The headline jobs number was a big disappointment. This morning, June 4, the Bureau of Labor Statistics reported that the U.S. economy added 431,000 jobs in May. The consensus among economists called for 500,000 jobs.
And the disappointment only increased when Wall Street dug into the numbers. Of the 431,000 jobs created in May almost all were jobs created by government and almost all of those—411,000–were temporary jobs working to collect Census data. Once you net out the jobs lost in government—yes, the government does actually fire people every so often—private hiring came to just 41,000 jobs in May.
Even the one seemingly good piece of news doesn’t turn out to be quite so good. As projected by the consensus among economists before the data release, the unemployment rate fell in May to 9.7% from 9.9% in April.
But the reason for the decline was, what’s that word again, disappointing. Economists had thought that the economy would add enough jobs to send the unemployment rate lower even though some discouraged workers would have re-entered the workforce.
The reason for the decline, however, was that workers actually left the labor force in May. The labor force fell by 322,000 in the month. That was the first monthly decline since December 2009. If the labor force had remained at the size it was in April, the unemployment rate would have stayed the same at 9.9%.
The disappointment has revived fears that the U.S. economic recovery isn’t strong enough to stand up to the euro debt crisis and that we might be headed toward a double-dip recession. I still think that’s unlikely. The May numbers merely confirm what many of us have been saying about this recovery for months: It’s going to be much slower and much less robust than the normal recovery from a recession.
danz1356:
You said that you saved your state’s only mental hospital from being closed down and sold for “scrap”, therefore you created great “value”. Let me make some analysis (or guessing) on that case.
Since a lawyer like yourself can force an entity to stay open, I can assume that entity is funded and supported by tax dollar. Because a private entity can close down any time it wants. Also because it would be sold for “scrap” if you had not saved it, I can bet it was extremely poorly run, to the point none wants to buy it. (I can not imagine “demand” for mental hospitals is short in any state.)
Now you saved it through your legal works (law suit or not), that entity will stay open. In order to keep an extremely poorly run entity open, your state has to squeeze money (probably a lot of money) from somewhere else, either by cutting funds to other public sectors or by taxing private sectors more. Chances are the sectors (it doesn’t matter private or public) that are going to be squeezed are sectors that are probably better run or at least doesn’t have to be sold for “scrap”. You see, someone at somewhere will get screwed and it further means that someone may have to loose job due to this squeeze “created” by your savior of an extremely poorly run hospital! I guess you can call it “creating value” if you squeeze a better run sector to finance a poorly run one. It’s like Saving GM with tens of billions of tax dollar. GM LOOKS “saved” at the moment, but the chocking factor remain.
Let’s also imagine what would happen if you had not saved the mental hospital. Needles to say, it will be closed down and sold for “scrap” as you said. It’s bad, particularly for those who needs it. BUT someone else (particularly a smart and hard-working entrepreneur) may soon open a new one somewhere nearby! Because there are great needs for mental care in this country and mental cares are often covered by government programs and private insurance. There are money to be made there! That’s why there are so many hospitals and nursing homes out there in America today, because someone is paying the bills.
BTW, I do not have problem with lawyers. In fact I believe they too have right to earn a living just like everyone else. I could have said in my original post that law suits kill jobs. But I also realized law suits are not filed by themselves. Lawyers file law suits.
Having observed extremely stressed business managers and entrepreneurs who are constantly threatened by law suits (let’s not even mention those doctors who are under constant threat of law suits), I think it’s time for this country to solve its dispute in a less destructive way. Less lawyer is better.
I even heard of business managers saying that they’ll either throw in the towel (meaning close the business) or go offshore. In either way, American people are the losers. Some of their jobs may gone forever. I don’t know what “value” you can call it.
danz1356:
Let’s say that you saved one worker or one group of workers whose rights were violated. You even won a big sum of compensation for them, needless to say you also won a big pay for yourself. But then, the defendant (let’s say a company) decided to close its US operation and move to China or India. Yes, you may have saved one or even one group of workers, but the rest will loose their jobs due to this law suits. More, the company’s vendors and suppliers and their employees may loose their jobs too. Even the restaurants and coffee shops around the company may suffer too. That’s what I meant.
My “calling a lawyer instead of a fireman” is a sacrast defending the administration’s response to the oil spill. Many people are criticizing the administration’s response to the spill, but I think it did pretty quickly. Immediately followed the spill, it sent a swat team to the rig and few days later it send DOJ personnel to the gulf. (These were all in the news.) I think a swat team and DOJ lawyers are the best solution for a leaky oil well. That’s why I advise people to call a lawyer first instead of a fireman when they see a burning house next time. Aren’t you glad that I am increasing business for you?
donzelion:
(Others, please don’t waste your time on this post.)
I did not specify how unions and lawyers kills jobs in this country, because I trusted readers of this blog are informed. If you insist, I’ll give some.
To find how unions kill jobs, firstly you need look no further than GM and the rest of auto industry. Yes, I do think management had fault too. The biggest fault of management is that it did not stand up to union demands and gave away the company over past decades. As result of giving in to union demands, GM has a million retirees (as I heard) whom it has to take care of in addition to current workers’ very generous pay and benefits. You just can not compete in today’s global market with that kind of grinding stone hanging on your neck! Didn’t Jim said few months ago that the global auto industry is flushed in over capacity?
It did not take one day or one month or one year or even one CEO to give away GM. GM may be considering IPO now and it even claimed it had paid off government loan, but its fundamental problem which is union remains. (BTW, some argued that GM used taxpayers’ money paid off the loan but not the bailout money which is much bigger.) Let’s not even mention that GM now is led by a man who was leading one of the most hated companies in America, AT&T.
I am all for better pay and benefits for hard working people. But as I posted before, in order for that to happen, America has to stop or even cut labor supply which we all know not going to happen. Like it or not, we are living in a world that is full of cheap labor. You can easily find at least 4 billion people who will not mind to work for much, much less. Even if American companies don’t ship jobs offshore, hundreds of millions of willing workers are eager to come into this country and work for much less. And you know we welcome immigrants.
2ndly, look at the mess in Europe. Europe is a heavily unionized continent including Germany! Europe’s unions are demanding and combative. (BTW, for long time French unions are famous for calling nationwide strikes, particularly in public transit. I guess that really helps creating jobs!) It’s quite ignorant that some people in this country think Germany and France and their socialist models are doing quite well. In fact, even the best of Europe, Germany’s manufacture is facing increasingly tough even damaging competition from far east Asia which has no or little union! (German’s manufacturers may get some relief from cheap Euro from now on.) Pal, I suggest you to go find out this kind of information on your own. It’s not hard. It’s out there. Many. I can find, so should you. Even Jim wrote few weeks ago that Germany and France are “not swimming in cash”. Their debt to GDP are very high too. In other words, they live on borrowed money too.
3rdly, look at every other American industry or company dominated by unions. Boeing, AT&T, airlines, education, government, etc. They all have one thing in common. Very uncompetitive, inefficient, and worst of all, unfriendly to customers. It’s only matter of time for them to go under if noting is done! The existence of companies like Boeing and AT&T are because of monopoly. (BTW, even with the current competition that AT&T is facing, that industry is still dominated by just couple of players.) If you can not see it, I have to say so be it. Good luck with your favored union. But I am not going to support using my tax dollar to pop up failed company or industry and I am not going to invest in such company or industry.
Regarding lawyers, I have to guess that you must had never talked to a business manager, though I am at least glad that you brought up Japan as the least lawyered up country. I guess that’s why you don’t see how lawyers kill jobs in this country. I observed and analyzed many businesses in my life in this country to this day. And I am also very familiar with Japan, its business practice and legal system.
The enormous money and efforts that businesses in America spend on protecting themselves from law suits are shocking. None (or very little) of them that the Japanese, Korean and Chinese have to do! All the extra money and efforts spent on law suit protection have to be added to American Businesses’ costs of doing business, make them very uncompetitive or even being put out of business if you are a small company and can not afford a huge legal dept. on staff or can not afford to hire a lawyer at all. American companies’ loosing ground to Asian companies are not simply because of higher wage. Unfriendly regulatory, legal and tax environments are important part of the reasons all of which are controlled by lawyers! Let me give you just some of many cases that I heard from real business managers in this country.
– Internal thieves are big problems for many businesses in this country and it’s very hard for companies to fight it, because the legal system seems very much against companies. For example, one company found out one of its employees stole its product. On the trial day, for some reason DA did not show up. (Probably forgot the trial date). Needless to say, the trial was dismissed. The employee now is suing the company for a HUGE sum and the company which employs quite number of people is facing being put out of business by this suit.
– Same for dealing with employees with substance abuse problems. Employees with substance abuse problems are extremely common in this country and it’s extremely difficult for employers to deal with it, because laws protect workers and workers have lawyers. That’s why many companies just decided forget it! and let’s go offshore!
– Another case. Two employees of a company may had some kind of personal dealing between themselves while on the job. Despite the company has every policy on the book, one of them sued the company (instead of his/her counter part in the dealing) for misconduct. Let me tell it again, the plaintiff already violated the company’s policy regarding NOT having personal dealings at work, when his/her personal dealing went wrong, he/she sued the company! This company which employs several dozen people is also facing distinction.
– About 10 years ago, I heard that a quite sizable company which processes and services credit products employed several hundred people in one American city. Most the employees were female and for reasons that none knows the internal fights among employees on the job were unbelievable. Managers (one of whom I personally met) had to spend enormous amount time and energy to settle the internal disputes instead of making money AND there was few that the managers could do because the laws and regulations all protect the workers, not management or the company. I remember that the management was so fed up that they determined to use machine (automation) to replace the workers! It even hired someone who is specialized in automation as one of key managers! I did not follow up this story later, but my guess is that before this company could invent a machine that can replace all the human, the idea of “outsourcing” was invented. It probably had sent its processing and serving business which is a calling center to India! Because I heard another company which did same business in the same city now is in India!
– Doing business in this kind of environment changes companies too. After years of loading up companies with lawyers, companies themselves started to behave unproductively too. I have another story here. To protect the parties in this case, I use a FICTION to describe it. Imagine if you are a TV chef and you use a microwave or a blender on your show. Whichever brand you use, manufacturers should be happy that you use their product on TV without charging for it. (Though TV or movies do often charge companies for using their products on the show or movie.) Not in this case. The manufacturer whose product was used by a well known person in the industry in a public event decided to do something about it instead of being happy about the free advertising it got. With lawyers in charge of this kind thing at the company (being a manufacturer in America, you bet they have to be lawyered up!), this manufacturer did something that is quite unbelievable. Instead of going after the person who used its product in a public event, the manufacturer went after one of its licensees whose website has a link to this person’s site! (My guess is that the manufacturer has very weak case against someone who bought its product on open market and uses the way he wishes even if it’s in a public event.) So, the manufacturer now is threatening its licensee which had nothing to do with this case for violating its license agreement by carrying a link to that person’s website! What worse (which also is my point) is that this licensee happened to be one of the most productive one that the manufacturer has.
Let me repeat this story, a lawyered up American manufacturer is going after one of its most productive licensees for something done by someone else! This licensee which also employs many people is now facing great threat of going out of business by this.
These are why this country is on a long-term, systematic loosing ground of loosing jobs. Be to fair, it did not started with the current ONE, but the current ONE’s pro-union, pro-lawyer and “government can do it all” policy and mentality, made it much worse.
Even if you don’t have chance to talk to business managers or entrepreneurs, you can still find a lot of similar stories in daily media report. You just need to remember it.
As I am writing this post, our local TV channel is showing an ad by one local law firm recruiting people who wants to “get more out of social security and disability benefits”. Another lawyer’s ad asking anyone who got involved in any traffic accident to call him. A third lawyer’s ad teaching people how curtain condition can damage people’s health and call him to see you can get compensation for that. (I am not making it up!)
I admire those brave lawyers who fight for civil liberty and freedom, however they do not seem to be large part of our today’s legal army. Not even close.
Finally, you also need add accountants to the list. What I mean is that I don’t know any other country has to spend the kind of resource that this country spends on record keeping and tax preparation. That kind of resource could have been spent on making our life better.
I am done!
Jim – this post reminds me of your thesis of some months ago that the American consumer, representing 70% of US GDP, has changed its stripes and will curtail spending (recent retail sector analysis suggests that even among America’s ruling class, a distinction between truly high-end, companies like the Saks & Tiffanies, and the sort-of upper end, Nordstrom-type companies, is becoming apparent in their top-lines. If it proves to be true that the consumer will continue to cut bacl spending, then the US economy is in for a very rough two or three years.
A couple of weeks ago, I asserted that employment growth is weaker than anticipated and that we would test S&P 1040 – true. IMHO, next week will see a test of that support and a break to 980.
YX – If lawyers are killing jobs in America, how come Japan (which, as Dan Quayle used to boast, has the lowest number in the world) has failed to grow for decades?
If unions are killing jobs in America, particularly in the industrial sectors, why didn’t they also kill jobs in Germany (where unions are far stronger in every industrial field)?
Investors should place little stock in dogma, because any broadly shared belief system will inflate prices beyond values, creating arbitrage opportunities for those with more supple beliefs.
It’s not inflation or deflation we’re up against, but demographics (demographics provided tail winds for 70s stagflation – baby boomers buying houses took on tremendous leverage, risks shifted to local banks/trusts that weren’t small enough; now demographics are a head wind, with baby boomers buying their retirement nests, and risks having shifted to institutions “too big to fail”…)
In this secular bear, best to follow Jim’s main themes: try to get out at tops, try to get in when valuations look good with a plausible story, and take some risks. (I’m also with Jim in terms of total performance for my picks – these last weeks really hurt!)
Most of my money is on this being a correction (10-20% drop, then “recovery”), but I’m still 30% in cash.
yx, what is your problem with lawyers? you can thank them for your biil of rights, cleaner air,cleaner water, workers comp, fairer labor laws, the ability to sue mega corps when they hurt you. I am a lawer,I am proud of it,and the “value” I generate every day(yes I reorganize companies so they are valuable again, I have saved jobs, I saved the only in-patient mental hospital in my state from being dismantled and sold for “scrap”. Next time you have your rights violated,call a firemen.
yx,
Folks:
I do see one GOOD thing out of Friday’s job number and the market’s slamming of it. That is, at least the stock market (if not the whole country) understands that the more public sector jobs we create, the more screwed we are. (95% is from public sectors. That’s the highest I ever seen) You may add unions and lawyers to the list of things that can kill jobs in this country.
The cure: more commissions, more tzars, more Harvard-educated experts, more unions, more lawyers.
Folks, make sure next time when you see a house on fire, call a lawyer first, not the fireman!
georic:
I feel your pain (maybe I shall say “joy” to see your cash growing). We are in same camp.
Maths are beautiful: I am 65% long and 35% cash.
The percentage in cash is however going up steadily as the value of the shares is going down!
grindy2424,
Thank you, but I didn’t profit off of the U.S. market’s decline today. But as Garrett Morris of SNL used to say, Europe was “bery bery good to me”. 🙂
bsdgv,
I’m all over Europe in shorts. I’m not touching the U.S. markets yet. I came close to buying back my index shorts yesterday, but I just couldn’t picture the jobs report being as wretched as it actually was. I knew Obama was stretching the truth, but I couldn’t see how he was doing it. But 411,000 census workers? I’d never have guessed that was how he did it.
Stay out of the U.S. markets for now folks. Unless we get significant bad news, I expect the next few weeks to be melt-ups (going up on light volume). That doesn’t mean try to buy a stock hoping for a short term gain either. There’s too much downside risk too, if we get some really bad news.
Buy DRR, EUO, and EPV (although wait for a dip to hop into EPV). Go short Europe and you can’t go wrong. Keep a large cash position so you can take advantage of the coming China opportunity (it is coming).
Disclaimer: I own DRR, EUO, and EPV, and I’m over 59% in cash, although that amount is slowly sinking thanks to DRR, EUO, and EPV. 🙂
With trillions spending in a very short time span, I am afraid we are headed to destruction.
I think we are lucky if we just headed to deflation. I am afraid of destruction.
Ed,
Are you backing up the truck and loading the shorts again?
The bulls have very little left to defend. This is not about Europe and China. This is about America. It is Japanese style deflation we’re up against.
bsdgv – then there’s the 4th phase:
4) The forth phase of a bear market is when we all go live in the forest and actually have to start trapping bears to get by. At that point, as they say, “sometimes you eat the bear, and sometimes the bear eats you” 😉
From Barry Ritholtz:
“1) The first phase is the one where the bear market wipes out the optimism and excitement which existed at the preceding bull market’s top. I believe we are in the first phase of the bear market now.
2) The second phase of a bear market is usually the longest phase. This is the phase where it gradually dawns on stock holders that business is deteriorating and that we are moving into hard times. I believe we are now close to the second phase.
3) The third phase of a bear market is the “throw ‘em in” phase where stocks are sold for no other reason than that the sellers need to raise cash.
During the latter part of the third phase, blue-chip stocks will sell “below known value,” and dividend yields on top-quality blue-chip stocks will climb above 6% or more. Investors will turn black-bearish, and we will hear opinions such as “This is the end of capitalism,” and “The nation may not survive.” As a pure guess, I think that if or when the Dow breaks below its March 9, 2009 low of 6547.05 (and I think it will) that will mark the end of the second phase of the bear market and the start of the third phase.”
http://www.ritholtz.com/blog/2010/06/3-psychological-phases-of-a-bear-market/
This country does not start everything from the beginning just because a new president swore in. We never did, nor will in the future. EVERYTHING IS INHERITED and every president inherits something bad or tough. It ‘s HIS (maybe her) job to solve whatever confronting him/her. We did not expect any president to be a home-coming king or queen, but solve the nation’s toughest problems.
This country used to be “ask not what your country can do for you, but what you can do for your country”. Now we are a country of “let government take care everything!” Everything! That’s why jobs are not going to be created!
De-fla-tion. It seems to me that a bull, non-double dip prediction for the economy ultimately requires that both consumers and investors keep a positive psychology and be willing to put savings at risk in a potentially dangerous deflationary environment. My bet is that the picture is going to start looking worse to both groups going forward, that their risk taking is going to decline, so the psychology is likely to ultimately take the fundamentals downward in to a double dip, whether one was baked in the cake or not. Governments are gradually losing their grip on the sitch, and Bunky Ben Bernanke isn’t yet putting checks right into citizens mailboxes – the free $ are getting stuck at the banks, so I’m going net short for awhile.
Jim, et al,
On a brighter note, whats up with CMED? Been holding it for quite some time (okay, 8-10 months). Its up about 20% or so today.
I think these numbers will add more weight to some economists like Paul Krugman who have said from the beginning that the stimulus package was not big enough and that the economy required a much bigger stimulus if we wanted to have a real recovery.
I am tired of the Obama bashing on this post. Considering the mess President Cheney left him, I think he is doing O.K. Also thanks to “semievolved” and “callofdutyfan” for reasonable/moderate posts. Let’s all stick to investing!
Ed,
You were right on this one.. Good thing I was able to exit more positions at 1100:).
Only upside to this is it looks like China will ease the tightening and let things take off again. That would great or Asia (and Brazil) and I think where Jim is focusing his research.
You can see the tides changing and power central moving that direction…