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Posts Tagged ‘unemployment numbers’

Not only does the jobs report released last Friday give us a real dose of reality, it also puts an emphasis on the importance of November’s vote to get rid of the socialists that continue to do nothing to help those that are unemployed beyond keeping them on the Government dole through unemployment benefits.   Let’s look at the numbers.

The jobs report showed a loss of 131,000 jobs this past month. Some of that loss is to be expected due to the laying off of census worker jobs that were temporary and never should have been counted in the first place.  Then the Department of Labor went back to June’s numbers and said that those numbers were not quite right.  They stated that June’s unemployment number was actually an additional 100,000 loss in jobs. 

The private sector jobs are the most important.  We couldn’t care less how many jobs the Government is creating.  When we start relying on the Government to create jobs we have a real problem.   There were only 71,000 private sector jobs created which was much less than expected.   The irony is that, in a sense, some of those jobs are government created as well.  Barron’s reported, over the weekend, that the bulk of those jobs “reflect the fact that the auto makers didn’t shut down as they usually do in July to change models.” 

I guess the auto industry, a large majority of whom the government controls, is too busy building those $41,000 electric cars that go 40 miles on a single charge.    So, are those really private sector jobs when the Government owns so much of the auto industry?  

There are a few charts that I would love to share with you if I could get them to load. One chart shows the drop off in employment this go around.  It is the steepest drop since the 30’s.  Then there is the chart that shows private sector jobs revealing an even steeper drop.   Said in another way, this is the worst job situation that we have had since the days of soup lines and the great depression.

So, what is the solution?  I am sure that we will see Ben Bernanke dig in his magic bag of tricks and pull out some more stimuli.  Sorry to be so pessimistic… I don’t know that it matters nor does it fix the problem.   Small Businesses and corporations are not hiring because they don’t trust the White House and this march towards a socialistic state.  If the Obama administration and the rest of the politicians would start supporting capitalism, companies would begin to find that sense of confidence.      What are the chances of that happening?

The reality is that we should be creating 300,000 plus jobs each month.  Said in another way, we need to be creating that many jobs just to start a real recovery.

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Are we heading towards a double dip recession?  Take a look at the numbers:

May new home sales plunged -32%.

Mortgage delinquencies are up 36% since last year

The Baltic Dry Index has dropped -40% since May 26, 2010.  This index is considered a leading indicator of the future growth of the economy.

Manufacturing index plunged in May
May housing starts fell -10%
May retail sales post biggest decline since September 2009
May existing home sales fell unexpectedly?

Pile on top of those statistics the fact we have a major landscape change occurring in the Gulf of Mexico that will negatively affect the economy and that region as well as continued climbing unemployment and a decline in consumer spending, I just don’t think that a double dip recession is avoidable.

John Mauldin pointed out in his excellent weekly writing Frontline Thoughts that the index of weekly leading economic numbers has turned negative.  There was a -23% decline.  Then he showed this chart of what this type of drop has signaled in the past.

   

For all of those in the financial services community wanting you to drink “the everything is OK” Kool-aid, they are going to have a tough time spinning out from underneath these deteriorating numbers.

In addition these numbers are showing a renewed decline in real estate.  As I have stated before, it will be tough to turn the Titanic around without a recovering real estate market. 

This is Evidence that Economic Numbers could be Rigged

Either these numbers are rigged or their methodology is flawed or they were able to actually hand pick and find a few thousand happy people.  Now with all of the above bad news that is coming up along with high unemployment and a stock market that has been in the tank since April…The University of Michigan Consumer Sentiment Index jumped to its highest level in 2 years.  Are you kidding me?  If you believe that you might also believe that British Petroleum has the problem in the Gulf under control.  Really, there is no way that could be accurate.   

On Friday the ever so important unemployment numbers are coming out.  That should give us an interesting piece of the puzzle.  I just wonder how many jobs the Government will create out of thin air this time?   

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On Friday’s blog, I wrote about the horrid unemployment report that was posted.  You cannot sustain and grow an economy without producing 250,000 plus full time private sector jobs.  As I wrote on Friday, the big jobs number was nothing more than jobs for temporary census workers.  Then on top of all of that, you have the government with their monthly job creation estimate (where they conveniently determine the amount of jobs created that was missed by the unemployment survey) adding back into the unemployment report a whopping 215,000 jobs.  If you take away the government temp jobs and the fantasy jobs, you have a huge job loss for the month of May.  To boot, you have a President and Vice President on the airwaves talking about how they are creating jobs.  Really???  Are you kidding me???  It seems that on a daily basis, some politician makes it their objective to insult my intelligence. 

Even the minimal private sector jobs that are being created are not the types of jobs available pre-financial crisis. In a CNN.com report, “Say Goodbye to Full-Time Jobs with Benefits”, the following was written:

Jobs may be coming back, but they aren’t the same ones workers were used to.  Many of the jobs employers are adding are temporary or contract positions, rather than traditional full-time jobs with benefits. With unemployment remaining near 10%, employers have their pick of workers willing to accept less secure positions.  In 2005, the government estimated that 31% of U.S. workers were already so-called contingent workers. Experts say that number could increase to 40% or more in the next 10 years.  James Stoeckmann, senior practice leader at WorldatWork, a professional association of human resource executives, believes that full-time employees could become the minority of the nation’s workforce within 20 to 30 years, leaving employees without traditional benefits such as health coverage, paid vacations and retirement plans, that most workers take for granted today.

This is very worrisome that we are seeing this trend of weak employment after the 100’s of billions of dollars of stimulus money that has been spent.  It also highlights the very real threat of a double dip recession.  Any economic growth we have had is not sustainable under these circumstances.  This highlights the tightrope scenario.

The unemployment problem in America highlights the tightrope that we are walking.  We are in a scenario that cannot withstand any shocks to the system and unfortunately a very major shock is about to hit us straight out of the Gulf.  Every week the news gets worse.  I don’t know what is thicker.  Is it the oil or the damage control that comes out of the gulf?  You have BP and the President jockeying for damage control.  It’s a little tough to hide the reality of this crisis.  Since this is unprecedented, it is tough to tell what the consequences will be.  Unfortunately, this might be the blow that knocks us off the tightrope.  If not, there are many more out there that could be the next in line.

This leads me to the stock market.  I know that I keep harping about this stock market and how weak it looks.  Until last week, I was trying to give the benefit of the doubt to the bulls.  Last week might just have illustrated that the bears are firmly in control.  For stock market investors, that is not a good sign.  Once again, watch your risk!

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To listen to the politicians in Washington, the unemployment problem is well on its way to getting solved.  Just like that, the unemployment rate fell to 9.7% from 10% and we only lost 20,000 jobs.  As a rule of thumb you never want to fully trust the sound bite that leaves the mouth of a politician.  As another rule of thumb, you don’t want to fully believe the headline number that the government is reporting either.

Politicians don’t care how you get to the more positive numbers; they are just going to run with it and call it reality.  January’s unemployment numbers are far from reality.

 

The Drop in the Unemployment Rate

How can you get to a lower unemployment rate with so many people unemployed?  It is pretty easy.  You just don’t count them.  Hundreds of thousands of people have fallen out of the system since they have been unemployed for so long.  Then there are the ones who have given up.  They are just not being counted.  As a result, you get a lower rate.

Seasonality also plays a part.  There are a lot of part-time employed workers that are hired depending on the time of the year.  For this report, seasonality gave the report a positive bias. 

The lower drop in jobs

As we have discussed throughout the year, the government estimates how many jobs were created through the “birth/death” formula.  Typically, this adds hundreds of thousands of jobs throughout the year.  These aren’t verifiable jobs.  These are jobs that the government “assumes” are created from small business.   In January they typically revise that number and subtract jobs from the system.  These are pretty large revisions.  This revision was a job loss of 427,000 jobs for the month.  Yet, we only lost 20,000 jobs?  Really??

That is the magic of revision.  They wait until time has passed and then subtract jobs from past months and even years well after the fact.  They will get that figure in there some way.  Getting it into the system can happen well after the fact when it will not affect the market.  Can you imagine the carnage on Wall Street had they really reported the truth?  They will report it when it matters the least.

I am currently reading a very detailed account of all of the financial crises that this country and other countries have faced through the decades.  The premise of the book is that it is not different this time and this is not unprecedented.  As I get through the book, I will write about it.  The authors write that a common thread exists amongst all financial crises.  It is the crisis of confidence.  Confidence can quickly escalate to crisis levels. 

My greatest concern is that this Government continues to sell the American people on a story that does not jive with reality.  Confidence could be severely damaged when reality come into full view. 

For a good example of this in real time, just watch the implosion of Toyota.  You are looking at a car company that has been hiding problems for years.  Now that the truth is coming out, there might not be enough confidence left for consumers to want to buy a car that has had a bad sudden acceleration problem.  It looks like they really don’t have an answer for it and they are buying time. Well, more on that story at a later date!

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Well, the results of the stress tests were revealed this past week.  It turned out to be much ado about nothing.  In fact, most of the banking stocks went up on the news.  It does leave the question as to what the Obama Administration is really trying to accomplish through a process that didn’t make much sense.  For now, we will leave speculation for speculation’s sake.

I found it interesting as to the criteria that was used in stress testing the banks.  They were looking for how the banks would react to the worst case economic situation.  Over the weekend, Alan Abelson wrote about the criteria in his article in Barrons:

“The “worst-case scenario,” as the cliché goes, that the Fed crew was able to dream up was one in which the unemployment rate, already a hair under 9%, would rise to 10.3% next year, housing prices would fall another 22%, and the economy — which has been shrinking at more than a 6% annual rate the past two quarters — would contract at a 3.3% pace.”

Well, I think that we could easily see 10.3% in unemployment.  Of course, that is dependent on how aggressive the Government gets with their monthly job “estimate.”  A decline in growth of 3.3% is also not unlikely.  That scenario would produce 599 billion dollars of loss for the banking system.  Now can you imagine the armageddon outlook if you were to come up with a realistic worst case scenario?  

Then there were the unemployment numbers.  I wrote about the numbers in detail on the Prudent Money Blog this morning.  It is funny that no one is writing about the creation of the 226,000 jobs out of thin air estimated by the Government in the jobs report.  Can the Obama Administration really pull off this illusion making everyone think that everything really isn’t that bad?

Well, the stock market certainly thinks so.  The market continued the rally this past week.  Thus far, the S&P 500 is up 40% from the price level of 666.  This falls right in line with what happened in the 1929 bear market.  The major stock market rally in that bear market was up 46%.  Keep in mind that even with this stock market rally, we are still a little bit over -40% from the highs in October 2007. 

I put together a very detailed analysis in my recent letter to my clients.  After going through that process, I have some very strong technical evidence that this is nothing more than a bear market rally and its days are numbered. 

Keep in mind that everything gets exaggerated in this type of bear market.  The moves both up and down are much bigger.  Guard your risk very closely!

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Bob is out of the office today, but Monday May 11, 2009 he will cover in full detail the results of the stress test and the unemployment numbers.

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