There are three kinds of lies: lies, damned lies and statistics - Benjamin Disraeli, Lord Courtney, et alBefore I get to the employment report fraud, I had to unload two observations: 1) Yesterday's Super Bowl was an epic game, especially if you like to watch hard-hitting defensive battles - AND the Super Bowl ads on TV were probably the worst in memory. 2) The metals got hit on Friday as the jobs report was being released with the idea that a number as strong as the one released might delay more Fed money printing and therefore the report was bearish for gold and silver and there might be some downside action for a while. I mentioned to a colleague, though, that the number was total bullshit and that if smart money examined the number with scrutiny over the weekend, we might see some surprising strength in the metals this week. Well, as you may have already read and I will further detail below, the jobs report in truth was extremely negative. It also shed more light on just how manipulative of statistics the Government has become. In fact, Government economic reports are so distorted from the truth now that it brings to mind both recollections of 1970's Soviet-style political gamesmanship and frightening Orwellian visions.
The Government's Bureau of Labor Statistics (BLS - take the "L" out of "BLS" and you get "BS") released its version of this country's employment situation last Friday for the month of January. The reported number was a massive and unexpected increase in employment, with the BLS making the claim that 243,000 thousand people found jobs in January and the unemployment rate dropped to 8.3%. However - there's that "notwithstanding" conditional term again, as in "these numbers notwithstanding the truth" - a close look beneath the reported and appallingly cheered headlines reveals a very ugly truth about the quality and reliability - or lack thereof - of Government statistical reporting - especially in a Presidential election year. My friend "Jesse" provides an excellent description of data manipulation that occurred in order to produce this latest "jobs" report:
Back in Stalinist Russia, they had whole departments of people that were responsible for rewriting history and documents in order to support the latest Party lines. When a particular person fell out of favor, for example, they not only altered the documents, but even went so far as to air brush them out of important historical photographs. Today the US reported a remarkably high Non-Farm Payrolls number, well in excess of even the most optimistic estimates. 243,000 jobs added, and unemployment has dropped to only 8.3 percent. Isn't that good news indeed. If one tracks the data closely, and keeps their own copies of the records, what we see instead are revisions, sometimes going back as far as ten years, that most greatly affect the 'seasonally adjusted' numbers, but also affect the raw numbers as well. The Obama Administration, as well as the previous Administration, have been going back and tinkering with history, rewriting the numbers here and there, in most cases 'rolling jobs forward' to the current months to make the current headlines look better. LINKThe real laugh comes when you look at the full BLS report and see that two sets of data: the seasonally adjusted report that gets reported by the media and promoted by Wall Street and the not seasonally adjusted actual amount of jobs outstanding. The Soviet-style manipulated seasonally adjusted number to which everyone is doing the Soul Train boogie shows 243,00 new jobs in January and 446,000 jobs over the last two months. Compare this to the actual number of jobs, not seasonally adjusted, which shows a massive reduction of 2.9 million jobs over the last two months - 200k in December and 2.7 million in January.
Now consider that there isn't anyone outside of the BLS statisticians that knows how the seasonal adjustments are calculated. I guarantee that the massive historical revisions discussed by "Jesse" in the link above were part of the formula. One reality check against the jobs report is to look at actual income tax collections for January 2012 were $308 million lower than for January 2011. That certainly is not consistent with the idea that the economy added 243,000 wage paying, tax producing jobs. You can check the number here: Jan 2011 and Jan 2012 If those links fail, you can recreate them HERE Also note that part of the "seasonal adjustments" used by the BLS include assumptions about the strength of the economy. In this regard, the BLS assumptions are in direct contradiction to the snapshot of the economy as delivered by the FOMC two weeks ago. Furthermore, that the economy in truth shed 2.9 million jobs is consistent with the view that the economy is actually in a recession, which is what most of us who examine the data on a daily basis believe. This would also be consistent with the rapidly deteriorating home sales numbers and the cliff dive that is occurring in the Baltic Dry Index: LINK The BDI measures the supply and demand for dry bulk shipping cargo by sea. It is considered a measure of the relative strength or weakness of the global economy. When it plunges, like this it is good indicator that the world economy is in trouble. It's now lower than where it was at it's lowest point in Sept 2009.
The point here is that many real-time economic indicators are directly in conflict with the employment report released by the BLS. For those who still want to place faith in the BLS, here's an excellent presentation of the facts by Trim Tabs' Charles Biederman: LINK It's worth spending the 4 minutes to listen to what he has to say on the matter.
The other headline number that was cheered heavily was the unemployment rate, which "fell" to 8.3%. This was accomplished by the BLS adding 1.17 million people to the "not in the labor force" category of the population. The labor force is defined as the "those employed plus those not employed but actively looking to be employed." The BLS decided that 1.17 million people no longered wanted to work and thus removed them from the labor force. Since the unemployment rate is defined by the those in the labor force who are not employed but looking for a job divided by the total labor force, reducing the size of the unemployed by removing them for labor force data will lower the rate of unemployment, which is how the BLS produced a lower unemployment rate. If you look at the more comprehensive "u-6" calculation found in Table A-15 of the employment report, it shows an unemployment rate of 15.1%. This is unequivocally NEVER reported by mainstream media and it was suspiciously absent from Obama's remarks about Friday's jobs report. The "u-6" calculation includes a lot of the people that the BLS eliminates with the stroke of a pen from the numbers which get reported in the headlines. Here's a description of the "u-6" number: LINK
Those of you who are familiar with John Williams and his Shadow Stats report know that his alternative calculation of the BLS statistics yields a more comprehensive 22.5% unemployment rate. This calculation includes a much more comprehensive definition of "long term discouraged" workers, which are the people who have been looking for work for more than a year and but have given up for now and live off of Obama's extended jobless benefits welfare program. Speaking of Williams, this was his commentary on Friday's payroll report: LINK
In any event, beyond the revisions, the headline numbers for January 2012 generated by the revamped systems simply were not believable. New online help-wanted advertising fell sharply in January, indications from the January purchasing managers survey were mixed, and anecdotal evidence still is running to the contrary of happier numbers. Accordingly, I would expect reporting in the months ahead to revise and weaken with the payrolls, and would expect deterioration in the headline unemployment rate ahead, assuming some catch upfactors, if that is an issue...As an aside, there is precedent for direct political manipulation of headline economic data, from a number of administrations—both Democrat and Republican from the early 1960s and from the onset of modern economic reporting, into the 2000s. A down economy is extremely difficult for an incumbent party to overcome politically in a presidential-election year. During the first Bush Administration, with George Bush up for re-election, the economy was in recession. An administration official approached an individual in the computer industry about boosting reporting of computer sales to the Bureau of Economic Analysis (BEA), which reported the GDP. The sales reporting was boosted, the reported GDP improved, but the public viewed the administration's improving economic claims as being out of touch with reality.Circling back to how I see the action in the metals unfolding in light of Friday's tragicomedy, the metals were technically set up for a pullback correction after January's torrid rally, especially in silver. We were a bit cautious going into this week, but not because of the jobs report. The "strong" jobs report gave the technical traders a reason unload their positions and take profits and there's no doubt this dynamic was aided and abetted by the big banks who seek to manipulate the metals. The metals once again sold off at the open of London trading but have rebounded sharply from their lows in the Comex session. Again, I think a close assessment of the employment report has further convinced smart money that the economy is weaker than is being promoted by Obama/Wall Street and at some point soon the Fed will be forced to unleash the printing presses again. In this regard, smart money will be adding to positions on all price takedowns. Although I think we'll consolidate January's move for awhile, the metals are set up fundamentally for a massive move this spring.