US is in denial over payroll figures

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AS WITH many famous quotes, it was Mark Twain who coined the phrase: “Denial, it ain’t just a river in Egypt”. And denial abounds as we seek an exit from our current economic malaise.

Denial from policymakers comes in many forms. Denial over shoddy data, flawed rescue plans, fake austerity and over ineffectual monetary policy initiatives are daily fare for European investors. But the US may be just as guilty, as typified by last week’s non-farm payroll figures.

I’ve always loved the payroll figure. It creates less volatility now than in the past, but there is still a buzz of excitement which, for me, dates back to my days at the Bund option on the London International Financial Futures and Options Exchange. Back then, thousands would cram into a huddled mass, waiting for the biggest piece of data of the calendar month. More often than not, it was an anti-climax. But on occasion, things would escalate and the frenzy that followed was wonderful – unless you were off in your positioning and therefore found yourself underwater.

The detractors tell us each month that the non-farm payroll figure is a lagging indicator. Are they just being polite when they tell us not to pay too much attention to it? Do they really mean that both the national unemployment rate and the monthly jobs gained and lost figure is an unreliable and partial reading of the bigger picture? That would suggest the disappointing 88,000 jobs created didn’t matter. And that we should truly believe the 7.6 per cent national unemployment rate.

But what I view as the most important aspect rarely gets a mention: the bit about a three decade low participation rate at only just over 63 per cent. To be clear, the number of Americans in work or looking for jobs has hit a 34-year low. Meanwhile, people are waiting for Federal Reserve chairman Ben Bernanke to start talking about the “tapering” away from quantitive easing. It sounds like denial.

The deniers advise us not to worry, claiming the figures hinge on demographics. Changes in the number of baby boomers and female workforce participation mean the figure isn’t as bad as it looks. Does that suggest that fewer people working and more people retiring is no bad thing? No problems then from less tax going to the Inland Revenue Service to fund the US national debt of nearly $17 trillion (£11.1 trillion).

But as the Canadian Mike Bushore said: “Get your facts first, then you can distort them as you please”. It is not just the Europeans looking at that Egyptian river.

Steve Sedgwick is an anchor for CNBC’s SquawkBox Europe.