Why the Bull Market May Be a Jedi Mind Trick

Is the economy really "booming" like the Trump Administration would have you believe?

The Bureau of Labor Statistics reported Friday that over 300,000 jobs were created in February, making it the best single-month total since July 2016. And unless you’ve been exploring the Arctic Circle or were kicked off Twitter for expressing politically incorrect views, you know that’s just the latest “great” news about the booming economy, bull market in stocks, and, best of all, the significant new job creation since Donald Trump became president.

Certainly, there is no denying the stock market has continued to rise, with the S&P 500 up over 27 percent since 11/7/2016, as of this writing. But as for the overall economy and, specifically, job creation, even the Trump-hating liberal media seems to have fallen for an economic Jedi mind trick. Regardless of single-month spikes like the one that occurred last month, it only takes one click of the mouse to see that job creation continued to fall in 2017, as it had the previous two years. Looking at yearly totals over the past ten years, job creation looks a lot more like a protracted version of the last business cycle leading up to the 2008 crash.

Year

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Total*

2008

8

-81

-55

-229

-184

-154

-213

-277

-443

-475

-759

-707

-3569

2009

-787

-704

-802

-704

-354

-469

-342

-196

-229

-209

12

-277

-5061

2010

18

-73

193

221

522

-140

-78

-16

-63

267

129

73

1053

2011

44

182

254

323

81

234

72

112

233

209

145

201

2090

2012

348

233

264

72

117

68

156

173

194

153

130

243

2151

2013

207

265

156

179

240

158

111

260

201

210

221

93

2301

2014

174

182

261

311

252

306

196

226

284

255

307

251

3005

2015

211

267

78

282

326

191

256

164

88

351

264

234

2712

2016

103

257

235

174

34

285

325

175

264

140

172

180

2344

2017

259

200

73

175

155

239

190

221

14

271

216

175

2188

2018

239

313

                     
 

*Total column added to BLS data

 

A spreadsheet can be worth a thousand words, can’t it? What we’re really seeing isn’t the effects of the policies of either Donald Trump or Barack Obama. Instead, it looks like the predictable pattern of job creation during the recovery after a Federal Reserve inflationary bubble pops. There is a period of annual job losses, followed by a period of steadily increasing job creation, followed by a period of decreasing job creation, and finally another crash. At that point, job losses recur and the cycle repeats.

This particular cycle has simply been drawn out over a longer period by unprecedented monetary intervention by the Fed, including Quantitative Easing and keeping interest rates near zero for the better part of a decade.

Here is another spreadsheet that may be worth two thousand words. It’s the BLS jobs numbers, with the addition of annualized totals, for the years leading up to the 2000 NASDAQ and 2008 Housing Bubble crashes, respectively.

Year

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Total*

1995

327

198

219

162

-17

240

92

252

252

152

146

132

2155

1996

-13

425

265

165

326

281

251

185

213

261

295

171

2825

1997

231

308

312

292

263

264

303

-22

499

344

299

318

3411

1998

272

198

145

280

402

223

130

340

218

201

273

367

3049

1999

117

410

107

372

211

264

328

154

225

394

289

310

3181

2000

218

131

467

293

219

-36

173

-15

144

-15

222

137

1938

2001

-25

74

-28

-279

-41

-121

-108

-146

-250

-328

-297

-177

-1726

2002

-149

-128

-17

-83

17

51

-77

-7

-67

113

6

-170

-511

2003

107

-146

-208

-49

11

-7

19

-46

110

205

3

121

120

2004

167

58

328

254

297

82

45

116

157

348

63

126

2041

2005

147

244

138

358

172

247

371

196

66

86

337

155

2517

2006

282

312

297

168

31

79

206

179

148

12

208

173

2095

2007

234

85

214

59

153

77

-30

-28

96

78

106

104

1148

2008

8

-81

-55

-229

-184

-154

-213

-277

-443

-475

-759

-707

-3569

 

*Total Column added to BLS data

Are you seeing a familiar pattern? During the lead-up to the 2000 crash, job creation increased to a peak in 1997, began declining and turned to job losses after the crash. After the early 2000s recession, job creation increased to a peak in 2005, then began declining and turned to job losses after the crash.

The Politicization of Economic Data

The Federal Reserve’s activities have significantly more effect on economic outcomes than anything a particular president or Congress may do.

There is no reason to believe the present cycle is any different, other than being longer for the aforementioned reasons. Job creation appears to have peaked in 2014 and began declining, relatively unaffected by the change in presidents. That’s also consistent with the position long-held by this writer that the Federal Reserve’s activities have significantly more effect on economic outcomes than anything a particular president or Congress may do.

That politicians ignore reality is not surprising. What is surprising is the extent to which the American public is willing to believe political narratives that fly in the face of reality and recent memory. Even within the canard that presidents “manage the economy” and outcomes are significantly affected by their policies, there is selective amnesia about how they supposedly performed.

It is now accepted truth across a majority of the mediasphere that Bill Clinton managed the economy well, George W. Bush contributed significantly to its collapse, and Barack Obama inherited a deep recession and steered the economy through a dramatic recovery. That’s a nice story but for a few facts that aren’t in dispute.

For starters, the 2000 NASDAQ crash occurred while Clinton was still president. George W. Bush also inherited a deep recession that everyone seems to have forgotten about. And economic data during Obama’s tenure look almost identical to those during Clinton’s and Bush’s, apart from the cycle being longer.

But perhaps the most bizarre politicization of economic data may be courtesy of President Donald Trump, who seems to vehemently disagree with Candidate Donald Trump in terms of just what is going on.

That politicians ignore reality is not surprising. What is surprising is the extent to which the American public is willing to believe political narratives.

Candidate Promises

In 2016, Candidate Trump correctly called the stock market a big, fat, ugly bubble, blown up by a politicized Federal Reserve. Just months later, he was taking victory laps over the bubble continuing to expand.

He called the jobs and unemployment numbers “phony” while they improved during President Obama’s presidency, but now tweets an end zone dance every time a monthly number looks momentarily encouraging. This in the face of clearly decreasing job creation year-over-year.

During the entire Obama presidency, we heard unemployment claims were decreasing not because the economy was recovering, but because “more and more people were giving up looking for work,” as supposedly shown in the Civilian Labor Force Participation Rate. There was a decline in that rate after the 2008 crash, but it has held steady around 63 percent since 2013.

Suddenly, we don’t hear about it anymore.

Why haven’t any of those who supposedly gave up looking for work during the Obama presidency come back into the labor force? Probably because they didn’t give up looking for work at all. They retired. The participation rate includes everyone 16 years old and older who aren’t employed. And as everyone knows, we’re right in the thick of the baby boomer retirement years. So, one would expect the labor participation rate, including retirees, to decline.

Politicians aren’t the only ones proficient at ignoring reality. Largely, they merely reflect the public’s propensity to do likewise. Donald Trump campaigned on not touching Social Security or Medicare and increasing military spending. Hillary Clinton campaigned on spending even more. No candidate who talks about cutting anything significant stands a prayer of winning a primary anymore.

The Next Chapter

In the relatively near future, several long-term trends will come to a head. The ratio of workers paying into federal entitlements vs. those drawing benefits will reach the critical stage. It’s already fallen from over 41:1 to less than 3:1 between 1945 and 2010. Retiring baby boomers will decrease it even more. Yet, any mention of cutting these entitlements is electoral suicide.

Interest rates have been artificially lowered for so many decades that we now have no idea what the real market rate is. But we’re likely to find out as the rest of the world continues moving away from the dollar as the world’s reserve currency. That, combined with the Federal Reserve’s plan, already underway, to try to normalize interest rates by their standards, and the return of trillion-dollar-plus federal deficits, portends a massive economic correction that may dwarf what happened in 2008.

If the American public continues to respond by merely replacing the current president with one pitching the same size government, with a slightly different distribution of the largesse, it could turn into a long century in the “land of the free.”

Further Reading

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