured back into the job hunt as openings began to appear. Or possibly, more long-term unemployed were pushed back into the job market as benefits were cut. The number of long-term unemployed fell by 110,000, and over the past year, the ranks of the long-term jobless have dropped by 837,000; meanwhile, the ratio of the population reporting they had a job ticked up to 58.9% from 58.8%. Much has been made of the multiyear slide in the labor force participation rate since the financial crisis of 2008. In the last few months, however, the labor force participation rate has actually stabilized.

Anyway, about a half million people jumped back into the labor pool and about that many found jobs; if it were not for the increase in the size of the labor force, the unemployment rate would have fallen to 6.5%. It also means that the unemployment rate is unlikely to keep falling as sharply as it has in the last two years, because people who are again looking for work are counted as unemployed, while those who have given up and dropped out of the labor force are not.

There are 7.4 million people working part-time who would prefer to work full-time, or they are part time because their hours have been cut back, or they have given up looking for a job. There is a separate measure for them, known as the U-6 unemployment rate, which comes in at 12.7%; up from 12.6% in February, but down from 13.8% a year ago. The headline unemployment rate of 6.7% is known as U-3. The U-6 includes all those people in U-3 plus all the underutilized and discouraged workers. In healthier job markets, the gap between U-3 and U-6 is closer to 3% or 4%.

After months of declines in the part-time labor force, the BLS reported a spike of 414,000 new part-time workers in March, which was the largest monthly increase in nearly two years. This could just as well be an aberration, as it was a year ago, but the part-time picture in the American workforce is far from rosy. The financial crisis resulted in a spike in the number of part-time workers as a percentage of the labor force, and this has remained elevated ever since.

The increase in jobs was paced by gains in construction, retail and professional services. Government employment over all remained flat, with federal and state governments cutting 11,000 jobs even as local governments added 9,000 positions. Over the past 12 months, total federal employment has fallen by 85,000. That's pretty much how it has gone throughout the grinding recovery; private hiring has been slow but steady, while austerity has led to government job cuts that have helped keep the recovery frustratingly slow.

The health care sector added 19,000 jobs. Business services added 57,000 jobs. Food services employment increased by 30,000, bringing the sector’s gain over the past year to 323,000. The manufacturing sector lost 1,000 jobs.

While average hourly earnings were basically flat, the length of the average workweek edged higher. The average work week for private employees edged up to 34.5 hours, offsetting a net decline over the prior three months; as a consequence of the bad weather, many people lost time on the job, but it was made up in March. Average weekly hours, at 34.5 per worker, aren't far off of the 34.7 hours per worker recorded six years ago, but when you add up a fifth of an hour across more than 100 million workers, it makes a very big difference in the amount of time Americans actually spent on the job.

Average hourly earnings for private employees fell by 1 cent to $24.30 from a month earlier. Over the year, average hourly earnings have risen by 49 cents, or 2.1%. The average weekly wage rose to $838.55 from $833.83. The reason for this anomaly: a 12-minute increase in the average amount of time worked each week.  Conclusion: Bargaining power for workers is still subdued. But their services are more in demand.

The jobs report also provides details about who is benefiting from recovery and who is not. The recovery has been good for college educated workers and whites. It has been much more difficult for the long-term unemployed, young adults without a college education, and African Americans. Among adults 25 and older who have a bachelor’s degree the unemployment rate is just 3.4%, about half the over-all rate.

The unemployment rate for college graduates never went above five per cent in the downturn. At the other end of the educational spectrum, things were very different. For adults 25 and older without a high-school diploma, the jobless rate hit 15.6% in 2010. Last month, it stood at 9.6%.

Among white men aged 20 and over, the unemployment rate is now 5.3%; for African-American men over 20, it is 12.1%. The gap between white and black females is also very large, 5.3% of white women aged twenty and over are out of work (the same as the rate for white men), but 11% of black women in the same age group are jobless. Hispanics also have substantially higher rates of unemployment than whites, but the differences aren’t as large. Among Hispanic men aged twenty and over, the jobless rate in March was 6.9%; among Hispanic women aged twenty and over, the rate was 8.4%.

For teenagers between the ages of 16 and 19 who aren’t in school or college, the unemployment rate is 20.9%. That’s down from 23.3% a year ago. It’s still a very high figure, and, among minority teenagers, it’s even higher.

The stock market moved a little higher this morning following the jobs report. It wasn’t a bad jobs report that sank the market today. Most of the stories I read had a theme of not too hot, not too cold, a Goldilocks report. The Fed uses the jobs report to help determine the timing and pace of further cuts to its monthly bond-buying program. The central bank also looks to the unemployment rate as a factor in deciding when to raise its benchmark interest rate. This report did not sway the Fed one way or the other.

What went wrong on Wall Street? It’s always dangerous to lay an exact cause on any singular event, but the big damage today was in the Nasdaq and the tech and biotechs. There’s a little bit of nervousness about some of the high multiples in the biotech area and computer and Internet-related stocks. You’re having another wave of selling in that very high-momentum group. When you’re at record high levels, people start to get a little tentative going into weekends.

Friday, November 08, 2013 - Jobs, Jobs, Jobs Friday

Jobs, Jobs, Jobs Friday

by Sinclair Noe

DOW + 167 = 15,761
SPX + 23 = 1770
NAS + 61 = 3919
10 YR YLD + .14 = 2.74%
OIL + .13 = 94.33
GOLD – 19.10 = 1289.50
SILV - .17 = 21.60

Another record high close for the Dow. For the week, the Dow rose 0.9 percent, the S&P 500 was up 0.5 percent while the Nasdaq was down 0.1 percent.

Today was all about jobs. The Bureau of Labor Statistics reported that total nonfarm payroll employment rose by 204,000 in October and the unemployment rate increased from 7.2% to 7.3%. The 204,000 new jobs was much better than the estimates of about 120,000.

Further, the numbers from previous months were revised higher; September was revised from 148,000 new jobs to 163,000 new jobs, and August was revised from 193,000 jobs up to 238,000; for a net gain of 60,000 upwardly revised jobs.

So, why did the unemployment rate move higher? Part of this may have to do with the government shutdown and there might be a reversal in the November numbers. The furloughed government workers, at least some, were likely counted as unemployed with regard to the unemployment rate, but for the total number, that 204,000 number, those furloughed workers were not counted as unemployed.

The problem with the unemployment rate is that the rate can fall even when the labor market conditions get worse. There are two possible reasons why the unemployment rate drops; either more jobless people find work, or more jobless people get discouraged about their prospects and drop out of the labor force. Again, last month's increase in the unemployment rate was probably due to workers furloughed during the shutdown, and might be a one month aberration in the rate. One mystery buried in Friday’s report was a drop of 720,000 in the size of the labor force and the ensuing fall in the labor participation rate to 62.8 percent, a 35-year low. I haven't heard a good explanation for this, other than distorted data as part of the shutdown, but it would explain why the unemployment rate didn't drop further.

The Participation Rate looks at the number of working age people who are looking for work.The Labor Force Participation Rate dropped to 62.8% in October from 63.2% in September; that's a fairly substantial decline; again, this was at least partly related to the shutdown. The participation rate is still well below the normal rate, which is closer to 66% or 67% over the past 20 years.

If someone stops looking for work, they are not counted in the Participation Rate. There are just over 4 million workers who have been unemployed for more than 26 weeks and they still want a job. According to the Bureau of Labor Statistics, there are 2.3 million people among those who have dropped out of the labor force who wanted and are available for work. These individuals are not counted as unemployed because they have not searched for work in the previous four weeks. At a certain point, if the worker becomes discouraged, they become invisible. If all of these workers had been counted as part of the labor force, the unemployment rate in October would have been 8.6 percent instead of 7.2 percent, a major difference.

Meanwhile, the Employment Population Ratio dropped to 58.3% in October from 58.6% in September. The Employment Population Ratio doesn't look at whether a potential worker is discouraged or not; just if the person is of working age and whether they have a job or not. So, while the unemployment rate has dropped from a high of 10% back in October 2009 down to 7.2% in September, the Employment Population Ratio paints a very different picture; the Ratio was at 62.7% in December 2007 and dropped down to 58.3% last month, basically flat for the past couple of years.

Now a Ratio of 58.3% is really pathetic and this would seem to be a loud call for increasing aggregate demand stimulus. This is not happening, or at least we can say Washington isn't listening.

Part of the reason for the low Employment Population Ratio is that the Baby Boom generation is moving into retirement, so there is a demographic shift at play. So, we can look at the ratio excluding the people who are moving into retirement, by focusing only on workers in the 25 to 54 age range. Here the ratio was at 79.7% at the beginning of the economic downturn, dropped to a low of 74.8% in December 2009, and only recovered to 75.4%. So, again, we have another indication of a weak labor market.

There is still another measure to consider, and it looks at the unemployed, the discouraged unemployed, and the under utilized worker (someone working part time who wants to go full time); this is called the U-6 and it stands at 13.8%, up from 13.6% in September. The number of people employed part time for economic reasons increased from 7.9 million in September to just over 8 million in October.

We’re still 1.5 million jobs short of the peak employment level of January 2008. Wages are rising at a slow rate, up about 2.2 percent in the past 12 months, and too many people are unemployed or underemployed.

The private sector has steadily added jobs since early 2010 while the public sector has steadily cut them, which doesn't usually happen in an expansion. Since May 2010, the government sector has cut 1.1 million positions. But the government job-letting is coming to an end. In October, as might be expected, the federal government reduced its payrolls by 12,000. In the past year, the federal government has cut direct employment by 94,000, or 3.3 percent, but state and local government added a combined 4,000 jobs. In the past year, they have added a combined 68,000 positions. Modestly rising activity at the state and local level is counteracting, and almost entirely offsetting, the austerity-inducing actions of the federal government.

As in the past, the October report closely correlated jobs with education. While the unemployment level for workers over 25 with less than a high school degree rose to 10.9 percent in October from 10.3 percent in September, joblessness among college-educated Americans inched up to a modest 3.8 percent from 3.7 percent in the prior month. Similarly, the participation rate for the most educated workers stood at 75 percent, compared with 44.7 percent for the least educated ones.

The next jobs report, covering the month of November, should give us a slightly cleaner picture without distortions from the shutdown. On a seasonal basis, retail companies start hiring for the holiday season in October, and usually pick up hiring in November. Of course, retailers keep moving the shopping season earlier and earlier. Retailers added 44,000 jobs in October, an indication that consumer spending was steady.

Despite the housing turnaround, employment has improved only modestly in that sector. Construction employment rose to 5.8 million in October from 5.6 million a year earlier. But before the recession hit, employment in that sector had climbed as high as 7.7 million. Service industries have driven job growth in the recovery, adding 2.1 million jobs over the past year, 177,000 last month alone. The leisure and hospitality sector (restaurants, bars and hotels) added 53,000 positions last month. Manufacturers added 19,000 jobs, the sector’s best showing since February, helped in part by strong auto sales.

The Federal Reserve has one more jobs report before their scheduled FOMC meeting in December. If the labor market improves from here it would greatly increase the odds of tapering at that meeting. The jobs report won't be the Fed's only consideration. 

Toss in yesterday's Commerce Department Report showing the economy grew at a 2.8% pace in the third quarter. Or this morning's Commerce Department report showing personal income increased 0.5% in September from the previous month. It was the second-straight month of growth at that rate, which has been the best pace since February. Despite having more money in their wallets, consumers didn't open them more in September. Consumer spending increased 0.2%, down from the 0.3% rate in August. The personal savings rate rose to 4.9% in September, from 4.7% the previous month. It was the highest rate of the year, though still historically low. The slower growth in consumer spending helped keep inflation in check. The so-called core rate over the previous year held at 1.2% in September, well below the Fed's target of 2%.

And remember the story about the recovery of Fannie Mae and Freddie Mac? They will pay back their bailout money by the end of the year. And then there's the story of Twitter, which is a reminder that there is still a healthy dose of entrepreneurial talent in America. Twitter was founded 7 years ago with nothing and yesterday the market cap topped $32 billion. And remember the major market averages hit record highs this week; and all this happened in the face of the sequester, the shutdown, and general political dysfunction. Imagine what might happen if government got its act together, or at least stopped making it more difficult for businesses to do their thing.

Tuesday, October 2, 2013 - Jobs, Jobs, Jobs

Jobs, Jobs, Jobs

by Sinclair Noe

DOW + 75 = 15,467
SPX + 10 = 1754
NAS + 9 = 3929
10 YR YLD - .10 = 2.51%
OIL – 1.57 = 98.11
GOLD + 24.60 – 1342.20
SILV + .47 = 22.81

The Labor Department reported the economy added 148,000 net new jobs in September. The change in total nonfarm payroll employment for July was revised from +104,000 to +89,000, and the change for August was revised from +169,000 to +193,000. With these revisions, employment gains in July and August combined were 9,000 more than previously reported.

The unemployment rate declined in September to 7.2% from 7.3% in August. This is the lowest level for the unemployment rate since November 2008.

The Labor Force Participation Rate was unchanged in September at 63.2%. This is the percentage of the working age population in the labor force. The participation rate looks at the people who are actually in the labor pool. As the Boomer generation retires, willingly or not, they get out of the labor pool, and this is why we've seen the unemployment rate decline, even though the economy isn't really doing a great job of adding jobs.

There are 4.146 million workers who have been unemployed for more than 26 weeks and still want a job. This was down from 4.290 million in August. This is generally trending down, but is still very high.  Long term unemployment remains one of the key labor problems in the US.

Is the Affordable Care Act causing a surge in part-time employment? Apparently not. The number of part time workers increased slightly in September from 7.91 million to 7.93 million, but that’s down from 8.6 million a year ago.  These workers are included in the alternate measure of labor underutilization (U-6) that decreased to 13.6% in September from 13.7% in August. This is the lowest level for U-6 since December 2008.

Last year, restaurants and health care accounted for about a third of all the country’s job growth. Those sectors are looking a bit sluggish in today's report. Health care posted a gain of only 6,800 jobs, compared with a monthly average this year of 22,000. And restaurants actually lost jobs, 7,100 of them, when they had been adding 25,000 a month. The health care sector had been slowing for some time, in keeping with a flattening of health care spending. Less spending on medical care may be good for the economy in the long term, but not so good for job hunter s right now. On the other hand, slowdowns in leisure and hospitality, a sector that includes restaurants and amusement parks, and in specialty construction, which includes home remodeling, point to a pullback in discretionary spending, as did a disappointing back-to-school shopping season. And then tourism took a big hit in the shutdown.

Total nonfarm employment is up 2.225 million from September 2012, and private employment is up 2.290 million. That means that over the past year governments have cut jobs. That trend changed a little in September as state and local governments added 28,000 jobs, and state and local employment is up 82 thousand so far in 2013. This would normally be a source of celebration since state and local austerity has been such a powerful headwind for the economy. But the pickup in government hiring has been more than offset by a slowdown in private job creation, to a monthly average of 129,000 in the last three months from 232,000 last December. Also, many of the government jobs in September are teachers returning from the summer break. Also, federal layoffs are continuing, and this September report was prior to the government shutdown.

The federal government employs exactly 2 percent of the people with jobs in this country, or 2,723,000; and that's before the shutdown. That's just slightly less than the number of federal workers, 2,724,000 in 1966. All these figures, by the way, are for civilian jobs. Members of the armed forces are not counted. If they were included, the contrast would be even sharper. In 1966 the Vietnam War was going on, and around 2.6 million people were on active duty. This year the figure is around 1.4 million.

Some analysts believe it's going to be very hard for anybody to figure out what the underlying strength of the job market is and we probably have to wait until December or January to figure that out; we may not get “clean” data until the Spring. Actually, the numbers we get today are reasonably “clean”; there will be revisions, of course, but the numbers are clean in that they reflect the political dysfunction that is now part of the economy. We don't have the luxury of acting as if the shutdown didn't occur. Someone looking for a job doesn't have the luxury of discounting economic conditions; they just need a job.

Still, there will be confusion, starting with the October Jobs Report, scheduled to be published November 8.The jobs report is based on two different surveys — one of households, and one of employers — and it turns out that furloughed federal government workers will be treated as unemployed in the first survey but employed in the second. In other words, the temporary layoff of federal workers will probably increase the unemployment rate, but not (at least directly) depress the payroll job growth numbers.

The key reason that furloughed federal workers affect the results of one survey but not the other has to do with the different ways the two surveys categorize workers who ultimately receive back pay.

In the survey of households, workers who were furloughed during the entire week of Oct. 6-12 (the week that the survey asks respondents about) and therefore did not work at all will be classified as “unemployed, on temporary layoff.”

That is not true in the establishment survey (which surveys nonfarm payroll employers).  In the establishment survey, people who did not work during the reference week would normally not be counted as employed — unless they receive back pay. If they receive pay for the time they were on furlough, they’re counted as employed, even though they didn’t actually spend any hours working. Congress agreed to retroactive pay for furloughed federal workers for work they missed. That means that federal workers who were not allowed to work during the shutdown will all still be counted as employed.

And then there are plenty of people who lost jobs or were furloughed who are not federal employees; private contractors or employees of businesses near government facilities. We don't know how many were furloughed or just fired.

Even before today's report the Fed was not inclined to taper its $85 billion a month of bond purchases, financed by printing money, when it meets again on October 29th and 30th. It could still begin to taper at its December 17-18 meeting, even if the labor market still appears soft, provided officials are relatively confident the outlook, as reflected in other data, is for improvement. But it will be hard to say by December whether that improvement has happened. More likely the next couple of jobs reports could be downright ugly.

Ben Bernanke could yet make the taper his last act as chairman in January, but the odds now favor it being Janet Yellen's first act as chairman, in March. She will not do so lightly; she is, if anything, more intent than Mr Bernanke on applying as much monetary stimulus as possible to get employment up faster. The decision to taper will not be an easy one. The Federal Reserve has lacked a certain clarity in defining the criteria for beginning and ending QE; we don't know the exact reason why QE started when it did, and the target for exit seems to shift like a trial balloon floating over Wall Street; but one thing is clear: they had hoped the labor market would be gaining, not losing, momentum by now. The exit seems no clearer than when this round of QE started a year ago.

We now have jobs data from the first three quarters of the year. Over the most recent quarter, payrolls were up an average of 143,000 per month, down from 182,000 in the second quarter, and 207,000 in the first quarter. Private payrolls expanded by only 129,000 a month on average last quarter, well down from the average monthly gain of 212,000 (itself just a moderate pace of employment growth) in the first quarter of the year.

It’s possible that employers were exercising some caution in hiring decisions based on their suspicions that a government shutdown was imminent. But I doubt it. The pattern of deceleration seems to me a lot more consistent with same weak demand story that’s been plaguing this disappointing recovery for years.  Unemployment is still highly elevated, and job growth is once again decelerating. This may be an economic recovery, but it is weak, sluggish, tepid – call it any name you want; it ain't good.

And the S&P 500 index hit another record high today. Wall Street has been the beneficiary of the Federal Reserves monetary policy of quantitative easing; yes, there has been some trickle down effect from low interest rates, especially in the housing and construction sectors, but anyone who wants to argue that trickle down is the best path to recovery only needs look at the job market to realize that trickle down doesn't. Political dysfunction and an austerian approach to fiscal policy has only led to rising inequality. There's simply no bargaining power for working people to claim their fair share of economic growth.

The S&P 500 broke to new highs on the payroll data. The gains in equities were linked to feelings that the Federal Reserve would have to keep interest rates lower for longer and maintain its pace of asset purchases in its upcoming meetings. If people are expecting a Fed taper in December, they may not find that under the Christmas tree. Instead, it might be January or March, Materials and interest-rate sensitive utility-sector stocks were the best performers of the day. The dollar was down 0.6%, buoying gains in raw materials and precious metals, positively attributing to the gains in these sectors. Apple released a new model of its iPad and iPad mini at an event this afternoon. It also announced that it would no longer charge for operation system upgrades on its Mac models. Netflix fell 17.25% during the day's trading after beating earnings strongly last night. On the conference call, CEO Reed Hastings mentioned that the company's solid reports were being unduly compounded by momentum investors.

The 10-year Treasury yield fell nine basis points to 2.51% as slower growth expectations were priced in. Crude oil continued its decline after breaking below $100 for the first time since July yesterday, falling 1.6%.  

The jobs report wasn't the only economic data postponed because of the government shutdown. The start of the 2014 tax filing season will be delayed by one to two weeks early next year as a result of the government shutdown, the Internal Revenue Service.  The original tax filing start was scheduled for Jan. 21, but the IRS said in a statement that the start date has been pushed back to between Jan. 28 and Feb. 4. The 16-day shutdown came during the peak period for preparing computer filing systems for 2014. The delay marks the second year in a row that the IRS has been forced to start the filing season late. In January of this year, the 2013 tax season was delayed by the Jan. 2 enactment of tax law changes made to resolve the so-called "fiscal cliff."

A bit more on the jobs report, because I tend to get a bit wonkish with jobs reports. To recap: the Labor Department reported today, about 3 weeks late because of the government shutdown, that only 148,000 jobs were created in September; way down from the average of 207,000 new jobs a month in the first quarter of the year.

Many Americans have stopped looking for work. The official unemployment rate of 7.2 percent reflects only those who are still looking, also known as the participation rate. If the same percentage of Americans were in the workforce today as when Barack Obama took office, today's unemployment rate would be 10.8 percent. Meanwhile, 95 percent of the economic gains since the recovery began in 2009 have gone to the top 1 percent. The real median household income continues to drop, and the number of Americans in poverty continues to rise.

The biggest debate in Washington over the next few months, right up to the next deadline on December 15, will be whether to slash the federal budget deficit by cutting future entitlement spending and closing some tax loopholes, or go back to the sequester. So, you will see an effort to reframe the dialogue back to the idea of jobs, jobs, jobs. However, if the next few months are anything like the last few years, it won't matter. Nobody really gets much done on the jobs front; it sounded good around election time and then the topic disappeared. Still, jobs and rising inequality are much more important than any of the political claptrap you'll hear about the budget, and the less you hear about jobs in the next few months will be in direct relation to the increase in political dysfunction oozing out of Washington.

JPMorgans preliminary, tentative $13 billion mortgage settlement with the DOJ could end up costing the bank $9 billion, after taxes, because the majority of the deal is expected to be tax deductible,. The deduction also means the government is getting less than it appears in this deal. Banks can often deduct legal settlements from their taxes, but cannot get tax benefits for penalties for violating laws. So, taxpayers are likely to pay for at least part of the settlement. If we really want to look at addressing the debt, we might look at loopholes like this.

Friday, September 06, 2013 - Fed Policy Creates Inequality

Fed Policy Creates Inequality

by Sinclair Noe

DOW – 14 = 14,922
SPX + .09 = 1655
NAS + 1 = 3660
10 YR YLD - .04 = 2.93%
OIL+ 1.86 = 110.23
GOLD + 21.10 = 1389.80
SILV + .63 = 23.94

The war hasn't started ..., yet.

This morning we got the big monthly jobs report. Nonfarm payrolls increased by 169,000 jobs last month falling short of the 175,000 to 180,000 Wall Street had expected. Not only did hiring miss expectations last month, but the job count for June and July was revised to show 74,000 fewer positions added than previously reported.

While the unemployment rate fell a tenth of a percentage point to 7.3 percent, its lowest level since December 2008, the decline reflected a drop in the share of working-age Americans who either have a job or are looking for one. That participation measure reached its lowest point since August 1978, a further sign of underlying economic weakness. The rate for men touched a record low.

U-6, a measure of underemployment that includes people who want a job but who have given up searching and those working part time because they cannot find full-time jobs fell three tenths of a percentage point to a 4-1/2-year low of 13.7 percent.

The private sector accounted for the bulk of the job gains last month, but government payrolls increased 17,000 as local governments hired teachers for the new school year. Factory employment rebounded after falling in July. Construction payrolls were flat as both residential and nonresidential construction jobs fell. There was another month of strong job gains in the retail sector. Leisure and hospitality employment also posted solid increases as did health care and social assistance.

So, a generally weak jobs report; there was still growth; we posted a positive number; not a negative, but it was weak growth. That got people wondering if the Federal Reserve would still taper this month. It's widely expected the Fed will cut back or taper its purchases of Treasuries and Mortgage backed securities; currently the Fed is purchasing $85 billion per month; the idea is to reduce purchases to just $70 billion, as they try to slowly get away from the QE purchases. Did today's jobs numbers change anything? Probably not. Certainly nothing that made an overwhelming case. It can be argued how much impact QE has had on jobs in the first place.

One area QE has had a big impact is in the mortgage market; 10-year Treasuries hit 3% briefly yesterday, and the 5% mortgage is likely not too far behind. Oddly enough, jumbo loans are actually now cheaper than conforming loans for the first time in anyone’s memory. The Federal Reserve has essentiallly subsidized the housing market with its mortgage backed securities purchases. And as QE maybe starts to unwind, we ask who won and who lost?

According to a new report from mortgage-backed securities analysts at Bank of America Merrill Lynch, “the cost burdens are disproportionately impacting low-income groups and renters.” Not exactly earth-shattering news unless you consider the source. (I've been saying it for years, but now BofA admits it.)

One important insight here is that “easy monetary policy,” as evidenced by QE, is correlated with the rise in income inequality over the past 35 years. The two periods over this time where inequality really shot up came right after recessions in 1991-93 and 2007-11. These two periods were characterized by aggressive monetary policy, including quantitative easing. Since the primary credit channel in the successive rounds of QE targeted assets for either the rich or near-rich, this stands to reason.

But the primary focus of the paper is housing, and the primary focus of the Fed's QE policy also appears to have been housing. The Fed basically created the conditions for a rise in home prices, thinking that would have great positive effects for the economy. BofA/Merrill cites a Harvard State of the Nation Housing report.

The report starts with comments on the benefits associated with housing’s revival, such as home equity accumulation, but it quickly turns to a starker reality, which is that “the number of households with severe housing cost burdens has set a new record.” This language would be more consistent with the view of housing expressed in gold terms – housing is not a good news story. Moreover, the report shows that the hardest hit in the population are renters and those at the low end of the income distribution. The share of renters in the population, now at 35%, has been rising in recent years, as the homeownership rate has steadily declined from the bubble peak in 2004. So not only are renters disproportionately sharing in increased housing costs, the percent of households in this category is increasing in the wake of the financial crisis.

The Harvard report defines two categories of households with respect to housing costs as a share of income: moderately burdened and severely burdened. Moderately burdened households pay 30%-50% of pre-tax income for housing; severely burdened households pay more than 50%. Rising home prices laid the burden primarily on owners between 2001 and 2007, but as home prices declined and credit tightened, the burden shifted to renters. Most importantly, in aggregate, between 2001 and 2011, there was a 35% increase in the number of burdened households, for a net addition of 11 million households to the burdened category. The percent of burdened households grew from 29.4% to 36.8%.

Even with mortgage rates plummeting from 7% to 4% from 2001 to 2011, 42 million households experienced moderate or severe housing costs. And the report doesn't take into account negative equity. Renters took the brunt of this stress in the later period; by 2011, an incredible 50% of all renters were burdened by high housing costs.

This impacts quality of life. If you spend most of your income just to keep a roof over your head, it means you spend less for other things like food, health care, transportation, and education. And that lead the banking analysts to conclude that the Fed was adding to inequality. Specifically, the report says:

If monetary policy is in fact responsible for increasing housing cost burdens through policies that have inflated home values, then it is also responsible for limiting the available dollars that lower income families have to spend on education. If unequal access to education is indeed a key driver of growing income inequality, then it appears as if the vicious cycle of rising home prices, higher housing costs, less money to spend on education and greater income inequality is poised to continue.

So today, when the jobs numbers came out weaker than expected, the speculation centered on whether the Fed would cut back on QE. When you consider that QE in reality is lip service and happy talk about full employment and stable prices, and the actual outcome is greater inequality, well, maybe something other than Fed monetary policy would be better.

The G20 wrapped up its summit in Russia. The summary was that the situation in the global economy looks better now than it did five years ago. Economic growth is recovering, but there are still risks, and saying it was too early to ease off government stimulus spending, in spite of recent positive economic news. The G20 now faces a multi-speed recovery with the US economy pushing ahead, Europe maybe finding a floor and developing economies facing blowback from the looming 'taper' by the Fed. Collateral damage from the Fed's easy monetary policies can be found in emerging market economies that enjoyed rapid growth with a flood of cheap dollars, only to see those easy dollars dry up with talk of taper.

The G20 Summit was designed to deal with economic issues, but this one got caught up in the Syrian situation. Obama persuaded nine other G20 nations plus Spain to join the United States in signing a statement calling for a strong international response, although it fell short of supporting military strikes. Obama and Putin talked but could not find agreement. Unable to win Security Council backing because of the opposition by veto-wielding Russia and China, Obama is seeking the support of Congress instead. He declined to speculate whether he would go ahead with a military strike in Syria if Congress opposed it but said most G20 leaders condemned the use of chemical weapons even if they disagreed whether to use force without going through the U.N..

Looking ahead to Monday, Congress reconvenes. This is the first day that both the Senate and the House are back in session after the long summer recess. There are many urgent issues waiting to be resolved — including the continuing resolution that will keep the US government open for business, and this thing with Syria. Sept. 17 & 18 is the next Fed FOMC meeting. And then as we wrap up September, Congress must pass a continuing resolution by Sept. 30 or the government will shut down Oct. 1. There is no chance that a complete 2014 budget can be passed before Oct.1, the start of 2014 fiscal year. A short-term, extension-type continuing resolution for government funding must be passed instead, before Oct. 1. The duration of the continuing resolution will likely be pretty short — say, a couple of months -- so that the Congress does not have to make tough decisions on issues such as sequesters for the 2014 fiscal year.

The war hasn't started..., yet.