Rebel Traders – Analysis Without The Hype

As I reported on yesterday (New Jersey Cuts Pension Contributions And Cuts Aid To Schools), the impact of the Governor’s plan to cut school aid by $820 million is already being discussed at just about all school boards across the state. School boards are already facing their own budget issues and they rely on the aid from the state to help offset some of the costs.

There are more than a handful of school systems around the state that should be shut down entirely for poor performance and wasteful spending at the tax payers expense. But, in many of the smaller towns and municipalities there are some good schools, and some good teachers. And it is likely that the smaller the community, the deeper the impact will be under Governor Christie’s planed budget cuts as it is the smaller towns that are experiencing more of a declining student population and revenues.

I already know of some school boards in my part of the state that are projecting upwards of 10% reduction in staffing should the budget cuts become reality. The layoff calculation is based on the NJ Department of Education 2009 stated number of teachers in the state, and that number is 112,933. The New Jersey Education Association (NJEA) states that their membership is 178,858 teachers, and this number includes support staff. As it is likely that the budget cuts will impact the support staff as well as the teachers I have simply taken the difference between the two in order to be conservative in my calculation. And I also estimate that the staffing cuts will range between 5% and 10%, so to keep things simple I used 7.5% as a middle of the road figure. Based on these conservative calculations it is that I estimate that upwards of 10,950 teachers and staff will be directly impacted in New Jersey.

Should the average staff reductions be closer to the 10% number then staff reductions could climb to 14,590.

This will likely be a very heated and contentious battle, and it is likely to end up in the courts. 

What will be the total impact of the 2010 Census in terms of employees hired to work on the project, and when can we expect to see the peak in census hiring?

Going over data from the Bureau of Labor Statistics I was able to create a graph that depicts the government employee staffing levels during the current 2010 census against the employment levels from the 2000 census.

The census, which takes place every decade, begins with a small amount of hiring by the government to prepare for the big day when the actual mailings go out to every home in the country. This preparation includes such tasks as taking the previous census data and updating it to current electronic database standards (so as comparisons can be made once the current census data is entered), a committee to work on what questions will be included in the mailing, legal advisors, and other office staff to support the project.

The largest jump in employees working for the census project occurs between 3 and 5 months after the mailings go out to the public. This is when the government hires the most temporary workers to be key punch operators (data entry specialists in today’s lingo). These are the people who will either scan and verify every document returned by the residents of the country, or will enter the entire data manually. More than likely it will be a cross between the two methods as no matter how easy you make a form someone will fill it out incorrectly and it will have to be entered manually.

We have been hearing for many months that the 2010 census will be adding jobs and will improve the employment situation for the country. On paper it will look good, for a while anyway. A great majority of people who are hired to work on the 2010 census will be gone once it is all wrapped up. Many before it is even completed.

The only employees left will be a handful of number crunchers who will spend months extracting every nuance of information from the massive computer database of information.

This month (March) the 2010 census questionnaires will be in the mail. If this census follows the time line as the census of 2000, then we can expect to see the largest hiring to take place around late June to late August of this year. On the graph you can see that hiring spike during the 2000 census (blue line) which was approximately 4 months after the questionnaires were mailed. That employment spike was a significant number of data entry specialists. And once the data is entered from all of the forms, those workers were let go soon after as evidenced on the graph by the large drop that followed.

It is with no doubt that the main stream media will be reporting the ‘total’ employment situation as greatly improving come late Spring and early Summer this year. But, once again, one only has to look underneath the veil to see where the numbers come from. In this situation it would appear that aside from any organic growth, if any, in the real economy that most of the employment gains in the months ahead will be temporary government workers.

I will update this graph when new data is issued each month.

Taxes go up in 33 states in response to declining tax revenues.

The tally for 2009 is in and it is historic. State tax revenues declines by $87 Billion, the steepest decline on record. This decline is attributed to lost jobs, reduced wages, and lower economic activity.

As tax revenues decline some states have responded by eliminating tax exemptions, increasing fees, and broadening tax bases.

Who said that the middle class would not see their taxes increase before the election?

The full report from the Center on Budget and Policy can be read below.

State Tax Changes

The February unemployment report came in this morning with 36,000 jobs lost during the month. The official unemployment rate stands unchanged at 9.7%.

Looking at the broader index of those who are unemployed and/or marginally attached workers the unemployment rate is 17.9%.

Highlights of the report:

* In February, the number of unemployed persons, at 14.9 million

*  The number of long-term unemployed (those jobless for 27 weeks and over) was

*  6.1 million in February and has been about that level since December.

*  About 4 in 10 unemployed persons have been unemployed for 27 weeks or more.

*  The number of persons working part time for economic reasons (sometimes referred to as involuntary part-time workers) increased from 8.3 to 8.8 million in February, partially offsetting a large decrease in the prior month. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job.

*  About 2.5 million persons were marginally attached to the labor force in

*  February, an increase of 476,000 from a year earlier. (The data are not seasonally adjusted.) These individuals were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey.

*  Among the marginally attached, there were 1.2 million discouraged workers in February, up by 473,000 from a year earlier. (The data are not seasonally adjusted.) Discouraged workers are persons not currently looking for work because they believe no jobs are available for them.

* The average workweek for all employees on private nonfarm payrolls declined by 0.1 hour to 33.8 hours in February. The manufacturing workweek for all employees dropped by 0.4 hour to 39.5 hours, and factory overtime decreased by 0.2 hour over the month. In February, the average workweek for production or nonsupervisory employees on private nonfarm payrolls fell by 0.2 hour to 33.1 hours; the workweek fell by 1.0 hour in construction, likely reflecting the unusually severe winter storms.

And what about all that bad weather?

*  Effect of Severe Winter Storms on Employment Estimates

Major winter storms affected parts of the country during the February reference periods for the establishment and household surveys.

In the establishment survey, the reference period was the pay period including February 12th. In order for severe weather conditions to reduce the estimate of payroll employment, employees have to be off work for an entire pay period and not be paid for the time missed. About half of all workers in the payroll survey have a 2-week, semi-monthly, or monthly pay period. Workers who received pay for any part of the reference pay period, even one hour, are counted in the February payroll employment figures. While some persons may have been off payrolls during the survey reference period, some industries, such as those dealing with cleanup and repair activities, may have added workers.

In the household survey, the reference period was the calendar week of February 7-13. People who miss work for weather-related events are counted as employed whether or not they are paid for the time off.

Snow had no impact on the overall employment situation. But President Obama later today said the snow impacted the labor market. Is this a ‘snow job’ from the President?

Have you ever wanted a very simple explanation about how the unemployment data is calculated? The mathematics and science guru Salman Khan has put together another video explaining the basic concepts.

While he does not go into the the survey methodology, or the birth/death adjustments, the video is a good explanation of the core concept of how people can still be unemployed and not be counted. (Khan Academy)

Khan, how about tackling the birth / death model? Now that one will be a dozy.

The ‘inside’ rumor mill at IBM has the company on the precipice of announcing layoffs at Big Blue.

According the web site Alliance at IBM, employees at the Research Triangle Park facility in Raleigh, NC would likely be impacted. Although the site does mention other sites as well that might be in line for what IBM calls a ‘resource action’.

[…] IBM wouldn’t discuss the reports.

“As you know, we don’t comment on speculation and rumor,” IBM’s Doug Shelton said when contacted by Local Tech Wire and WRAL.com.

Employees at a WebSphere development and support lab in Silicon Valley have reported a “big RA” is expected there with an “estimated 40-50%” of the staff to be “RA’d” on Monday, according to a post on the Alliance@IBM Web site. The Alliance is the union affiliate that is seeking to represent IBM workers.

Other posts at the Alliance site comments section (Read the comments section here) indicate that workers in the IBM Systems and Technology Group and the Integrated Technology Delivery groups could be affected.

The increasing number of posts and other information funneled to the Web site led the Alliance to issue an alert to selected media outlets on Saturday morning.

“The Alliance@IBM is getting reports of a job cut/resource action for Monday March 1st,” wrote Alliance National Coordinator Lee Conrad.

“We always expect cuts,” Conrad told Local Tech Wire and WRAL.com. “It is the date that is the guessing game.”

Other workers in Australia, New Zealand and the United Kingdom are already being affected.[…] (Source: WRAL)

That seems to be the new normal these days, need to increase margins? Layoff more and more workers. They have to keep those shareholders happy you know.

The unemployment rate drops to 9.7%. But, the BLS changed the survey calculations in this latest unemployment report, and had it not been for the ‘new’ changes the unemployment rate is 10.6%.

JAN UNEMPLOYMENT RATE: 9.7% V 10.0%E (Note 10.6% without changes in survey)

- Note: data subject to changes due to new calculation of Unemployment using a household survey, which is said to capture small business data better than the employment survey.

Revisions to Establishment Survey Data

In accordance with annual practice, the establishment survey data have been
revised to reflect comprehensive universe counts of payroll jobs, or benchmarks.
These counts are derived principally from unemployment insurance tax records
for March 2009. As a result of the benchmark process, all data series were
subject to revision from April 2008 forward, the time period since the last
benchmark was established. In addition, with this release, the seasonally
adjusted establishment survey data from January 2005 forward were subject to
revision due to the introduction of updated seasonal adjustment factors.

Table A presents revised total nonfarm employment data on a seasonally adjust-
ed basis for January through December 2009. The revised data for April 2009
forward incorporate the effect of applying the rate of change measured by the
sample to the new benchmark level, as well as updated net business birth/death
model adjustments and new seasonal adjustment factors. The November and
December 2009 revisions also reflect the routine incorporation of additional
sample receipts into the November final and December second preliminary
estimates. The total nonfarm employment level for March 2009 was revised down-
ward by 902,000 (930,000 on a seasonally adjusted basis), or 0.7 percent. The
previously published level for December 2009 was revised downward 1,390,000
(1,363,000 on a seasonally adjusted basis).[…]

Effective with data for January 2010, updated population estimates have been
used in the household survey. Population estimates for the household survey
are developed by the U.S. Census Bureau. Each year, the Census Bureau updates
the estimates to reflect new information and assumptions about the growth of
the population during the decade. The change in population reflected in the
new estimates results primarily from adjustments for net international migra-
tion, updated vital statistics and other information, and some methodological
changes in the estimation process.

We did get the expected huge downward revisions (902,000 additional job losses) but the BLS has once again changed the calculation methodology for this report. Makes it very difficult to compare apples to apples.

The closest I can come to making an equal comparison (before the new calculations) would have the unemployment rate at 10.6%

Unemployment statistics are flawed.

What have I been saying ever sine the recession began, the Bureau of Labor Statistics use of the “birth/death” model is flawed. To adjust the monthly jobs data by a number which is computed from a ‘model’ of how many businesses were created and how many closed up during any given month is simply asking for trouble in maintaining any sense of accuracy.

The main purpose of the birth/death model is an attempt to offset the jobs data by what the BLS believes to be happening in the real world, the only problem is that the model relies on assumptions. And assumptions are worthless in an economic collapse.

When the Government releases Friday’s employment report, nearly a million jobs could be erased. The change won’t show up in the monthly report. Rather, the expected drop will show up in the government’s revised job losses from April 2008 to March 2009, showing the labor market was in much worse shape than we knew at the time.[…]

Blame the birth/death model for the revision. Built on years of research, the model’s key assumption is fairly simple: most of the time jobs created at new companies make up for losses at companies that close. In October, Keith Hall, Commissioner of the Bureau of Labor Statistics, said most of the coming revision “appears to be due in part to an increase in the number of business closings,” short-circuiting the model’s assumption that deaths are offset by births.[…]

The Labor Department says there are flaws in its models and its monthly employment survey but it defends the process, saying the annual employment revisions are small and stable. […] (Source: Bloomberg)

Small and stable? I don’t think a calculation error of 800,000 to 1 million additional job losses is ‘small and stable’.

The birth/death model should be shelved, permanently.

Government plays “fun with numbers”, and hopes you are too stupid to see through the BS.

The Government has attempted to paint the economic stimulus plan as a huge success. Before the bill was passed last year the Obama administration had proclaimed it would save or create upwards of nearly 4 million jobs.

NY Times – January 11, 2009

[…] In the campaign, Mr. Obama vowed to create one million jobs, and after winning election he put forth a plan to create up to three million. The report now puts the figure at roughly 3.7 million, the midpoint of an estimated range of 3.3 million to 4.1 million jobs by the end of next year. […]

But sadly it has not quite worked out as well as the Obama administration hoped for. So recently the Obama administration moved the goal post around the field and changed the definition of a job saved.

In December, the White House Office of Management and Budget changed its guidance, telling [stimulus money] recipients they should start counting every worker whose salary was funded with stimulus money, rather than guessing whether the jobs would have existed in the absence of the federal plan.

Tonight the WSJ reports:

Recipients of economic-stimulus money said 599,108 workers were being paid by the funds in the last quarter of 2009, fewer than the number of jobs attributed to the package in the seven months after it was enacted. The recipients’ reports, published on the official government Web site recovery.gov late Saturday. […]

In his State of the Union address to Congress last week, President Barack Obama said that "because of the steps we took, there are about two million Americans working right now who would otherwise be unemployed."

Those projections are based on macroeconomic models and try to include the number of jobs that exist indirectly as a result of people being hired to work on stimulus projects, or of people receiving food stamps or other aid funded by the stimulus program. […]

My note: Add to that those receiving stimulus money and reporting jobs being saved when they were never in danger in the first place. The Obama administration is playing games with the numbers. Fuzzy math? This more like along the lines of trying to convince your teacher how you can put the square peg into the round hole.

Looks like Verizon is looking at every possible place to get that extra 1 or 2 cents on their EPS.

Jan. 26 (Bloomberg) — Verizon Communications Inc., coping with subscriber losses at its fixed-line phone business, plans to cut about 13,000 jobs at the division this year after posting fourth-quarter revenue that missed analysts’ estimates.

The cuts will follow reductions of a similar size last year, Chief Financial Officer John Killian said on a conference call today. This year’s eliminations equal to 11 percent of the staff at the unit, which had about 117,000 workers at year-end. […]

[…] “The economy, first and foremost, we really see no signs of improvement there,” said Baltimore-based King, who advises investors to buy the shares and doesn’t own any. “I would have expected to see a little bit more signs of stabilization in the fourth quarter.”

Verizon, the second-largest U.S. phone company, fell 51 cents, or 1.7 percent, to $30.17 at 4:01 p.m. in New York Stock Exchange composite trading. The New York-based company’s stock declined 2.3 percent last year. […]

Also of recent note is Sams Club is cutting 10,000 employees, Lockheed Martin is cutting 1,200 employees.

On Wednesday evening, President Obama will hold his State of the Union address. Advance talk is circulating that President Obama will emphasize a new push to create jobs in America. Short of creating a Works Projects Administration (WPA) type program (established during the Great Depression and was the nations biggest employer before World War II, providing nearly eight million jobs) there is simply not much the President can do.

He can spent more stimulus funds that create a slew of temporary projects which give the illusion that the jobs market is improving, but creating real jobs that last is something that is nearly impossible for the Government to create.

It is often said that unemployment lags the real economy. But, it is different this time. Yes, it really is different this time. How do we know it is different?

The chart below depicts how many weeks people are unemployed. At no time has the duration of unemployment been as high as it is now. The chart says it all…

The President will probably try to convince the people that his administration has already created or saved nearly 1 million or more jobs from the stimulus package last year. But if it is based on the calculations discussed in my previous post on the subject (President Changes Definition), then I would be worried about any promises of new jobs.

All through the late 70’s and the 80’s American’s were told how great it would be in a ‘new global economy’. And many others warned that America’s strength in manufacturing would suffer. And suffer it did, today the United States makes very little. Everything from steel processing, electronics, and even customer support for your American bank is in another nation.

For America, the ‘new global economy’ has been a bust. As consumers we want everything to be cheap, and in that demand for lower and lower priced products they are being manufactured in countries where their employees can be paid just a fraction of what it would cost to be made here in America. Some companies even resort to manufacturing products in third world countries where child labor is used and unsafe working conditions prevail. This is what we get when the Wal-Marts of the world take over and push family run business out, and push cheap products made in China and other countries on the consumer while paying their employees here next to nothing.

Cheap products are one thing, but what are we really sacrificing just so we can get that toy for $5.00 cheaper, or the cheap products (with some even being unsafe) from the million dollar stores across America?

As Americans, are we guilty of creating the demand for cheaper and cheaper products? Are we responsible for the decline of America’s once great dominance in the world as a manufacturer? Or has all of this been a result of a global economy that seized the United States consumer with the enticement of cheap products? All good questions and no easy answer. But I would like to see some large American corporations actually make their products here for a change.

Take Apple (AAPL) for example. Not one product they sell is made here in America that I am aware of. Because everything revolves around ‘more profits’ they have to keep finding ways to make the products cheaper so they employ cheap labor in other nations. We can’t force American companies to manufacturer their products here because they would just move the company to another nation. Perhaps the only way to restore America to a goods producing powerhouse is to boycott any company that does not make their products here at home. But even that would be nearly impossible, because not much is made here anymore so we have little choice.

American’s are held hostage by every company that sells us our televisions, sneakers, clothes, and even the toys for our children. 

Where does it end?

The latest state by state breakdown of the employment situation does not look good at all. In December, 43 states reported rising unemployment rates.

From the Bureau of Labor Statistics:

Regional and state unemployment rates were generally higher in
December. Forty-three states and the District of Columbia recorded
over-the-month unemployment rate increases, four states registered
rate decreases, and three states had no rate change, the U.S. Bureau
of Labor Statistics reported today. Over the year, jobless rates
increased in all 50 states and the District of Columbia. The national
unemployment rate was unchanged in December at 10.0 percent but was
2.6 percentage points higher than a year earlier. […]

December 2009 State Unemployment Changes