The unemployment rate continues to climb, and at a faster rate than expected. The official unemployment rate hit 10.2% in October, according to the Bureau of Labor Statistics. That’s up from 9.8% in September and ahead of the 9.9% rate that economists had expected. At 10.2%, the official unemployment rate is the highest it has been since April 1983.
It’s hard not to find these numbers discouraging. Not so long ago the experts at the Federal Reserve and elsewhere were predicting that unemployment would peak at 10% by the end of the year.
Well, this data is only from October and we’re already at 10.2%.
And that, of course, is the official unemployment rate. A year ago, according to the bureau’s statistics, 484,000 discouraged workers had dropped out of the labor force and stopped looking for work. This October that number stands at 800,000. Add in those discourage workers and those workers who would like full time jobs but who are working temporary jobs because they can’t get full time jobs and the unemployment rate jumps to 17.5% in October 2009. That’s up from 12% in October 2008.
But there two pieces of, well, not good news exactly, so let’s call them less bad news, in the report.
First, unemployment is a lagging indicator. The economy turns up before employment does. Companies take a while to make sure that the improved business conditions they’re seeing are real before they begin hiring full-time workers again. So you’d expect unemployment to keep climbing even if the economy is growing as it did in the third quarter of 2009. At a 3.2% annualized rate, no less.
Second, before companies hire permanent workers, they hire temporary workers. So if we’re moving toward a turn in the unemployment rate anytime soon, we should start to see a pickup in the hiring of temporary workers. That is exactly what the numbers show happened in October. Temporary jobs grew by 33,700 in October. The slight pickup in the average work week to 40 hours from 39.9 hours in September is also what we’d expect to see before real hiring begins.
It’s not surprising that stocks fell on the news on the morning of November 6. But don’t make too much of that, please. The number was slightly worse than expected but only slightly. And stocks tend to sell off on Fridays, especially following the kind of rally we saw on Thursday.
Some reporters/experts have suggested that our economy is changing from a consumption based economy to a discovery- or knowledge-based economy. Whatever is happening these days, I feel like our economy is being reconfigured from what it was into something very different. In a way, these may be very historic times. So, it’s I think it will be interesting to see where we land when employment picks up and new businesses take off with new business paradigms. But, meanwhile, my heart breaks whenever I hear a story of a decent, working-class individual who lost their job and can’t find a new one. I hope this changes very soon.
I am not sure that we will see a recovery in the job market anytime soon. The fiscal policies occurring in Washington are making businesses sqeamish about hiring especially small businesses which represent a large engine for job creation in this country. The health care proposal before the House could raise the cost for small business substantially. In addition, the so called Bush tax cuts expire at the end of 2010- this is a double whamy. The “Cap and Trade” proposal if implemented will also be a job buster as far as business is concerned. So the Congress and Administration seem bent on implementing policies that will hurt job growth in this land for the forseeable future.
This does appear to be a jobless recovery, at least at this time, and I personally don’t see better times in the near term. For the long haul I believe things will improve but very slowly with policies in place at this time. For this reasoning, I am cautious but I like Jim’s idea on LYNAS CORP as well as other commodity based investment opportunities.
Mr. Buffet’s recent deployment of capital suggests however that he is optimistic, but he is paying a big price and it may take time to see any fruit come off that tree.
Time will tell. As my father used to say, time is the salve for all wounds
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Economists everywhere repeat that unemployment is a lagging indicator. However, stats released today showed consumer credit contracting for the 8th straight month and surprising hugely to the downside for September, with a contraction of -$14.8 billion when -$9.9 billion was expected. 3Q credit card debt had a record -10% annual decline. Like unemployment, these unhappy stats could be lagging indicators, too, the darkest point before the dawn – but given the also familiar saying that consumers are 70% of the economy, it has to be acknowledged in this particular recession, these stats could take on a life of their own and turn unemployment into a leading indicator driving the economy downward into a double dip.
Jim’s job is to be a risk taker in stocks, and he’s one of the best, making an intelligent guesstimate that the huge amount of government money and underwriting will underwrite the economy and market, at least for now. That seems like a reasonable view to me. Every investor, though, has to weigh the risk of being wrong vs the reward for being right. Risking a 35% loss to gain 15%, may not be a great bet, for example. Right now, many stock professionals tend to be in risk taking mode, having a variation of Jim’s view. Almost all of them, including Jim, didn’t see the bottom about to drop out last time. Shall we assume that they will this time?
My own solution at this point has been to keep a large portion of assets in gold, be long commodity stocks of various sorts including some of which Jim recommends and hedge against a general market decline. I consider this a risky environment – not that predictable.
reponse to Shunngai about productivity:
http://online.wsj.com/article/SB125742744080829139.html?mod=WSJ_hpp_sections_news
Agree, but wouldn’t the productivity per each employee increase first before they actually start hiring full time, and is there any information about that?