Friday, April 4, 2008

Unemployment Soars as the Economy Deteriorates

Unemployment soared in March rising from 4.8% up to 5.1% bringing the unemployment rate to its highest levels since 2005. Payrolls shrank by 80,000 as the recession continues to deepen. This was the third consecutive month of job losses. Economists were expecting job losses of 76,000.

The chance of another .50 Fed rate cut rose to 50% in the bond market versus 30% before the jobs report was released.

This is not good folks. If the Fed is forced to cut rates again then we run a serious risk of having massive inflation in this country. We are getting to the point where another Fed rate cut could PANIC the market versus helping it because people are starting to sense that the economy is falling apart.

How will all of this all effect housing? It will put further pressure on prices because increased unemployment shrinks the pool of buyers even further. The risk of inflation from Fed rate cuts will further dilute potential home buyer incomes thus allowing for less money to spend towards a house.

Fed rate cuts have not been helping the economy or the stock market as seen below. This graph shows you that the market reacts with short term euphoria, but then quickly realizes the fundamentals of our problems have not changed also realizing this puts pressure on inflation.

The housing time bomb took another step forward today. I wonder how all of those bottom callers are feeling after seeing the jobs data today? you think maybe they lost a little confidence??? Expect the stock market to head lower and start pricing in the reality that we are in a recession. Three straight months of job declines almost always signals a recession. If the numbers continue to deteriorate then equities could fall through the bottom set in January which was around 11,600 on the DOW.

The market also will start realizing that the Fed may only have one more cut before they are forced to stop and possibly raise rates in order to control inflation. This means the Fed could be a headwind going forward instead of a tailwind. This is going to end ugly ladies and gentleman. Mark my words.

No comments: