After a two-week delay, thanks to the good old government shutdown, the September jobs report was released on Tuesday.
The big takeaway – at least, according to most mainstream media outlets like The Wall Street Journal – is that the unemployment rate dropped from 7.3% to 7.2%.
Keep in mind, only four years ago, the headline unemployment rate stood at a staggering 10%.
So the labor market is improving, right? Wrong!
The official government unemployment rate is nothing but a statistical deception.
The true unemployment situation holds profound investment implications.
Lies, Damn Lies and Statistics
The U.S. economy added 148,000 jobs in September.
Economists expected more (180,000). But the August number was revised up by 24,000 jobs.
So no one really panicked about the miss. Especially since the unemployment rate managed to tick a tenth of a percentage point lower.
Here’s the problem…
You’d think a downtick in the unemployment rate would mean that more people are employed.
However, there actually aren’t more people working. Not when we dissect the data based on the percentage of able-bodied Americans.
Turns out, the number of Americans 16 years or older who have decided not to participate in the nation’s labor force increased by another 136,000 in September.
All told, a record 90,609,000 Americans don’t have a job – and aren’t looking for one, either.
In turn, the labor force participation rate (the percentage of Americans who have a job or are looking for one) stands at a 34-year low.
A simple chart really drives home the depressing state of affairs.
As you can see, in previous post-recession periods, the precipitous drop in the unemployment rate was always accompanied by an increase in the labor force participation rate.
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In other words, the economy was improving so much – and so many new jobs were being created – that it enticed people who previously stopped looking for work to dust off their resumes. And not only did they start looking for work again, they found it.
Not this time around.
The economy might be adding jobs, but it’s not adding enough to keep up with the growth in available workers. So the drop in the unemployment rate is a total fraud. It has materialized based on more and more people opting out of finding work, instead of actually finding it.
As James Pethokoukis from the American Enterprise Institute points out, if the labor participation rate was the same today as it was when the recession started, the unemployment rate would actually be 11.2% right now, not 7.2%.
How’s that for some truth?
No Taper, More Income
You’ll recall, the labor force participation rate served as the cornerstone of my thesis that there was no way the Fed would start tapering in September.
Why? Because it provides a truer gauge of the unemployment situation in America. And the Fed swore that it wouldn’t ease off the money printing until the labor market improved.
Go figure. The labor force participation rate worsened and the Fed didn’t taper.
Bottom line: Until this data point improves, there’s no way the Fed can say the labor market is on the mend enough to justify a taper. And no imminent start to the tapering means that interest-rate sensitive investments, especially dividend-paying utility stocks, aren’t in imminent danger, either.
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Ahead of the tape,