Friday’s unemployment report is another case of “better than expected” – the blood is still flowing out of the patient, but at a slower rate. In other words the US economy is still very sick and on the losing side, but there is hope that it can be kept alive until the loss of blood is stopped and new blood can be pumped in.
Really, that is what it is like. Instead of job losses meeting or exceeding expectations of -600,000 they only fell by -539,000 … better than the experts expected (let’s cheer) --- but still very bad news. This marks the sixteenth consecutive month of job declines in the US.
Take a look at the chart:
Even though the stock market may not be showing it, there is a problem. No one is hiring. These monthly job losses are massive, even if they are “better than expected”. And with little to no hiring, the total number of unemployed continues to increase at over a million people every other month!
And while there may be a lot of flexibility in jiggering the unemployment report one way or the other by government jobs and estimated hiring, the fact that the official government statistics now show unemployment rising to 9% is a startling admission. (Most know that real unemployment is as much as 50% more than the government’s numbers – some say as high as 15%).
The sad thing for those without jobs (but fortunate thing for the official unemployment statistics) is that after being on the unemployment rolls for a number of months the unfortunate are dropped from the rolls AND dropped from the unemployment statistics. They are only considered “unemployed” for as long as the unemployment checks continue. Once the unemployment checks stop, then they are no longer unemployed – I guess they then become numbered in the unnumbered homeless category.
Here another big problem: the government’s budgeted forecast for deficit spending was based on an eventual unemployment rate of 8.1%. We are already officially at 9% and the huge drop off from the bankrupt automakers hasn’t even hit the rolls yet. By the year’s end the unemployment rate, even the official one, will easily be in excess of 10%.
Deficit spending will be “worse than expected”, if anyone cares.
The bank stress tests were also predicated on a similar single-digit “worst case” percentage for unemployment. In addition, the tests were also predicated on worst case declines in housing prices around -20%. We have exceeded the worst case even before the “soft” stress test results were announced this week.
This suggests to me that the bank stress test results were likely a “best case” scenario for the banks, not a “worst case.” At least the stress test results are finally water under the bridge.
The positive for the banks is that this recent rally is a welcome price point. It allows the banks an opportunity to raise the additional capital they need with new offerings so they can climb out of the stress test “bad” column – pretty convenient, huh? What happens after the banks have raised the new capital?
Another interesting statistic gleaned this week is that the nation’s savings rate is climbing, more than any time in recent history. What do you make of the fact that unemployment is rising by huge leaps and bounds and yet the savings rate of Americans is growing by similar leaps and bounds?
It’s simple – people are hunkering down and banks aren’t willing to give any of them credit for automobile loans, home purchases, education, etc. Therefore, what little money they have left after making debt payments is being put into the piggy bank – saving for a rainy day. When you’re nervous, you don’t spend.
But you might say, wait a minute – investor sentiment is up, why the disconnect?
Because the recent stock market rally is clear news individuals cannot ignore. They think to themselves that while they are not doing well, somebody must be doing better somewhere because the stock market is going up.
Don’t you get sucked into this thinking “trap”.
I hope for a better tomorrow, just like most of you. But hope and reality are often far apart. The reality is that consumer armament for an economic recovery just does not exist. And the reality is that if the consumer is not prepared and willing to employ his own deficit spending and able to get credit to do so, then excess widgets will continue to sit on the shelves of the stores and the manufacturers are going to have to make less of them.
I like the term that Greenspan used a few years ago, “irrational exuberance”. That is what is going on in the stock market – but it won’t last long. When the reality of projected and actual earnings cannot compete with the climb in the speculated growth of stock prices an adjustment will be made. And that adjustment is likely to be painful.
On the other hand, we could all become traders rather than investors and ignore the economic indicators – I know many of you are anxious to do something. In fact, I may participate to a degree in this type of trading going forward. I just don’t want you to interpret such recommendations as confidence in the US economy – it’s not the same.
Despite being anxious to participate in the stock market again, you must surely realize that the probability of entering the market today and realizing profits in the near future is small.
Be patient. A pull-back is long overdue. There is plenty of time and opportunity ahead.
No comments:
Post a Comment