Below is an unemployment update that I received from a local commercial lender.
Today the BLS posted national unemployment figures for April. Initial figures are always subject to subsequent change as the numbers are refined. April Employment growth was solid at 288,000 new jobs, reducing the U3 unemployment rate to 6.3%. However, that was driven by the reality that 806,000 workers left the job market for various reasons. Retirement is one reason, but only one of many reasons - all the other reasons being problematical.
Essentially the work force is contracting relative to the potential labor pool. Labor Force Participation fell to 62.8%, the lowest level since 1978.
US unemployment (U3 measure) for April is 6.3%. The more meaningful U6* unemployment measure is 12.3%.
Interesting contrast between US and Idaho U6 unemployment: or the 12 months ended 3/31/14, national U6 unemployment averaged 13.4%; in contrast Idaho averaged 7.1%.
*U6 Unemployment Measure: total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers.
Idaho ranks 16th nationally in employment. State wide unemployment for Idaho as of March was 5.2% (Idaho April numbers will not be available until the third week of May).
Ada County unemployment as of March was 4.9%; Canyon County was 6.6%. Combined those counties constitute the Boise MSA which posted 5.4% unemployment. Boise City posted 4.9%.
There's a lot of people employed in Idaho and Boise and the Boise MSA compared to the nation. However, Idaho wages are the nation's lowest and Idaho is at the bottom with the percentage of minimum wage workers. Also, over the past 30 years, Idaho inflation adjusted wages grew only 3.4% - that's essential flat-line growth over three decades. The Nationwide Labor Force Participation is contracting. If you depend on a consumer driven economy, as does the US in which GDP formerly was 70% consumer driven, then U6 unemployment, labor force participation and household income stagnation is problematical.
Financial Model for Derivatives
It works . . . at least until it stops working. As Chuck Prince, then CEO of Citibank advised us in 2007, you have to keep dancing until the music stops. Sadly, the music had already stopped for Citi when Prince said that, but he could not hear the silence that surrounded him.
Off-balance-sheet assets and derivatives were at the root of the 2008 financial crisis. Mortgage securitizations kept off the books came back to haunt banks forced to repurchase home loans sold to special investment vehicles. The government had to rescue AIG with a bailout that ballooned to $182 billion after the insurer couldn't pay banks on derivatives tied to those bonds.
Derivatives are financial contracts whose value depends on stocks, bonds, currencies or other securities. Because two parties agree to swap cash or collateral at the end of a pre-determined period, that value also depends on the existence of the counterparty when it's time to pay. If the counterparty is AIG or JP Morgan Chase or the like, then the feds will step in to pay.
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