A Different Point of View on Unemployment

Another 216,000 jobs lost, but the employment picture is brighter? Only Joe Biden thinks the recession is over with 15 million people out of work!

In the United States, current unemployment, as reported by the Department of Labor, stands at 9.7% (ending August, 2009), the highest unemployment rate in 26 years, and expected to rise to 10%.

Approximately 15,000,000 people are out of work, yet we hear from many politicians that the economy is picking up, or that the employment situation is settling down.

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I have a different point of view. What the unemployment numbers tell us is companies continue to shed jobs, maybe at a slower rate, but they not hiring folks in any great numbers. Factory inventories are about empty and order rates for goods and services are seriously down, thus no demand for increased production. Further, the likelihood of a major market correction becomes more likely as unemployment continues to rise.

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The American consumer is aware of the untenable amount of leverage they have taken on, and are adjusting to lifestyle of diminished spending. Further, great concerns about a dramatic increase in taxes, both from Cap and Trade, as well as the end of the "Bush Tax Cuts", and the potential destructive force of Obamacare are crushing consumer optimism and a willingness to invest in capital goods.

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What this means, is that until a period of reasonable certainty and stability returns, we are in for a very long ride. While credit markets may be easing, US home prices are still far below their highs, which is actually a good thing. Additionally, with decreased overall demand for goods and services, companies are in no hurry to hire. Without a marked increase in employment, don't count on the American consumer to go back to its spending habits.

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The only bright spot in this dismal period of unemployment is the potential for entrepreneurial growth. Usually, periods of high unemployment lead to smart, out of work people getting together to come up with goods and services adjusted for the new economic reality. While I hope this is the case, I think the fear around major tax increases are somewhat depressing interest in "going it alone." The lesson to take from all of this is the lesson of history. Left wing parties, regardless of country, always bring in high taxes and anti-business agendas. Productive capacity is taken from the private sector and put in the hands of inefficient governments. Forget power to the people, it becomes domination by the state.

A Dose of Reality with those Unemployment Numbers

Hooray, only 247,000 lost their jobs in July 2009! What terrific news! Woo hoo! As one of those 247,000 people, give me a break.

People are so eager to see an improved economy that they are willing to accept such a figure as good news. I say, "rubbish!" Look at the facts, despite the fact that unemployment is a lagging indicator of the economy, it should tell everyone that companies don't think the worst is over.

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Additionally, this number should tell you that both demand for goods and services continue to decrease, and employers are not willing to start hiring again.

Here is some of the cheer leading being reported by the Wall Street Journal:

"The economy is at the turning point from the recession as the labor market is starting to heal," said Chris Rupkey, economist at Bank of Tokyo-Mitsubishi."

But recent data suggest GDP will start growing again this quarter. The Institute for Supply Management manufacturing index ticked higher in July and is now consistent with GDP growth of a little over 2%.

Sorry to be a party pooper, but recent data show 247,000 lost their jobs in July! If that isn't bad enough, from the SAME article,

U.S. gross domestic product contracted 1% at an annual rate during the second quarter. That was the fourth-straight quarterly decline in GDP -- the first time that's happened since the government started keeping track in 1947.

When marginally attached and involuntary part-time workers are included, the rate of unemployed or underemployed workers was 16.3% last month, down slightly from June.

Do you see that things are still pretty lousy and that our economy is bleeding jobs? So why all this "glass half full" optimism? A simple way to answer this question is ask who benefits.

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If I were a politician, I would tout these numbers as positive to demonstrate I was "doing something" about the economy. If I were a CEO of a public company, I may want to discuss these numbers positively to encourage optimism and boost my share price. If I just couldn't take that our economy is in shambles and government programs are making things worse, I might just accept the positive spin to sooth my broken spirit.

However, I am a realist. As I have written in the past (Financial Crisis Primer), we are suffering the effects of market distortion of the credit markets and the aftermath. Financial positions are being unwound. Companies are de-leveraging, and lenders are beginning to remember risk management not merely as an academic pursuit, but a requirement to stay in business.

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Will the economy recover? It should, provided that Congress and President Teleprompter don't pass this crushing ObamaCare abomination. It should recover, provided tax policy doesn't punish small business and success. In other words, the market will heal itself if the government keeps its' hands out of it. The inflation damage will soon be with us, since the quadrupling of the national debt beginning in January of 2009.

To all of you who have lost your jobs, I am with you and pray you find new, meaningful work soon. To all of you with a job, keep working hard, but be ready for a double-dip recession. Finally, to all US citizens, contact your members of Congress and strongly urge them to reject ObamaCare.