Ed’s Daily Notes for September 9th   Leave a comment

Bloomberg: Unemployment Falling for Wrong Reason Creates Fed Predicament

So you think last Friday’s U.S. Employment Report was ok? Think again:

While unemployment dropped last month to 7.3 percent, the lowest level since December 2008, the decline occurred because of contraction in the workforce, not because more people got jobs. Labor-force participation — the share of working-age people either holding a job or looking for one — stands at a 35-year low.

The reduced workforce “poses a problem for the Fed,” said Roberto Perli, a former central bank official who is now a partner at Cornerstone Macro LP in Washington. “The unemployment rate is coming down faster than the Fed thought, but it’s not declining for the right reason.”

The jobless rate is important because Chairman Ben S. Bernanke and his colleagues have established it as the lodestar for policy. Bernanke has said he expects the Fed to complete its asset-purchase program in the middle of next year when unemployment is around 7 percent.

So long as inflation remains contained, the central bank has said it won’t even consider raising its benchmark interest rate until unemployment falls to 6.5 percent. The Fed cut its target for the overnight interbank rate effectively to zero in December 2008 and has held it at that record low.

A key question facing policy makers is how much of the decline in the participation rate is structural and long-lasting and how much is cyclical and temporary.

If the drop is mainly driven by demographics — aging baby boomers retiring — then the lower unemployment rate gives a true picture of the amount of slack left in the labor market. If the contraction instead is caused by discouraged job-seekers giving up their search, then the jobless rate doesn’t reflect the true state of the market.

When economists disagree on reasons why something is happening, it is probably safe to assume the answer lies in a combination of the various reasons. In this case, I lean towards both answers.

However, my guess is the Fed will commence with QE tapering when they meet next week.

Daily Mail: And now it’s global COOLING! Record return of Arctic ice cap as it grows by 60% in a year

Don’t tell Al Gore about this:

A chilly Arctic summer has left nearly a million more square miles of ocean covered with ice than at the same time last year – an increase of 60 per cent.

The rebound from 2012’s record low comes six years after the BBC reported that global warming would leave the Arctic ice-free in summer by 2013.

Instead, days before the annual autumn re-freeze is due to begin, an unbroken ice sheet more than half the size of Europe already stretches from the Canadian islands to Russia’s northern shores.

…Some eminent scientists now believe the world is heading for a period of cooling that will not end until the middle of this century – a process that would expose computer forecasts of imminent catastrophic warming as dangerously misleading.

The disclosure comes 11 months after The Mail on Sunday triggered intense political and scientific debate by revealing that global warming has ‘paused’ since the beginning of 1997 – an event that the computer models used by climate experts failed to predict.

In March, this newspaper further revealed that temperatures are about to drop below the level that the models forecast with ’90 per cent certainty’.

The pause – which has now been accepted as real by every major climate research centre – is important, because the models’ predictions of ever-increasing global temperatures have made many of the world’s economies divert billions of pounds into ‘green’ measures to counter climate change.

The problem with computer models is they are only as good as they are built. The problem with climate computer models is they fail to account for changes in the sun’s temperature. Since the sun is the primary source of heat on this planet, it is absurd to try and predict the global climate without accounting for changes in the sun.

Mind you, I still think there are plenty of reasons (most of those reasons located in the Middle East) for us to become energy independent, and renewable energy sources are important in this effort. But government is incapable of doing this, as shown by yet another failing government loan:

Washington Times: Energy Department loses $42M on clean-energy loan to Mich. van company

The Energy Department conceded Friday that the federal government will lose $42 million on a loan to a shuttered Michigan van manufacturer — part of the same program that provided a $529 million loan to an electric car maker that also has gone under.

Vehicle Production Group (VPG), which made vans for the disabled, ceased operations in February and laid off 100 workers, two years after receiving a $50 million federal loan under the same clean-energy program that provided a $529 million loan to electric car maker Fisker Automotive Inc., according to the Associated Press.

I will leave it up to you folks to explain how vans for the disabled are related to energy…

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Posted September 9, 2013 by edmcgon in Economy, Federal Reserve, News, Politics

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