Job Numbers Obviously Bad

I won't go into detail on the job number - for newer readers I will point out a more in depth analysis I do every 2-3 months explaining why the jobs data is understating reality... I'll refer you to last month's entry (worth a read if you are new to this stuff) [Nov 7: October's Unemployment Rate Rises to "6.5%"]

The Cliff Notes version is the way government has been reporting unemployment since early 1990s is understating the reality. If we use the old statistics we are already as bad as the early 80s and 1970s... and we are just now entering the teeth of the recession. This quarter and the next two should show a spiral downward of jobs - by next summer the Obama honeymoon will be over.

It looks like my prediction of 8-9% Unemployment rate using government figures is going to be a slam dunk. In fact, I'd call it conservative - the only reason I went that low is the government statistics are so skewed to the downside of reality I don't know how much of "truth" it will measure. I know it sounds over the top but it will not be a stretch to say in about 7 months that 1 in 5 Americans will be out of work if you use "reality" instead of the "new and improved" government statistics.

So when you hear the 6.7% unemployment rate, understand the figure is a farce based on creative accounting from our government offices; it is far far worse than that "today" and when we reach 10% unemployment by government figures that is going to be mean a real unemployment rate closer to 20%. "Great Depression" era was 25-30% (based on various measures)

One more note - as people "give up" on looking for jobs, our government does not count them as unemployed - they turn into the ether. Pixie dust. 422,000 Americans turned into pixie dust this month (they gave up) hence they are no longer unemployed and that's why 6.7% is not 6.9% (or more).

But again, if you are new, I encourage you to read my entry from last month for a reality check to understand why it's a lot worse than it appears and why mortgage rates at 5.5%, 4.5%, or 1.5% are not going to change the situation for many who don't have a paycheck. This is what happened in Japan - the government made money effectively free, but people were scared and not spending. That's Ben B's greatest fear; this is how you get deflationary spirals. Now on the "positive" side, Americans are not savers like Japanese so we have that "going" for us in terms of avoiding a long deflationary spiral. We'll see if attitudes change after this scare. Ironically what is best for the country is not really best for the individual in this case - as a country we want Americans to go back to spending like mad - even if it is not in their self interest. Otherwise a whole new spiral down ensues.

As for the market it is hanging in there - I still believe this market is very little different from the market last spring that was banking on "2nd half 2008" recovery. Now everyone is banking on "2nd half 2009" recovery. There will be no 2nd half 2009 recovery - just a lot of government printing of money to try to offset the structural changes and shrinkage we are going through. That's not "recovery". But this market will go through its bouts of hope here and there the next year - we will probably even see some major 25-30% type of upside moves along the way. When we turn from "hope" to reality" we will begin the next legs down in the stock market. But this is what is going to make investing tricky - we'll swing from hope to reality many times and guessing when those switches happen is impossible. Remember, it's all about sentiment - not reality. Perception is reality. For now perception is Obama will save us, Uncle Ben will save us, and 25 years of over consumption can be solved by government initiatives. Surely. I will ask these Kool Aid drinkers to please deliver me a plan for where job growth comes in the next 2-4 years ex the dream of "infrastructure spending" and "green energy".

I believe the majority of this country is still in denial in what we are facing ahead. My estimate is, based on historical government (pre 1990) data, we are somewhere in the low teens unemployment today (12.5-13.5%) and the majority of retail bankruptcies lay ahead of us in first half 2009. State and city employees will be let go (although the federal government will "stimulate" the coffers of said entities) throughout 2009 and into 2010. Much of the jobs we've lost so far are in the areas the country has abandoned such as manufacturing or were in a bubble (finance, housing). The service economy contraction which is where 70% of our GDP now lies, is what sits ahead of us. Even healthcare (which CONTINUES TO PILE ON jobs as it sucks up more and more of our GDP) might have a chance of losing jobs... mercy.

The other denial is the U.S. shall lead the world in recovery. I will repeat this every week and month... false. The world will recover first and hopefully drag us out of the mess we've made of ourselves. Once the "hope" turns from "The US shall lead them..." to reality, we'll have nice investing opportunities in foreign companies... but right now we can't touch them because everything is thrown out together. Our multinationals can cut 3 Indians or 1 American for the same amount of money - the choice will be very easy... one of many reasons why "they" will recover" before us.

• U.S. companies slashed payrolls last month at the fastest pace in 34 years as the economy headed for its deepest and longest recession since World War II.
• “It’s unbelievable,” said Nariman Behravesh, chief economist at IHS Global Insight in Lexington, Massachusetts. “We’re well on our way to the worst recession of the postwar period.”
• “This is a huge downshift, much larger than we thought,” said Jared Bernstein, an economist at the Economic Policy Institute in Washington, who will be Vice President-elect Joe Biden’s chief economist in the new administration. “The upper bound on a stimulus package is going up, not down. As the hole gets larger, the amount you need to fill it gets larger.”
• Revisions for September and October increased job losses by 199,000. Employers cut 403,000 jobs in September, versus 284,000 previously estimated. Another 320,000 were chopped in October, compared with an initial estimate of 240,000. (I love these revisions; all of Wall Street waits with baited breath for a flawed figure that gets revised by a huge amount within 30 days - but it's the game, so we have to watch it - we wait for a number that is completely changed a month later. It makes no sense, but it is what it is)
• The unemployment rate would have moved even higher if not for the exodus of 422,000 people from the work force. Economists thought many of those people probably abandoned their job searches out of sheer frustration. (these are the people the government no longer counts as unemployed - the Pixie Dust people)