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The Unemployment-Demand Connection

by Dr. Kent Moors | published July 6th, 2012

June employment data arrived this morning, and, once again, they indicate a sluggish market.

Actual new job creation fell below expectations (which are useless these days), although it was slightly better than the really dismal figures last month.

Oil prices will remain depressed on today’s market because of employment data. The resulting question, again, is, “Why?”

The standard answer is the simplest one – with employment figures remaining flat (the same percentage was employed in June as in May), little additional hiring is taking place, and little added demand for energy is warranted.

Unfortunately, this is misleading.

It is not a question of whether a recession is approaching (though it seems this is more political campaign rhetoric than anything else). Rather, there is little reason for the pundits to expect a rise in energy usage.

Now this often becomes a self-fulfilling prophecy.

If I keep announcing that you are sick, you’ll start expecting to run a temperature.

Except, this is another example of “the-cart-before-the-horse” problem I have been discussing here for some time. Employment does not generate energy demand. It is more the other way around.

So what has changed?