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Posts Tagged ‘unemployment rate’

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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Yesterday, I showed a strong comparison between the 1929 bear market and the 2007 bear market.  Today, I want to show you an interesting look at unemployment.  I have written about the actual unemployment rate versus the “stated” unemployment rate.  Back in 1929, the unemployment rate was a pure rate and not one that has been manipulated by the government.  During the Great Depression, the rate rose as high as 25%. 

Martin Weiss had an excellent article on his website that explores the actual unemployment rate.  This is the updated information.  The actual unemployment rate according to their sources is 19.8%

Check out this chart, courtesy of www.moneyandmarkets.com (excellent web-site message below):

 

 

 

 

That is very problematic.  As I have written and discussed with Mike Larson on the program April 7, 2009, (audio clip), there has been very little medicine to solve this problem.  Thus, as this problem grows, it is going to be tougher and tougher to get out of this mess.

OK, let’s talk price levels of the S&P 500.  Yesterday was not a very impressive day for the bulls.  However, these last few days of decline for the stock market hasn’t really told us anything.  The S&P 500 finished yesterday, April 7, at 815.  We are still monitoring the price levels of 800 and let’s say 845.    If the market closes tomorrow below 800, that would be a negative.  A market close above 845 is a positive.  

For my reference to the above chart:

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“New Signs Emerge That the Worst is Over”

“Investors hope that the worst is behind us”

Give one good bear market rally and all of the problems in the world are fixed.  This morning highlights the risk that plagues this economy and the stock market.   Hope is what you have when you pull the handle on the slot machine.  You hope to hit the jackpot.  Investing in hope is dangerous.  Going with the opinions of Wall Street and politicians are even dangerous. 

The headlines are there to lead people to believe that the risk is gone and now you don’t have to think about it.  This morning’s unemployment numbers put an explanation point behind the problem in America.

Even most analysts believe that we are looking at these horrible numbers for the entire year.  We are losing in excess of 600,000 jobs a month right now.  This morning it was announced that we lost 663,000 jobs this past month.  There are an estimated 13.2 million people out of work (at least that the Government will acknowledge). The unemployment is sitting at 8.5%.  The real unemployment is around 15% when you add everybody in that is not being counted.

One service that tracks these economic numbers attempts to get the real number.  The last estimate I saw was an unemployment rate close to 19%.

The following is an excerpt from a letter I wrote to my clients yesterday:

I think that we will all agree that unemployment is the biggest problem that faces the economy.  In normal times, an employment rate that rises to 7 or 8% creates a recession.  Today the employment rate could go north of 10% (using the Government’s inaccurate data). 

 

So when unemployment starts to improve and the rate drops all the way down to 7 or 8%, does the economy really get any better? 

 

If the plan to fix the unemployment problem consists, for the most part, of a bunch of construction jobs, where the bulk of which don’t start until next year, what is going to fix the unemployment problem? Further, of those construction jobs that have to be filled, how many will really go to Americans when there are countless numbers of  illegal aliens ready to take them?  Remember, they are not checking government ID’s on these jobs.

This is the problem that is not being addressed.  I suggest it is the problem that will further plague this market and economy. 

The unemployment numbers were worse than the headline would suggest.  January’s unemployment was revised, adding another 100,000 plus people to the unemployment ranks.  Then you have the Government’s “estimated” job growth. This is my favorite.  Each month they apply a ratio called the birth/death ratio to the unemployment numbers. 

This number “estimates” the number of jobs created that the Department of Labor can’t get data for.  They are assuming these are created by small businesses.  This month they added 141,000 jobs to the total number.  So before that “estimated” number was added, the actual job loss was close to 800,000 jobs. You add in the downward revisions for January and you are getting close to 1,000,000 jobs. 

The Government “estimated” that 41,000 jobs were added in the Leisure sector.  Yes, that is realistic since so many people have a lot of money to spend on leisure activities. I can see where that sector would be booming.

There is no doubt about it.  Risk is still real in this economy and market.  Approach your investments cautiously.

 

 

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