Unemployment Data to Be Released Friday; Treasury Eyes Return of 30-Year Bond

Tomorrow, the Bureau of Labor Statistics will release unemployment data for April. Analysts are projecting 175,000 new jobs formed in April, which would be relatively strong. Analysts are also projecting that the unemployment rate will remain at the official rate of 5.2% registered in March. Conventional wisdom has it that, since a net of 150,000 new workers enter the labor market each month, that is how many jobs must be formed to keep unemployment from rising.

As noted previously here on The Dark Wraith Forums, the economy actually needs to form considerably more than 150,000 new jobs for 150,000 new workers. First, regional imbalances may place new jobs where unemployment is not a problem, leaving areas where many workers are entering the labor market without jobs or the means to relocate to where the jobs are. Also, even if the number of new jobs in a given geographic area matches the number of net new workers, those new workers might not have the skills required for the jobs that are forming in that area. A third reason that the number of new jobs formed must be higher than the number of net new workers entering the labor force is that many workers no longer are counted in the roles of the unemployed because they no longer meet the criteria set down by the Bureau of Labor Statistics for being in the labor force. These so-called "discouraged workers" may still be seeking employment, and if jobs were available that matched their skills and experience, they would re-enter the labor force and add to the supply of labor available to absorb the new jobs being offered.

As a result of these factors not currently considered by media and academic analysts, a target of 150,000 new jobs likely understates the actual number of new jobs that would be required to turn around what has been a less-than-desirable labor market during the entirety of the Bush Administration.

In other news, Treasury Secretary John Snow made the somewhat surprising announcement that the government is contemplating a return to government borrowing on 30-year Treasury bonds, which were abandoned in late 2001 because, at that time, the government was running budget surpluses and therefore didn't need to borrow money at any terms of maturity, and certainly not for 30 years, which would burden future generations.

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The "yield curve" is a graph of maturity of Treasury bonds against their yields. The yield curve is published daily by financial newspapers like The Wall Street Journal and online financial news sites like Yahoo Finance.

  Now, however, with the Bush Administration running year after year budget deficits, the government has once again been borrowing money, and at a record pace. The re-appearance of the old long bond will allow the government to offer its lenders a new instrument that might be favored by investors who prefer to put money into a security where the funds can earn a fixed interest rate for a long time period without the risks inherent in rollovers that might have to be carried out under undesirable conditions.

It is possible that the return of the long bond has to do with the fact that interest rates on long maturity debts have not been rising nearly as rapidly as interest rates on shorter term borrowings. Typically, this should not happen, since lenders would normally want a somewhat higher rate for having to give up money for a longer period of time. However, with the economy's shorter term outlook appearing less and less rosy, capital markets are showing an increasing willingness to shave some yield off their longer term lending rates just to ride out the economic perils that may occur in the months and several years ahead as further erosion of the domestic economy and the nation's financial standing becomes almost inevitable. With at least several more years of experiments in radical, neo-conservative economics on the agenda for the United States, the risks posed to financial markets have undoubtedly begun to show themselves in a yield curve that is perilously close to becoming "inverted," a phenomenon that has virtually always preceded a serious economic downturn.