Bob Wenzel explained why US unemployment would drop below 9%

There’s a lot of excitement out there about the US non-farm payrolls number beating expectations to the topside this afternoon, and the unemployment rate falling below 9% to 8.8%, from a peak of 9.8% late last year.  Talking heads are out there saying the Fed will respond by tightening monetary policy and stop printing money (i.e. end QE2), but what they’re missing is that it is QE2 that is actually driving the little bit of jobs growth being seen.  Stop QE2, and the economy collapses, literally, and job losses shoot back to the moon again.  The oracle Bob Wenzel at EPJ saw this coming three months ago, when he called it loudly and clearly.  From his post on Dec 31, 2010:

Most important, climbing unemployment was the result, in the first place, of the business cycle. We are now headed into the manipulated boom phase which will stop the unemployment increases. It will also cause those who have only casually been looking for work (because of unemployment benefits) to suddenly see higher pay offers.

Despite the elaborate charts that Mish is putting out for his analysis, he is pretty much just trend following.  He is saying, look unemployment hasn’t gone up, so it won’t go down. The only place he provides analysis for increasing unemployment, and he is correct, is among government workers, because of the budget problems across federal, state and local governments.

But, overall the dynamics are shifting:

The downturn is over so the number of new unemployed will decline

Unemployment benefits are starting to run out for some.

The Fed printing is resulting in a manipulated boom, which will cause capital goods sector employers to start bidding up for workers, causing many of those on unemployment to finally get back to work.

For businessmen concerned about heath tax risk and other tax risks, the market has figured out a solution that almost all businessmen are now aware of, long-term temporary workers.It’s very difficult to forecast exact numbers in a complex economy like the United States, but trends are a little clearer to see. Pessimistic forecasts for unemployment appear to way off for 2011. The employment picture is going to improve dramatically in 2011 with unemployment at some point significantly under 9%.

UPDATE: Bob explains his call made back then in this post today

To get my thinking back then, you should read the entire column, but the short version is that there really is a business cycle. It is totally created and manipulated by the Federal Reserve, and if you watch their manipulations of money supply, as I do, you will have a pretty damn good idea where the economy is headed.

HA Comment: And if you want to learn about the business cycle, start with a primer here, and delve into the complexities here and here.