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Posts Tagged ‘Unemployment’

The jobs number came out on Friday and the market loved it. The Saturday Edition of the Wall Street Journal proclaimed:

Jobs Data Provide Hope

I have always been a little gun-shy about the word “hope” given its link to our commander-in-chief. I honestly think that the markets are a joke sometimes. The market celebrated that 67,000 private-sector jobs were added last month. Of course, the total number of jobs for the month of August showed a loss of 54,000 jobs. Then there is my favorite number of all – the birth/death ratio.

This is the number of jobs that they “estimate” were created or were lost. I wonder what the jobs number looks like if you take out the 115,000 jobs that were created out of thin air? That is how many jobs they added back into the total. Now it wouldn’t be any fun if we didn’t look at how many jobs the Government estimated were created in the leisure and hospitality sector. After all, Americans have so much money to spend on these types of things. These companies must be hiring like crazy. (Please note the sarcasm.)

This past month 23,000 jobs were added to the leisure and hospitality sector. Thus far this year, the birth/death formula has added 421,000 jobs to the numbers. Of those, 78% were in the leisure and hospitality sector. I seriously cannot make this stuff up.

Are you starting to see what a joke Government accounting is? Let’s switch over to what Barron’s wrote this weekend about the jobs numbers and you will see a much more dire situation. From the article:

• All of the employment gains were part-time—full-time employment, according to the Household Survey, plunged 254,000.

• Those working part-time did so pretty much because they had no choice, and their numbers surged by 331,000—the biggest increase in six months.

• Of the 67,000 rise in private-sector jobs, 10,000 reflected returning construction workers who had been on strike.

• The 27,000 shrinkage in manufacturing slots and flat total goods-producing employment are hardly evidence of a vibrant economy.

I don’t need to tell you that this is a serious problem that isn’t getting the attention of the truth. It is just a bunch of politicians crunching numbers to create the fantasy and illusion that serves them best.

Needless to say, risk is very high in the markets. This is especially the case as we enter into the Bear’s favorite month of September.

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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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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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Economists debate whether or not we are going to fall into the dreaded “double dip” recession.  This occurs when you go through a recession, start a period of recovery, and then fall back into a recession again. 

Let’s look at the basics.  You have a Government that has spent 100’s of billions of dollars to stimulate the economy and yet we have very little to show for it and we still have a large unemployment problem.  Oh pardon the mistake –the politicians have a lot to show for it as they have been able to use our tax money to pay back favors. 

The realization is two fold.  First government spending isn’t going to be the solution to our economic problems.  If you want companies to start hiring, then build confidence back that the Obama Administration and the rest of the politicians are not going to destroy this country by turning us completely into a socialistic country.  You do that by passing legislation and using resources to help the small business owner.  Unfortunately, the opposite is happening.

Second, we are going to be hard pressed to recover without the participation of the consumer.  The consumer is not confident and for good reasons. 

  • We are well into this so called recovery and the unemployment problem is bad as it possibly could be.  That will continue to keep consumers in a less than confident state of mind. 
  • Confidence in spending money is also tied to the stock market.  If the stock market has begun a bear market, consumer confidence will fall off the cliff. 

Then there is the foreclosure crisis, the state of emergency in the Gulf, and the list goes on.   There isn’t much to be confident about in this environment.  So, it shouldn’t be a big surprise that Friday’s consumer spending fell off the cliff (comparatively speaking) when you look at how the above have performed recently. 

So, it really surprises me when economists are so bubbly about things.  The Wall Street Journal had this to say in their weekend edition.

“The surprisingly poor sales cast fresh doubt in consumer spending that had allowed economists to raise their forecasts for US growth this year despite a moribund housing market, a dismal job market, and tepid business investment.”

So economists really thought that the consumer facing the prospects of losing their home and their job or the consumer who is not employed or underemployed gave economists enough confidence to raise forecasts?  

The bottom line is that we are going to be extremely lucky to escape a double dip recession.  I think that the question on economists’ mind shouldn’t be whether we face it but how deep this one is going to be.

The probabilities are high that the decline that started in April in the stock market will start to resume again in short order.

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There is no question that seeing a positive sign in front of the employment numbers is an encouraging sign.  It has been a very long time since that has occurred.  On Friday of last week, the Department of Labor announced that 166,000 jobs were created last month.  As always, let’s drill down into the numbers and look at the real story.  In order to get on the road to strong economic recovery, we need to start seeing a creation of 250,000 to 300,000 jobs each month.  In fact, we need to see those numbers for a very long time just to get the millions of unemployed workers back into the workforce.

Of the 166,000 jobs created last month, 48,000 were temporary hires by the government in order to take care of the census.  Then there is my favorite government accounting methodology which is the birth/death ratio where the Government “estimates” the number of people who were hired and were not counted in the employment survey.  It is always dangerous to give politicians the license to estimate.  They “estimated” 81,000 jobs were created.  This leaves us with roughly 37,000 that were full time hires.  Temporary hiring is better than nothing at all.  Although any positive number is a welcome sight, this is not a solution to the longer term problem. 

There are a few other items worth noting.  I have written in weeks past that I felt we are in a strong deflationary environment.  Deflation, as you might recall, is an economic phenomenon that causes prices of almost everything to decrease.  Along with deflation, we do have some undesirable inflationary pressures.  Most people are not aware that the cost of oil is now $86.34 a barrel (as I write).  It continues to slowly creep up.  Of course, this ends up being reflected at the gas pump.  The other thing worth noting is the rise in interest rates.  Rising interest rates in a debt-plagued environment is not a good thing, especially when we still have an ongoing foreclosure crisis were people desperately need to refinance at lower interest rates. 

It has often been noted that 4% on the 10 year treasury bond yield is a level that you want to stay below because of its effects on mortgage rates.  As of this morning, we are dangerously close to hitting that level.  The current level is 3.98% as interest rates are soaring upwards this morning.  Yet, all of these issues face the stock market and it looks like no one will be satisfied until the Dow can hit 11,000.  So, once we arrive at that level (19 points away) do we break out the party hats?  We would only if it is sustainable.  The market would need super human powers to sustain these levels with these headwinds.

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All of the analysts are out this morning describing last week as nothing more than the normal correction that we have been expected.  “Don’t panic – this is no big deal.”  “It is great to be normal again.”  To be fair, everyone who is bearish is calling for this bear market rally to be over and done.  So, who is right?  Corrections are normal.  The fact that we haven’t seen a correction is not normal.  So, welcome back to normal stock market activity.  At the same time, the charts are potentially showing a change of character in the market that would also support the bearish case. 

Every time the market changes direction, you have to look at the catalyst.  Unfortunately for the bullish case, the catalyst is Washington intervention and finger pointing.  Washington wants to assert control (continued move towards socialism) and wants to point the finger.  There were two news items beyond not so hot earning reports that had a negative effect on the markets.

First issue – On Thursday, President Barack Obama proposed new rules designed to restrict the size and activities of the U.S.’s biggest banks, the latest in a series of administration moves to curb Wall Street.

If you think back to last year, they forced all of the investment companies like Goldman Sachs and JP Morgan to be banks so that the Government could give them aid and help protect them from failing.  Well there is a price that comes along with that protection and it is called control.  Basically President Obama wants to tell banks how big they can be and tell them whether or not they can participate in what is called proprietary trading. 

Healthcare was only one of the ingredients of socialism.  Nationalization of the banking system is the other.  So, we just continue to follow their game plan.   Last year they took some major steps in gaining control over the banking system.   They performed an unnecessary stress test on the banking system last year in order to tell us (which was not necessary) the banks that were healthy and unhealthy.  They also announced a list of problems that might force the government to step and take over.

Well one of those problems is unemployment.  The government said that banks might have difficulty in an environment where we had a 10% unemployment rate.  Guess what our unemployment rate is today?  Yes, technically we are starting to meet the criteria as stated by Washington that would require them to assert control.  It makes you wonder if President Obama’s announcement last week was a reenergized effort towards nationalization of the banking system.  

As you might imagine, Wall Street wasn’t too happy with the President’s plan to assert control.  You can look at the stock market and the moment he stated that he no banks should be allowed to run proprietary trading systems and that he wanted to limit the size of banks, the market fell apart. 

This also gives the politicians during an election year the ability to point the finger at those big old bad banks that gave mortgages to people that couldn’t afford them.  Those bad banks are the problem and the Obama administration and Congress are going to correct the problem. 

Second issue – Members of Congress came out and declared that they would not vote for reappointment of Fed Chairman Ben Bernanke for another term.  This is the ultimate in finger pointing.  It is real convenient to blame him for the financial crisis and take the spotlight off of their part (the largest part of the blame) in the financial crisis.   Not reappointing him would be a grand mistake. These politicians are too interested in their own survival to realize the problems they will create in the markets by not reappointing him. 

This is the risk that we run into with the markets. You create problems when Government wants to fix things, assign blame, and start over regulating industry.  They don’t regulate when they need to and when they regulate they do it too much.

Politicians should practice preventative medicine to prevent the crisis from happening and never should be allowed to fix anything after it is broken.  You just have to look back to the Great Depression to see they same type of effect when they passed the Smoot-Hawley Act which many historians state made the Great Depression much worse.  

Once again, we come to the same conclusion.  These politicians seem to continue to be the problem.

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Out of the long list of risks and challenges facing the economy, the stock market, and investors, employment still remains near the top of the list. There were rumors all over Wall Street that the unemployment numbers would be positive for December.   With a big surprise and another sign that things are not getting better, 85,000 jobs were lost in December according to the “Government Accounting.” 

Yes, and the Government added around 59,000 fictitious jobs to the mix.  The Department of Labor’s unemployment rate, which includes much more of the workforce than the Government accounting, is creeping up closer to 18%.  I also like to follow Shadow Stats which has the most complete tracking.  They are looking at around 22%. 

However, there were was some bright news.  The Government went back and revised up 15,000 jobs from a -11,000 to a +4,000 jobs.  The talking heads on CNBC kept up the talk of recovery by pointing to the positive job numbers in November,  The funny thing is that they looked past the fact that Government revised DOWNWARD the job losses for October from 111,000 to 127,000 which sort of wipes out that positive job gain. 

The interesting little piece of data comes in this next unemployment report when they adjust the birth/date formula.  Remember that this is the formula that allows the government to add fictitious job growth to the overall number.  January is the month where they revise that number.  Over the past 5 Januarys, the loss of jobs reported by the birth/death ratio has resulted in an average lob loss of 276,000 jobs.  Given that job losses have not stopped along with the addition of the birth/death revision for January, that has the makings of a horrible number.

Incidentally, in the decade that has just ended, we created less than 500,000 jobs.  In the previous 4 decades, the economy generated at least 18 million jobs. 

Still there is no game plan for job creation other than the minimal impact from the stimulus package.  At some point the effects of this problem manifest itself in the stock market.  Until then, this market probably marches higher.  However, the biggest risk that awaits investors is the day reality of Main Street and the greed of Wall Street meet.  The problem is knowing when that will happen.  If and when it does, the level of risk should be through the roof.

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