Friday, August 6, 2010

No bright spots in today's unemployment data

Recovery summer, huh?  Dog days is more like it.  Scanning through the statistics released this morning, there are no bright spots to point to and say, "see?  things really are getting better."
  • Dow Jones had polled economists and the consensus expected total nonfarm payrolls to drop by a sobering 60,000.  Instead, the economy shed 130,000, more than twice what was expected.
  • The revision of the June data--down drastically. Payrolls fell a whopping 221,000 that month, some 94,000 more than the original estimate of 125,000.
  • In seven months, the US economy has averaged about 100,000 new jobs a month, a figure far short of the 125,000 to 175,000 needed just to offset population growth.
  • The jobless rate held steady at 9.5%, but only did so because of the Eeyore factor increase--the rise in the number of people who have given up looking for work.
  • The report shows 6.6 million people, or 45 million of those left jobless by the recession, have been out of work for more than six months.  Length of time out of work makes job-seekers less attractive to employers, because of concerns over lost skills, potential work ethic issues and other factors.
  • Average hours worked per week increased 0.1 hours and average hourly wages increased $0.04, which some might point to as a slight positive. I dismiss these as statistical noise.  Hours are flat, wages are flat, and people are not finding work.
It's still hard to say whether the economy is headed for a double-dip. Last Friday's GDP figures showed a significant increase in Residential Investment, a strong leading indicator for economic growth.  However, most economists believe that RI increased because of the homebuyer tax credit and that the number will fall as the incentive plays out.

I think it's far more likely that growth will simply slow to an abysmally glacial pace, somewhere well south of 2.0% real GDP, and stay there for quite some time. There's enough economic activity to prevent a slip into negative territory, but not enough to ignite a full-scale recovery.  There are still billions upon billions in excess housing stock on the market. There are still hundreds of billions in mortgages that are either in default, in arrears or are scheduled for reset in the next 12 to 24 months. There are still tens of millions of unemployed and underemployed workers, and a small business community that is petrified in uncertainty regarding the future.  The new healthcare regime, the new financial regulation regime, and the potential for cap-and-trade legislation have business owners simply sitting on a mound of cash, waiting to see how things play out.

Simply put, the economy has fallen and can't get up, and there's no other way to spin it.  The stimulus only succeeded in adding trillions to the debt, which will eventually drive up interest rates and further choke off capital investment.  The enormous shakeup of the healthcare and financial markets have created such an environment of uncertainty that only the loosest risk-seekers are expanding.

Gimme some feedback in the comments.

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