Steal This Unemployment Message

By David Stockman  |  October 19, 2018

It’s hard to think of anything dumber than a new administration claiming credit for the last spasms of an old business cycle.

But the Donald has done it in spades. And he’s set himself up for a big fall when the U.S. economy pretties up for its rendezvous with recession…

The Donald is just not a “second derivative adjustments” kind of guy. There’s no way he’d understand concepts like “‘better or worse’ matters more than ‘good or bad’” when it comes to economic data.

But that kind of stuff is starting to catch up to the market.

And it’s going to catch up to the Donald, a lot sooner than he thinks…


Two weeks ago this morning, the Tweeter in Chief was pimping the 43-year low in the headline unemployment rate:

Just out: 3.7% Unemployment is the lowest number since 1969!

Of course, candidate Trump claimed to know better than to fall for the Bureau of Labor Statistics’ seasonally maladjusted, heavily imputed, birth-and-death guesstimated, trend-cycle-adjusted statistical noise.

Indeed, he once cited my 40% estimate for the true, hours-worked-and-wages-earned-based, comprehensive unemployment rate for the adult population.

And that’s nice of him. It was, you might even say, a total “Great Disruptor” move…

But the Donald needs to snap back to attention, right now.

In any event, 3.7% unemployment is nothing at all to tweet-pimp.

That’s particularly true when one, two, or many component parts of, say, the Conference Board Leading Economic Index are still in “good” absolute territory but are retreating – notably – from high ground…

Take a look at this chart. (Mr. President, please…)

The green spaces represent “growth.” Those white spaces? They represent “official” recessions – the wider, the longer…

The red line represents the “official” unemployment rate. It’s gotten to and/or breached 4% to the downside on four different occasions – in 1969, 1974, 2000, and 2007.

Each time, recession followed within a matter of months.

In fact, it last hit 3.7% in December 1969. The next recession started in January 1970…

The economic data always look so good right before it all goes from green to white.

That’s capitalism. The economy grows because an expanding population – workers and entrepreneurs – seeks to better their circumstances and to build their wealth.

People get together, they make things work, it’s great for a while… and then it gets a little too wild. Capital’s chasing anything that moves, so the responsible authorities tighten things up and reset the table…

Not in this era, friend.

This is the age of monetary central planning and Bubble Finance.

Before Greenspan, recessions were triggered when the Main Street economy got a little too heated on easy credit. “Adults” removed punch bowls.

After Greenspan, recessions are triggered by C-suite panics. Money-pumping causes massive malinvestment, financial assets burst under their own weight, and CEOs fire workers – see 2000 and 2008-09.

Monetary central planning has created all manner of distortions. That includes the destruction of honest price discovery at a market level as well as the falsification of cash flow company levels as well.

The right focus at any given moment in time is not the current read-out of the standard short-run economic indicator. Yes, it’s about the change in trend.

Too much and too often these days, that’s a function of where the underlying state interventions are corrupting and driving the business cycle’s inherent momentum.

Right now, the answer is “straight into a ditch.”

Indeed, recent moves only augur the Mother of All Yield Shocks…

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David Stockman

David Stockman is the ultimate Washington insider turned iconoclast. He began his career in Washington as a young man and quickly rose through the ranks of the Republican Party to become the Director of the Office of Management and Budget under President Ronald Reagan. After leaving the White House, Stockman had a 20-year career on Wall Street.MORE FROM AUTHOR