Job Picture – Not a Pretty Picture

I feel like I have been writing about the jobs problem now for a long time.  I keep coming back to the same question.   What are the politicians doing to solve the unemployment problem in America?  I always come up with the same answer – very little. 

To be at this stage of a so-called recovery and to have pumped into the economy 100’s of billions of dollars, we shouldn’t have jobs numbers like we received last Friday. 

All of those jobs that Joe Biden said were going to be created before last month’s job report are now quickly going away as quickly as they were created.  This past month the government gave the pink slip to 225,000 census workers.  What we are the most concerned about is private sector jobs.  How many people are being hired by small business or corporate America?  There is where you want to see your strength.

Unfortunately, only 83,000 jobs were added.  I guess that is a positive.  However, were they really added?  You also have to look at the mystical estimate the Government throws in there of how many jobs they estimate are being created each month. Yes, they are at it again with their government accounting of jobs that were made up out of thin air.  It is the birth/death ratio or the jobs that the Government said were created or lost in a given month that the jobs report missed.

For this month – Poof! 147,000 jobs were added.  I wish that I could add $1,000,000 to my bank account due to a bank error that I assumed happen and be able to spend it.  I know – each month I get on my soapbox about these numbers.  It is just ridiculous. 

Remove the government estimates and you have a net loss of -67,000 jobs.  So where do you think the bulk of those estimated jobs were created?  54% of those jobs were said to be added in the Leisure and Hospitality industry.  Of course, that makes sense to me.  The tourist business is booming on the Gulf coast and the American Consumer has a ton of money to spend traveling. 

How about the unemployment rate?  It went down.  Isn’t that a good thing?  It would be good if it went down for the right reasons.  Unfortunately, 625,000 people feel out of the system and are not being counted. The unemployment rate will remain pretty useless data sense it doesn’t count everyone.

I wrote a blog about the possibilities of a double dip recession this morning.  I just don’t see how we are going to avoid it.  The question is going to be how bad and low will the stock market go?  Sorry to paint the best picture.  However, the vast majority of the media doesn’t get that we have a problem. I just want you to see the other side.

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What the Economic Data is Not Telling Us

It was announced Friday morning that 190,000 jobs were lost, which is higher than economists predicted.   That is significant for one reason.  At this stage in the game, we should NOT be seeing this amount of jobs being lost.  Companies get to the point where they stop laying people off because they have already cut to the bone.  Unfortunately, they are continuing to lay off people.  Of course, we always need to look at how many jobs the government “estimates” that were “created” and “missed” by the Department of Labor.  The government added 86,000 jobs back into the equation.   

The bigger story is the unemployment rate.  The new unemployment rate is 10.2%.  Now, that rate is extremely suspicious given government accounting and a loss of 190,000 jobs.  Also consider that the government went back and “revised” last month’s job losses stating that the original estimate of 263,000 jobs that were lost last month was now really only 219,000.  It is highly unusual that we would get such a jump in the unemployment rate considering how manipulated the number is in the first place.  Once again, it is tough to trust government accounting.  A “stated” unemployment report that shows the rate over the psychological level of 10% sure could be a good excuse for government run healthcare.  After all, all of those people out of a job can end up creating an enormous amount of people scrambling for healthcare coverage.  

The highest rate dating back to 1948 occurred November and December 1982 with a rate of 10.8%.  Many on Wall Street are looking at the unemployment situation in the 80’s, noting that it wasn’t long until the unemployment rate started to improve once it eclipsed 10%, and that a massive new bull market started about the same time. Thus, they are making the comparison between the 80’s and today and feeling very bullish. Well, before we break out those Dow 10,000 party hats again, let’s look at a few major differences.

First, the federal funds rate which is the benchmark set for interest rates was at 9.2%. The Fed had the ability to greatly reduce interest rates to spur demand which in turn positively effects unemployment.  Today, the federal funds rates sits at 0.12% with nowhere to go but up.  Second, the unemployment rate bottomed out in September 1973 and didn’t top out at 10.8% until December 1982.  It took a little over 9 years to gradually increase.

Our low for the unemployment rate was 4.4%, which occurred December 2006.  Fast forward almost 3 years and it has gone from 4.4% to 10.2%.  Further it was at 5% back in April 2008.  The speed at which things have deteriorated presents a much tougher challenge what was faced in the 70’s and 80’s.   

Then there is the 3.5% growth rate of the economy that was released a few weeks ago.  John Williams, founder of shawdowstats.com, states that 92% of the 3.5% growth came from one-time stimulants.  He also notes that “every recession in the last four decades has had at least one positive quarter to quarter growth reading, only to be followed by a renewed downturn.” (from Barrons)

On the front page an argument could be made for a recovery that has started. However, it is what the numbers are not telling that brings up continued concern.

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Unemployment Reports Better than Expected – Are we in the clear?

 

The recession is declared to be over or over soon states many media outlets on Friday.  Unemployment was not as bad as expected and it appears that we are starting to lose less jobs. All of that is good news and it took the media and Wall Street no time at all to react positively. 

 

I really do regret taking the opposing view on this one.  I would like for it to be true.  There are just a few problems.  We have 14.462 million people unemployed.  The number is likely higher. This is the estimate from the Department of Labor.  Where are these people going to get jobs?  Unless you are ready to pick up a shovel and get on the Obama job creation bus, you might just be out of luck.  Once again, the Obama administration does not have a plan in place to fix the job situation. 

 

Looking back to 1948 (as far back as records take us), there has never been as big of a spike in the number of those unemployed.  The closest spike that you can find was between 1979 and 1982.  In 43 months, the unemployment numbers jumped 106% to a high of 12.051 million people. Today, in just 33 months the unemployment numbers jumped 125% to 14.462 million.  The following is a chart from www.freelunch.com that illustrates this dramatic rise.

I think that the monthly unemployment numbers could continue to look better.  However, that doesn’t mean that companies are hiring. I think that it means that companies have cut as far as they can cut.  Those lay-offs might start to slow.  Until there is a solution to the problem that over 14 million people are facing, we will continue to have this crisis. 

 

Regarding the market…the 1929 comparison that I wrote about still tracks very closely.  I would still suggest that there is extreme risk on the table.  As long as we stay below 1020 on the S&P 500, that will remain the case.

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