The corresponding Numbrary tables have been updated.

At 6.1%, we're almost at the peak unemployment rate from the last cycle.

Among the most notable items in the report:

• Unemployment rose from 5.7% in July to 6.1% in August.
• The report indicates that over the last 12 months, the unemployment rate has risen by 1.4%, with over 2 million people losing their jobs.  
• Manufacturing jobs continued to decline, as well as continued losses in the construction industry and in motor vehicle sales and service.
• The health care and mining industries were some of the areas that added jobs.

You can take a look at the entire report here.

Go get 'em, BLS! Your dry, yet informative articles will surely be read by the masses!

http://www.bls.gov/opub/mlr/2008/08/art1full.pdf

I spent a rack session on Saturday getting familiar with the a few of the labs from Volume I, which are technology focussed labs. I like the style of these, the lab I did on L2 tunneling seemed quite straight forward at first but led you down into a rabbit hole of issues, which are explained very nicely in the proctor guide. I also had a quick look at some of the volume II multi protocol labs, and am hoping to do a few of those as well. Its good to do labs that look and feel totally different to the IE ones, as I think I was getting a little too familiar with them and the topology they use - so good to mix it up a little. One thing I notice about the IP Expert labs is they have longer questions, usually a 4 or 5 point question with lot of requirements and mentions of RFC's (come on, be honest, who reads and remembers RFC's). :)

I also did IE mock lab 5 on Sunday, which went OK, but I missed out on around 30 marks (I think) but will probably get even less when the grading comes through in a few days - as I didnt spend any time working through at the end, even though I had a good 2 hours to spare! I need to keep my concentration for the full 8 hours if I want to pass this exam, which I think will be my main issue to be honest.

My study plan for the next couple of weeks will be to do some of the IP Expert multi protocol labs from volume II of the BLS during weekday rack sessions, followed by IP Expert mock labs from volume III at the weekends. I will also throw in some IE Dynamips labs to the mix as well - I will probably do mock lab 3 and 5 again at home on Dynamips (all except the switching tasks), to see if I can learn from my previous mistakes on these.

For example, in June the BLS says 289,000 jobs were created, but of those, 177,000 came from the birth/death model.  Even more suspicious is construction added 29,000 of those jobs.  Huh?  Construction of what, empty homes?  No doubt these will be revised downward when the real data comes in months from now.  If you are dying to read those BLS tables, you can find them here: http://www.bls.gov/web/cesbd.htm

Despite problems with the surveys, they do give us the general temperature of the economy as far as labor goes.  If you are interested in predicting where the economy might head next, however, they are both pretty worthless.  Why?  The main reason is that most employment statistics are a lagging indicator.  That is they tell us what already happened.  Economists will look at different indicators and classify them as leading, lagging or coincident.  Employment/unemployment statistics are considered lagging and therefore of little value in divining the future, but they can be of great value when studying what recent trends have been.  For example, if you are trying to determine how many more jobs might be created before igniting upward wage pressures (competition for workers) and thus inflationary pressures, then employment statistics are a good barometer.  Here is a fun fact: only about 62% of the population are employed.

Guys-

Can you straighten me out on unemployment statistics. I dimly remember a commentary from someone about different versions of the unemployment statistics. The commentator seemed to imply that whatever administration was in charge always picked the version of the statistics that made them look best. Am I remembering this correctly? If we use a consistent measurement for the last 20 years, how does our current unemployment trend look?

We're going to use the tag-team approach to answer this, because blogging is our life.  It's true that the Bureau of Labor Statistics (the BLS) does two separate surveys of employment/unemployment, in addition to all the private surveys that are out there.

The first measure is known as the Establishment Survey.  This is a measure of employment, not unemployment.  Every month about 150,000 businesses large and small are asked to fill out a survey about how many people they employ.  This generates headlines like "Economy Adds 150,000 jobs in June," or "Economy loses 200,000 jobs in July."  The numbers are revised twice in the months following the initial release - always on the 1st Friday of the month, 8:30 AM Eastern time.  Later on, there are long term revisions to both the surveys themselves and to the benchmarks used to calibrate them.

The second measure is call the Household Survey.  This is a survey of a certain number of households, and it is a measure of employment as a percentage of the total workforce.  From this comes the unemployment rate, which is 1 - (# employed / # in workforce).  From here come the headlines like "Unemployment Rate rises to 5.7%" and such-like.

The two surveys generally match up pretty well over the long run, but in the short term they can deviate dramatically.  Part of the reason is that the household survey can be somewhat subjective; participants are asked if they have a job, and if not, whether they are actively looking for work.  Some people don't tell the truth, and others decide to describe themselves as 'self-employed' even though they aren't doing anything to generate an income.  Others might claim to be looking for work when they really aren't.

The key difference between the two surveys lies in the concept of the total size of the workforce.  In the establishment survey, there is no such concept.  All the survey measures is the number of people employed, and breaks it down into various categories like industry or size of company.  There are also seasonal adjustments, and fairly odd treatment of people like teachers, who are not counted as employed when school is out, and the military and farm workers, who are not counted at all - technically the series is known as the 'Civilian non-Farm Payroll Report.

The household survey measure the size of the workforce in addition to the number of people employed.  If people get so discouraged that they give up looking for work, the unemployment rate can actually fall because the size of the workforce shrinks.  Similarly, when the job situation starts to pick up after a downturn, the unemployment rate can rise despite lots of people getting new jobs, because formerly discouraged workers rejoin the workforce. 

So which number do we pay attention to?  The press likes the household survey, because it produces a number that people think they understand - the unemployment rate.  The government will certainly attempt to spin the report toward whichever version gives the answer they like the most.  Wall Street wavers back and forth - for most of my career, the establishment survey was favored, but more recently people have become suspicious of it because of its large seasonal adjustments and massive revisions and re-revisions, and the household survey has come into vogue.  The answer really is that no one number can sum up the employment situation or the overall economy as a whole.  Far more important than any one number is the direction the series is going - is it steadily improving, steadily getting worse, staying about the same? Also important is the aggregation of more data than just unemployment.  Are workers getting paid more or less?  Are they working longer hours or shorter?  Is industry adding jobs, or is it just the government hiring more people?  And on and on.

So that's the basic idea... stay tuned for more on the ins and outs of unemployment stats.  And if you're really a geek, you can get the raw data at www.bls.gov/ces.

Among the most notable items in the report:

• Unemployment rose from 5.5% in June to 5.7% in July.
• There were 51,000 fewer jobs in July. Total job loss for 2008 so far is 463,000. That is an average of 66,000 jobs lost per month.
• The most notable losses were in construction, manufacturing and employment services. The drop for employment services indicates far fewer companies are using temporary help.
• The report also mentioned that teenagers and young adults who usually take on part-time jobs during the summer have had challenges in finding a job this year.

You can see the entire press release here.

Of course, the Darton Group team immediately leaped into the data specific to Charlotte and the finance profession.  So what did we learn?

Let's begin by defining the term "pay relatives". 

Pay relatives are a means to assess pay differences.  As defined by the BLS, "a pay relative is a calculation of pay--wages, salaries, commissions, and production bonuses--for a given metropolitan area relative to the nation as a whole".

The survey uses a base line of 100...meaning average pay nationally for all occupations and for each occupational group featured in the survey = 100.

Of 77 metro areas surveyed, the Charlotte metro area scored "102" for "All Occupations" and another "102" for the "Management, Business & Financial" occupational group.  This means that occupational pay in the Charlotte metro area was 2% above the national average for the "Management, Business & Financial" occupational group for all occupational groups combined.  

The pay relative in Charlotte for the occupational group defined as "Professional & Related" was "92" meaning that Charlotte workers in this sector earned an average of 92 cents for every dollar earned by workers nationwide.

Learn more at http://www.bls.gov/news.release/ncspay.htm.

In Part 1 of this post, we examined the facts concluding that inflation is caused by monetary debasement. In this follow up, we'll observe the reason behind why common belief is that inflation is at 3% - 5%. First, let's recap what was already covered:

What is Inflation?

Inflation is the steady, continual rise in the price of goods. It is typically measured using a “basket of goods”. In this approach, the prices of many different goods are tracked and then integrated using some sort of logical weighting calculation.

What causes inflation?

In most developed countries, money is created by a central banking system. In the US, our central banking system is that of the Federal Reserve, a private bank. Money can be created by the Federal Reserve depositing newly created money into its member banks in exchange for US bonds. This increases the amount of money in existence. Additionally, every bank in the US has the ability to lend out 7 to 11 times as many dollars as it has in deposits. This also increases the amount of money in existence. With an increased money supply, prices rise. A continually increasing money supply, aka monetary debasement, causes inflation.

What is the current rate of inflation?

This is where there is a difference of opinion. For decades, inflation has been estimated using a "basket of goods" approach. In this method the price of each of a variety of goods is tracked, a logical weighting is applied, and the output is the rate of inflation, usually annualized. Under this method we can see inflation swinging up and down through economic cycles. In the early 1980's, this data shows inflation at nearly 15% per annum. This is based on the published figures of the US Bureau of Labor Statistics.

In the early 1990's the methodology of inflation reporting changed drastically, thus rendering the BLS "official" figures virtually useless. Unfortunately, these BLS figures continue to be used as if they were accurate.

A change in calculation method

Around 1993, Alan Greenspan argued that there was a flaw in the inflation calculation. He said that if the price of steak jumped up rapidly, then Americans would start eating hamburgers instead. For this reason, he proposed that when the price of something rises sharply we should reduce its weighting so that it isn't proportionately reflected in the output inflation figure. This is basically a "substitution adjustment". Once this change was put into practice, the BLS inflation figure no longer represented the rising costs of maintaining a standard of living... it instead represents the rising costs of maintaining a declining standard of living.

If I'm eating steak one month and hamburger the next, my quality of life has declined. To accurately examine inflation, I need to know what it will cost for me to continue eating steak. This is especially relevant when considering the rapidly rising price of gasoline. Because of the powerful energy monopoly, we don't have a realistic way to immediately substitute something else in the place of gasoline. We can't all just start putting pond water in our cars and still get around town.

Since this change in methodology, BLS has been reporting inflation at around 2% - 5%... even through the economic cycles of the past decade. For the first time ever it appears (to the naive person) that we've conquered the laws of economics. Other independent economists have been estimating inflation using the methodology prior to the substitution change. Using the same calculation methods from the 80's yields a current estimate of inflation approaching 12%. It appears that the "substitution" method consistently understated inflation by about 7%. In other words, post-1993 BLS figures have been misreported by up to 200%.

Misreporting helps to balance the budget

It's also important to note that the government's finances unquestionably have been a growing mess. With its debt rising much faster than income, it's on a one-way path to bankruptcy, and there's not a single person on the planet who can convincingly argue otherwise. Anything it can do to minimize expenses will help to defer its financial reality. A side effect of this misreporting is that social security payouts are raised using the understated BLS inflation figures. This helps to lower government expenses and lessen the deficit.

Inflation Foreshadowing

With monetary debasement (an increasing money supply) as the primary cause of inflation, one can look at the money supply itself to see which direction inflation is heading. Another problem lies herein. The Federal Reserve stopped publishing its "M3" data about the money supply in 2006. It's last M3 report indicated a money supply growing at about 8% per year. Since this decision, we've been left searching for data published by independent economists that attempts to continue to M3 growth estimation. Current figures provide M3 growth of 16% per year. This suggests that the rate of inflation is likely to continue to rise.

Ahhhh... the sky is falling!

Relax. What's more important than the national economy is your personal economy. Our economic environment offers a multitude of opportunities to profit, especially with all the rapid changes taking place today. A good starting point is the following two books:

Before Zakk and BLS,

Sounds most reckless here.

As several other sources (including the recent CareerBuilder.com forecast) have indicated, there is a continued weakness in the labor market.

Among the highlights of the report from the Commissioner:

• Payrolls shrank by 62,000 jobs in June. This is the sixth consecutive month of job losses.
• After a sharp rise in May, unemployment is unchanged this month, at 5.5%.
• Among the industries seeing the sharpest decline in jobs: construction, factory work, and temporary employment help.
• The largest increases in jobs created were in the healthcare, food services, and mining industries.
• Earnings growth has slowed considerably. The June growth rate was 0.3%, while the growth rate over the last 12 months was an average of 3.4%.

You can see the press release here. You can also visit the Bureau of Labor Statistics website here.

E ora ditemi di no alla divisa con taschino per le sigarette e lattina integrata...

http://www.yankodesign.com/index.php/2008/06/17/i-heart-this-design/

Below you'll find the 2008 BLS graduation video.  One is set to the song "Friends" by Michael W. Smith, the other is to "Time that is Left" by Mark Schultz.  If you would like the original file, please let Kory know, and he will E-mail it to you.

Enjoy!

http://www.godtube.com/view_video.php?viewkey=60fea365daf96a6754cf
http://www.godtube.com/view_video.php?viewkey=35cc56c9b6e5f99946c5

One measure of current U.S. broad money supply shows it growing at an annual rate of over 16%! However, there is considerable debate as to what money supply measure best links it with inflation. (I suspect that for developed countries, we might see credit expansion playing a much more important role in understanding the inflationary process than is currently appreciated. But that is for another post to research.)

Most people believe the CPI measures a fixed basket of goods and services over time. That is again, incorrect. It used to be the case, but not anymore. The current CPI basket of goods and services is constantly changing according to what bureaucrats think people are buying, and by numerous statistical alterations they deem ‘appropriate.'

How the U.S. Bureau of Labor Statistics (BLS) modifies the CPI to show tame inflation
The kind of huge modifications the U.S. CPI is subjected to include the following:

• Substitution of products. Should prices rise, it is inferred people will substitute with something less expensive.
• ‘Hedonic' adjustments. If computers' performance doubles, the relevant index component is halved.
• Weighting changes of index components. If an item becomes suddenly expensive, it may receive a smaller index weighting.
• Chain-weighting. Applies to some ‘versions' of the CPI. This smoothes-out sudden price changes over many months and means indexes using this are always ‘behind-the-curve.'
• Intervention analysis/seasonal adjustments. Bureaucrats adjust index components according to historical seasonal variations, whether warranted in the current year or not. (See: The Government's Statistical Whopper of the Year, by Robert P. Murphy.)

Hence, the BLS is able to manipulate the CPI to whatever doctrine holds sway at the time. Prior to about 1980, there actually was a fixed basket of goods and services that comprised the CPI. It did a much better job of measuring inflation caused by monetary expansion. But politicians and some academics did not like this as they said it overstated the actual cost-of-living. For instance, they figured that if beef became expensive, people might buy chicken, and so on, thereby reducing living costs, and thus effectively lowering the index.

Of course, these types of changes also inferred lower living standards. But no politician, or a bureaucracy headed by a political appointee such as the BLS, would want to say that!

CPI inflation over the past year: using 1980's configuration, nearly 12%; using current methodology, 3.9%!
So around 1980 the CPI began to be massively modified and thus began the trek of divorcing it from monetary inflation. The difference in numbers between the 1980s CPI inflation measure and today's cost-of-living CPI is extraordinary! John Williams at http://www.shadowstats.com/alternate_data shows that for April 2008, the CPI using 1980s methodology shows inflation over the past year of close to 12%; using CPI (CPI-U) as constructed today it is just 3.9%!

There is no doubt that the ideal of trying to get a consumer price index that reflects the reality of consumer buying behaviour is a good one. But to rely on the current CPI as a means of determining U.S. inflationary pressures so as to modify its monetary policy, is, at first glance, illogical. However, there is something else going-on here.

The Federal Reserve uses current CPI to fool the world in supporting U.S. economy and artificially high bond, stock prices
The U.S. Federal Reserve often cites the CPI as being very influential in shaping its monetary policy. From the foregoing this seems to be a very strange policy. When viewed through a political lens and the need to maintain confidence in the U.S. economy though, it makes sense to try to fool the world at large that inflationary pressures are minimal within its economy.

The U.S. economic problems are so big that if the Federal Reserve and other government agencies came clean on the true rate of inflation, we would see:

• U.S. economic growth would be shown to have been negative for several years now (real GDP growth rate = nominal growth less inflation)
• Bond yields would soar
• Stock market could rise in highly inflationary environment or crash should deflation take-over
• U.S. government deficit rocket higher
• Severe economic downtown. Perhaps a depression

As consciousness rises investors everywhere will begin to understand the distinction between U.S. monetary based inflation that is in the double digits, and a highly stylized, theoretical, consumer price index that minimizes the monetary inflationary threat. Prices of everything will then be re-set accordingly.

There is huge danger ahead should the U.S. monetary and credit expansion continue unabated. The excess funds will find their way into more asset classes and lead to further big asset bubbles - and busts. Commodities anyone! Oh, what an incendiary mix!

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