January 13, 2014
This week I explore a question, I am certain, many of you will have an opinion on. I know I do and, for the longest time, I thought the answer was “no way.” In fact, there have been many a day when I thought even I was smarter than many of our elected Congress-people in DC. Well, I am now not so sure the economists or I am smarter than Congress. First off, it was disclosed last week that over half the members of Congress are millionaires (“the 1%”). Not too shabby. The other is their ability to foresee what so many economists (even the Fed) failed to see – the fact that the job growth would be so lousy and the need to extend long-term unemployment benefits. I’m thinking Congress should create a fund we can all invest in and just follow their lead – more than half of us would be millionaires (addressing the income inequality audience) and the rest of us would benefit from their incredible foresight.
This week I take a look at the First Friday report and, more importantly, the detailed employment data from November and then take a quick look at our reliance on Federal Funds to our counties. Of course, I will try and address the title topic of this commentary. I conclude with a familiar refrain.
Employment Situation and Unemployment Benefits
The First Friday report came out and, given I am a critic of over-reliance on the small sampling, I am going to keep my comments to a limit. First off, I was happy to see the market shrug off the report. Either they recognize the limited scope of the data, have decided to not react to every single data point (but look at trends over time) or the ol’ head in the sand (not wanting to believe things aren’t as good as we are told). You decide. That said, a few tidbits I can’t resist and some facts.
First off, economists (never a group one can truly define – who owns up to these predictions when they are so far off?) predicted job growth north of 200,000 jobs (and ADP was pretty darn close to this number earlier in the week) vs. the 74,000 increase in non-farm payroll employment. Swing and a miss! Used to be the weather forecasters who were able to miss by so much and get paid (maybe technology will follow economists the way it has our weather forecasters). What about the Fed, did they see this coming when they announced the beginning of the great taper? At least Congress did!
While the job growth number was disappointing, to say the least, some will take solace in the fact that the unemployment rate declined from 7% to 6.7% (in fact that was the first line of the BLS’ release – no politics here!). Come on folks. Let’s parse thru a bit of the BLS release using the Dan Akroyd and Jane Curtain, Point/Counterpoint approach from their SNL days (I’ll refrain from making Dan’s classic retort before presenting the Counterpoint):
|Unemployment Rate Declined from 7% to 6.7% and was down 1.2% for 2013
||December workforce -347,000 and the Labor Force Participation Rate was -.8% for 2013 and, at 62.8%, is the lowest it’s been in 35 years
|The number of unemployed people declined by 494,000 in December
||There were 10.4 million unemployed people in December (does not include those that are “marginally attached” – i.e., not in the labor force)
I encourage you to take a look at the Household Data, Summary Table A from the BLS release. Please help me understand how the Civilian non-institutional population can rise by over 2 million from December 2012 to December 2013, the Labor Force decline and the Labor Force Participation decline and the Employment to Population Ratio stay flat? I think the folks in Congress are too smart to fall for that one. Once again, they are one step ahead.
This is a nice lead-in to a quick discussion around the latest DC debate – extension of long-term unemployment benefits. In this regard, Congress bested the Fed and the economists! They knew full well that, despite a decline of 1.2% in the Unemployment Rate, things still aren’t that good. This is not their altruistic way of wealth-redistribution (remember, over half are millionaires, you know the 1%, and they could start with sharing their wealth v. yours and mine). Nope, this is recognition that the decline in the Unemployment Rate is fairly meaningless when you look at the Labor Force and the Labor Fore Participation Rate and also look at the jobs some are landing (PT when they want FT). So, now we are talking about extending long-term benefits to over 1.3 million people for another 31 weeks (this is less than the expired long-term extension of up to 47 weeks). And, it looks like Congress is at least trying to negotiate a solution given this is a political hot potato, irrespective of your party. What I find interesting is, in an effort to satisfy the fiscal conservatives (Republicans), the primary mechanism to pay for this is to extend the Sequester for another year (the additional cuts not taking affect for ten years). For my regular readers, remember Wimpy!
Enough of me venting (boy, it felt good to get the rust off and I’m sure I will hear from some of you). As promised before the New Year, a dive into the detailed County Level Employment Data, made available last week. Looking at data for the period November 2013 back to November 2012 (there are a total of 3,215 counties in the data sets used), the following is a reality:
|Fewer people were employed in 1,612 counties
||More people were employed in 1,603 counties
|Employed as a % of Population was down in 1,577 counties
||Employed as a % of Population was up, year on year, in 1,638 counties
|Job Growth was < or = to 0 in 1,595 counties
||Job Growth was >0 in 1,620 counties
|Labor Force declined in 1,877 counties
||Labor Force grew in 1,338 counties
Source: DIVER Analytics, Filter Module; BLS
The punch line is one I have written about before, not all municipalities are created equal. Do your homework to see where things are truly good or improving and where a look at underlying economic and demographic data may prove more meaningful than last year’s CAFR.
No wonder so many politicians are eager to pass the extension. Smart people!
Fed Funds Received
As one contemplates spending reform and how small changes like adding a year to the Sequester might impact things down the road (the proposed way of funding the extension of long-term unemployment benefits), it is worth considering the counties and States that are more reliant on Federal Funds than in years past.
|1,207 counties, on a per capita basis, received more Federal Funds in 2013 than in 2012
||2,008 counties, on a per capita basis, received less Federal Funds in 2013 than in 2012
|1,604 counties, on a per capita basis, received more Federal Funds in 2013 than in 2011
||1,611 counties, on a per capita basis, received less Federal Funds in 2013 than in 2011
|3 States, on a per capita basis, received more Federal Funds in 2013 than in 2012.
||47 States, on a per capita basis, received less Federal Funds in 2013 than in 2012
|4 States, on a per capita basis, received more Federal Funds in 2013 than in 2011
||46 States, on a per capita basis, received less Federal Funds in 2013 than in 2011
Source: DIVER Analytics, Filter Module; USA Spending.gov
As I noted above, the devil is in the details and, when it comes to managing risk, evaluating municipalities, one needs to dive deeper. For a sense of the types of data one might consider, click here. The DIVER team did not think of most of these data points as meaningful, our clients did.
Have a great week,
Michael Craft, CFA, Managing Director, Credit
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