The employment report does not look pretty

Here's how to read it.

On the face of it, parts of August’s U.S. employment report, released on September 6th, don’t look too pretty.

Non-farm payrolls increased by a tad less than expected, (but only missed by a paltry 11,000), and there were revisions down totalling 74,000 to the previous two months’ figures, and at first sight the reasons for the drop in the headline level of employment from 7.4 per cent to 7.3 per cent look disappointing, in that the fall was driven by a drop of 312,000 in the labour force seeking work, whilst the numbers of those in work actually declined by only 115,000, but look closer and you discover that the number of people who aren't working, but would like to be, actually collapsed by 334,000 in August! Think about that. What that is telling us is that work patterns are changing-there are more who want to work only part-time and this fall is also evidence of something much more important to the Fed-a structural change in the U.S. economy that implies it is not going to be able to employ as many people, even when it is growing full tilt-maybe the famous, but enormously difficult to measure, output gap, has shrunk.

The so-called Household Survey of employment, which kicks out the headline unemployment rate, is notoriously volatile, when compared to the Establishment Survey from which non-farm payroll changes are calculated.

The above goes part of the way to explain why I feel these figures weren’t weak enough to stop the Fed tapering down its purchases of US Treasuries, (not Mortgage Bonds), at its 18 Sept. meeting. They may lead to a smaller reduction in purchases, but even that may not be the case. Why?

Well, even parts of the Household Survey were positive-average hourly earnings ticked up from flat in July, (initially reported as -0.1 per cent), to +0.2 per cent, and the average workweek increased from 34.4 hours to 34.5. The broader U6 measure of unemployment fell even further, to 13.7 per cent, from 14.0 per cent. Remember, the Fed told us it wouldn’t just look at the headline figure, but that it would drill down into its composition and look at other labour market indicators.

Just as importantly however, (especially given the volatility and margin for error of the employment survey), we have to remember that recently we have been treated to a veritable slew of positive data surprises, including a drop in the 4-week moving average of those making initial jobless claims to 329,000; a new post-recession low. Other good news has come in the shape of better than expected releases for Existing Home sales, Consumer Confidence, Vehicle Sales and, most encouragingly, as they are forward-looking indicators, the Institute of Supply Managers’ surveys of sentiment in both the manufacturing and services sectors.

None of the above should stand in the way of further advances for developed market equities. Yields are normalising for "good" reasons, and the Fed has done a good job in ensuring they don’t surprise us with their first steps towards tightening-this is not a repeat of 1994’s bond market rout.

Photograph: Getty Images

Chairman of  Saxo Capital Markets Board

An Honours Graduate from Oxford University, Nick Beecroft has over 30 years of international trading experience within the financial industry, including senior Global Markets roles at Standard Chartered Bank, Deutsche Bank and Citibank. Nick was a member of the Bank of England's Foreign Exchange Joint Standing Committee.

More of his work can be found here.

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Mass surveillance doesn’t work – it’s time to go back to the drawing board

Lacking an answer to the problem of radicalisation, the government has confused tactics with strategy.

This week saw the release of not one but two parliamentary reports on the government’s proposed new spying law, the first from the Intelligence and Security Committee and the second from the Joint Committee on the Draft Investigatory Powers Bill.

Both reports suggested the government hasn’t fully made the case for some elements of mass surveillance put forward in the Bill. But neither went so far as to ask the most important question in this debate – does mass surveillance actually work?

The proposed law, known as the Investigatory Powers Bill, looks set to enshrine almost all the government’s mass surveillance powers and capabilities in a single law for the first time. It has been touted by the Prime Minister as a vital weapon in the UK’s fight against Islamic State.

Most of the noise about mass surveillance since the Snowden revelations has predictably come from civil liberties groups. But the privacy and safeguards debate skips over the highly dubious assumption underpinning the Investigatory Powers Bill – that mass surveillance will stop terrorists.

In fact, mass surveillance is not only ineffective but downright counter-productive.

A 2009 report by the US government found that only 1.2 per cent of tips provided to the FBI by mass surveillance techniques made a significant contribution to counter-terrorism efforts. Another recent study by the New America Foundation found that National Security Agency mass data collection played a role in, at most, 1.8 per cent of terrorism cases examined. By contrast, traditional investigative methods initiated 60 per cent of investigations. Suddenly mass surveillance doesn’t seem so vital.

This is because the technology is far from perfect. As computer scientist Ray Corrigan has written, “Even if your magic terrorist-catching machine has a false positive rate of 1 in 1,000—and no security technology comes anywhere near this—every time you asked it for suspects in the UK it would flag 60,000 innocent people.”

Perversely, this lack of precision means mass surveillance can actually frustrate counter-terrorism efforts. Michael Adebolajo, who brutally murdered Fusilier Lee Rigby in 2013, was so well known to the security services prior to the attack they had even tried to recruit him as an informant. Yet insufficient monitoring later on let him slip through the net. The same thing happened with the Hebdo killers. Mass surveillance means intelligence analysts are forced to spend their time fruitlessly sifting through endless reams of data rather than carrying out the targeted monitoring and detection that’s really needed.

Counter-radicalisation experts have meanwhile argued that mass surveillance may alienate Muslim communities, making them distrustful of the police and possibly even contributing to radicalisation. In 2014, Jonathan Russell from the counter-extremism group Quilliam wrote that the “introduction of a sweeping [mass surveillance] law…will be exploited by extremists to show that the government wants to spy on its own citizens [and] that all Muslims are suspected of being terrorists.” This will set alarm bells ringing for those who know the fight against terrorism will ultimately be won only by preventing radicalisation in the first place.

And therein lies the real problem with this Bill. It’s tactics, not strategy. If we stop for a second and think about what the problem is – namely that thousands of young Britons are at risk of radicalisation – we’d never prescribe mass surveillance as the answer. It would be nonsensical to propose something that risks making alienation worse.

The trouble is we don’t have a convincing answer to the actual problem. The government’s counter-radicalisation strategy is mired in controversy. So instead a different question is being posed. Not how do we stop people from signing up to join Islamic State, but how do we gather as much communications data as possible? GCHQ have an answer for that. It’s a classic case of confusing a tactic – and a highly unreliable one at that – with a strategy actually designed to tackle the root of the problem.

Never mind our privacy for a moment. For the sake of our security, it’s time to go back to the drawing board and think of something better.

 

Andrew Noakes is Senior Advocacy Officer at the Remote Control Project. He writes about covert and unconventional methods of warfare, counter-terrorism, and human rights.