The global media continues to unblinkingly report US government statistics that jobs and wages are in recovery. However, maybe reality is beginning to sink in. The Wall Street Journal reporter Jon Hilsenrath, the unofficial Federal Reserve mouthpiece, this past Monday wondered in print: “Something about the US economy is not adding up….How can an economy that is growing so slowly produce such big declines in unemployment.”
The US Bureau of Labor Statistics has been reporting 200,000 + new seasonally adjusted jobs being created monthly. What is more the Bureau of Economic Analysis is also reporting a healthy 4% to 5% recent growth in wages and salaries for the country as a whole.
The reality is quite different. California, for example, with 12% of the US population and probably a much bigger percentage of economic activity, just reported a 16.5% year over year drop in February income tax collections. Similarly, February sales tax collections also dropped 12.4% year over year. And prices of high end homes are still dropping. To me, none of that sounds like an economic recovery in the making.
Our analysis of US withheld income and employment taxes tells us that wages and salaries are growing roughly about as fast as inflation and that job growth has been around 100,000 per month less than being reported by the BLS. Remember, a good deal of the seeming early 2012 gains were boosted by expiring 2011 tax credits and very warm weather. If indeed the gains were due to weather and tax credits, then the US economy should slow through the rest of this year, or until the next round of Quantitative Easing.
So, to answer Jon Hilsenrath’s question, the reason for the gap between the actual US economy and BLS job numbers are that the BLS numbers are wrong. Last year, we reported that wage and salary growth for February to April averaged 4.6%, half a percentage point higher than the 4.1% gain BEA initially reported. Just recently the BEA benchmarked up their year ago numbers to almost the same as ours.
So last year we reported better job and wage and salary growth numbers than the BLS and BEA. This year, the BLS and BEA are reporting better numbers than we are. And at some point in the future we fully expect them to again revise their numbers downwards closer to ours.
To tie all this in to stocks, to start 2011 the US market rose about 10% through the April top. The US economy also started last year strong due to QE2. Then after the QE sugar rush wore off, the US economy started to slow by April followed by the US stock market.
So far this year stocks are also up around 10%. Unfortunately the only part of the economy actually doing better are the misleading government numbers.
How can stock prices stay this high, although the economy is barely growing and likely to slow. Simple. The Fed continues to rig the market. As long as the rigging continues and investors keep believing in the tooth fairy, stock prices will hold up.
Charles Biderman
President & CEO TrimTabs Investment Research
Portfolio Manager, TrimTabs Float Shrink ETF (TTFS)
