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Know Good Things – Econ Category #2 (Part I)

March 9, 2018

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Econ Category #2: Employment and Wages

 

“On closer scrutiny, it turns out that many of today’s problems are a result of yesterday’s solutions.”  

– Thomas Sowell

 

Howdy, gang! I apologize for the lag between the previous publication and this one. It was not anticipated, nor was it planned…but I hope that it wasn’t too noticeable! As I’m sure is the case with all of you, life can sometimes develop into something quite hectic! Having four kids who are all active and (seemingly) tireless, it’s hard just trying to keep up. I trust that all is well with you and that you’re entertaining handfuls of interesting trading opportunities during this fascinating time in the market!

As mentioned in my previous blog submission, I am attempting to pigeonhole several of the larger, more noteworthy individual economic reports into seven specific categories. As also mentioned, it’s proving to be an intimidating task, but I am committed to the successful completion of such a challenge. I don’t doubt that I’ll eventually be able to run through all seven of the categories and provide enough information to help clarify everything, but I will admit that I am battling a certain level of anxiety revolving around the idea of meeting your expectations.

I want to provide you all with the best, most effective analysis of macroeconomics (as it pertains to the markets, of course) and it’s definitely a challenge figuring out how to explain certain things that are tightly nestled in various parts of my brain! As you obviously already know, I am a fan of intertwining the minutiae of economics with the day-to-day dealings of the markets…especially with the decision-making process and strategy formulation of placing individual trades. Hopefully, the information in this blog is adding value to you as a developing trader.

In the previous installment of “Know Good Things” (which you can find HERE), I introduced our first economic grouping: Income and Spending (and output). This week will be spent on the second category, which is Employment and Wages. The sheer nature of these two particular topics can definitely have a deeply personal emotion affixed them, but I assure you that the merit of these topics is meant to be more public than private.


Each of us has an obvious self-interest on the level of employment that we hold (or seek to hold) and we most definitely place extreme value/interest in any wages that we generate. As a whole, in aggregate, the actual level of employment is what brings value to our economy because if more people are working then more money is being created in a manner that is healthy and necessary (as opposed to artificially creating money by the Federal Reserve that isn’t generated by normal economic means or values). To be frank, we actually don’t really make much of a fuss about “employment”, but we definitely seem to hem and haw over the measured level of “unemployment” that exists… and there is a big difference between those two aside from the obvious. There’s also a rather stark difference between the federally reported levels of unemployment and the REAL (actual) level of unemployment. It might actually make your head hurt to learn how this particular sausage is made, but we’ll get to that in more detail a little later on.

The economic measurement of employment is extremely convoluted because we tend to break it down into several different data sets. To be “gainfully employed” in the U.S. economy is to be allowed and able to work the amount of hours (weekly) that are reported as the mean (average). Most of us come to the same conclusion that a forty hour work week is standard, which is usually is. That’s not to say that some of you go way above and way beyond that generally accepted and standard forty hours because a lot of you do! However, the average number of hours in a work week for the United States is actually just a smidge above 34 hours per week (34.3 to be exact).

So, to be “gainfully” employed in the U.S. one should be able to work at least 34 hours per week. We also don’t count any “additional” employment (a second or third job, for example) held by individuals as anything that goes into the national employment computations, but those additional hours that are worked by the individual will be counted towards the reported average work week. The same goes for people who can’t (or even worse…WON’T) work 34 hours per week. If they are on a payroll then they are systematically counted as “fully employed”, even though they aren’t economically gainfully employed by U.S. standards. Think about that for a moment. People who are only able to find, say…15 hours of work per week are counted as “fully employed”. They don’t count against the unemployment figures that are announced every month, which only goes to show you how fundamentally misleading those numbers are.

So, to get more to the point of employment data, it is something that is very statistical in nature and is released to the public on the first Friday of every month in the form of a report called “Employment Situation”. The employment situation is a set of labor market indicators based on two separate surveys. Yes, that’s right, I said “survey”. The unemployment rate equals the number of unemployed persons divided by the total number of persons in the labor force, which comes from a survey of 60,000 households (called the Household Survey). Workers are only counted once, no matter how many jobs they have, or whether they are only working part-time. In order to be counted as unemployed, one must be actively looking for work.

It might drive you nuts to think about, but if a person is not actively searching for employment opportunities then they are NOT counted in the report! Yes, an unemployed person who refused to look for a job is not counted as an unemployed person. They just don’t exist, I guess? Also, other commonly known figures from this Household Survey include the labor supply, discouraged workers (people who have searched for work, were unable to find anything, and essentially quit searching), and any increases/decreases in wages.

There’s a bit more to get to and I plan to wrap this all up next week. For now, let’s just focus on the Employment Situation report and take a look at the information that it presents. Based on when this particular blog will be published, the March 2018 numbers should already be made public. I encourage you to open up that report and look at the data provided. Get a feel for the way it’s reported as well as the vernacular that’s used. Compare the report with the way the markets reacted when the Employment Situation was published (March 9th) especially if there was any kind of “surprise” by virtue of the reported numbers and the expected numbers. Through this kind of personal analysis, you’ll be able to really start getting a feel for how to implement macroeconomic analysis into your trading routine.

 

Until next time, my friends!  God bless and good luck to you all.

 

Be good.  Do good.  Know good.

Kleiny (@KnowGoodThings)

Columbus, Indiana

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