We recently updated our presentation on today’s economic landscape and what’s on the other side with some fresh data. We hope you continue to find value in our slides:
We recently updated our presentation on today’s economic landscape and what’s on the other side with some fresh data. We hope you continue to find value in our slides:
Today’s unemployment data for November was a surprising loss of only 11,000 jobs, well below economists’ expectations of 100,000-150,000 jobs lost in the month. In addition, the unemployment rate for November declined unexpectedly to 10% from October’s 10.2%. Consensus expectations were for the unemployment rate in November to be flat at best with October’s cycle high. The Labor Dept. also revised downward previously reported job losses in September and October. Monthly job losses have been revised downward for each month since August by a total of over 200,000 jobs. Since August, monthly job losses have averaged below 200,000 versus over 300,000 average monthly losses in the May-July period. The decline in monthly job losses parallels the strong improvement in first time unemployment claims reported weekly. Since mid September, first time unemployment claims have fallen approximately 100,000 and are now running at approximately 450,000 for the last two weeks in November.
In isolating the areas of reduced job losses we note that healthcare continues to be the area of the economy that has consistently added workers during the recession. Since September, healthcare has added an additional 100,000 workers and nearly 900,000 workers since the recession began in December of 2007. Other areas of job improvement since September are: the federal government and state government education accounting for an increase in approximately 50,000 jobs; and professional and business services adding over 100,000 jobs largely in temporary help services. Importantly, for the first time this year, the average workweek increased to 33.2 hours from a cycle low of 33.0 hours in October. The average workweek improved more in the manufacturing sector expanding to 40.4 hours from 40.0 hours in September. This reflects the recurring order and shipment strength in the manufacturing sector since last summer.
Conversely, most other areas of the economy continued to record job losses including manufacturing, finance, construction, retail and wholesale trade and information services. While the Labor Dept. reports almost 41% of reporting industries are now hiring, a cycle high, that leaves nearly 60% that are not. The surge in temporary help jobs indicates businesses are wary of the economic recovery and are reticent to add to payrolls. Furthermore, the labor force has declined by over 100,000 workers since September indicating an increase in discouraged workers despite the improvement in the economy. The decline in the civilian labor force would also partly explain the decline in the unemployment rate in November. Another benchmark of employment in the weekly and monthly reports indicate no improvement in the numbers of long term unemployed and under-employed workers. In fact, the numbers of long term unemployed increased to over 9 million or 38% of total unemployed at the end of November, a record level. In addition, while first time unemployment claims have declined sharply, they are still recording well above 400,000 claims per week. Finally, the response from consumers in recent surveys indicate jobs are hard to get by an overwhelming margin despite the economic improvement in the third and fourth quarters. These measures do not support the monthly improvement in employment reported by the Labor Dept. since August and we have repeatedly said so in our blog articles on the monthly employment reports going back to last July.
Nonetheless, if the monthly employment report from the Labor Dept. is indeed true and not distorted by seasonal adjustments and faulty assumptions that are part of this survey’s results, then it would appear that unemployment in this cycle is peaking and job creation is virtually around the corner early next year. This would be well ahead of consensus expectations, including our own, in projecting a peak in unemployment and the transition to job creation in the middle and latter part of 2010, respectively. It is important to note that the Labor Dept. will be making final revisions to its 2009 monthly employment data in March of 2010. In its initial revision to 2009 monthly employment data in August, the Labor Dept. revealed that unemployment this year was actually almost 900,000 workers higher than originally reported. Similar revisions were made to monthly data in 2007 and 2008. With that as a background and the contradictory results of other unemployment data and surveys, we are skeptical the employment cycle is turning this strongly and this fast.
Morris R. Segall, CFA, CIC
GDP for the third quarter comes in strong stimulated by the government but the details and other consumer economic data create doubts on sustainability and make the capital markets nervous. Continue reading this premium article at spgtrend.com.
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We recently updated our presentation on today’s economic landscape and what’s on the other side with some fresh data. We hope you continue to find value in our slides:
The news this week from corporate America regarding job cuts and declining earnings is so bad that it marks a new unfortunate chapter in the current U.S. recession. The fourth quarter earnings annoucements being released this week reveal a rapid collapse in U.S. corporate earnings that rival the earnings implosion of U.S. companies in 2001-02. The U.S. recession has now hit corporate America hard and there is no sector of American business that is not feeling the impact of the current zero demand environment.
We expect a 4th quarter earnings decline for the S&P 500 Index to exceed the 22% year over year decline in last year’s third quarter. At this point, the magnitude of U.S. corporate earnings declines is now an active contributor to the recession rather than collateral damage from the recession. The continuation (six consecutive quarters) and deepening severity of corporate earnings declines are making the U.S. recession more severe by leading to further job cuts, reduction in pay for existing workers, weakening corporate balance sheets and credit quality. With further earnings weakness, the corporate sector is a major incremental negative for the economy in 2009 which will prolong the current recession. The decline in U.S. corporate earnings are being replicated by massive earnings declines in companies in Western Europe and Japan which will intensify recessions in those regions.
Although it is premature to say with absolute certainty that American consumers are now looking at debt as a narcotic that got them hooked on a lifestyle they could not afford and ultimately resulted in financial ruin.
I believe American consumers who are paying their debt down now will be more circumspect about “running it back up” after they get financially healthy again. This would be an unprecedented change in consumer financial attitudes but I am already seeing it encouraged in advertisements from financial institutions that are emphasizing financial safety and security rather than taking on credit to “follow your dreams”.
I am sticking my neck out here because the credit industry has always pushed credit on the consumer and the consumer has always been happy to take it. But I think this cycle has been so destructive that many consumers are feeling, if I can get out of this mess, I will not let myself get in it again. But read the article. The debt reduction by consumers is historic.
In my next article on the website regarding the economy and the government bailout measures I will postulate the following.
1. The recession and credit crisis cannot end until the consumer is made financially sound and creditworthy again. Pumping dollars into banks, credit card companies, insurance cos. and auto cos. will not solve the recession until the consumer starts spending and begins to move goods off retailers’ shelves.
2. That can’t happen as long as the consumer is losing his job (this Friday’s unemployment numbers will be between 300,000-400,000 lost jobs largely from white collar positions and an unemployment rate approaching 7%).
3. If the government is going to spend another trillion dollars they should do a massive consumer rebate program with the emphasis on consumers paying down debt and getting current on their financial obligations, including mortgage, credit card and auto loans. If the consumer gets current on his debts, the financial system won’t have to write down consumer debt obligations.
4. The government needs to invest in new industries that actually will re-employ the increasing number of unemployed. That includes energy, biotech, agriculture. Please see our PowerPoint slide presentations that highlight industries that we believe offer growth opportunities. For example, there is a 25,000 person shortage in technicians for wind farms. We can cross train unemployed factory workers including unemployed auto workers to be wind farm turbine technicians. Those jobs pay $25 per hour.
5. We need to go back to removing bad debts from the books of banks and other credit intermediaries AND giving those institutions capital infusions to essentially take them back whole to where they were almost 2 years ago. At that point they will be in a position to lend again and in conjunction with the previous steps 3 and 4, we can create the environment for renewed consumer spending and lending.
6. The government steps so far have been uneven and have not gotten to the root of the problems. In addition, the recession has spread overseas so there is not outlet of demand coming from exports. Please re-review our articles on the website under the ECONOMY category. There are predictions in those articles going back to last January that are relevant to today’s circumstances, including the prediction of onset of the current recession and the failure of the government bailout proposals
SPG Trend Advisors is a boutique consultancy that provides global economic research for business and other decision makers. With fifty years combined experience between the principals, and through its website, SPG Trend Advisors provides insightful analysis and forecasting to prepare senior executives for tomorrows trends. Visit SPGTrend.com for more information.
