Thursday, August 5, 2010

Where are the Jobs?

It's all about the jobs number tomorrow folks.

If the number looks anything like the jobless claims report today then it won't be pretty:

From Haver Analytics:

"The already weak labor market suffered an unexpected setback last week. Initial claims for jobless insurance rose to 479,000 from 460,000, revised up from 457,000, during the prior week. The latest level was the highest since early-April and just missed the highest since February. The four-week moving average of initial claims which smoothes out some of the w/w volatility also rose to 458,500, the highest level since early-July."

My Take:

Ouch.  These numbers are flat out ugly.  You gotta wonder if all of these corporate earnings beats that we have seen recently are a result of slashing jobs versus increasing sales.

Many companies are beating estimates without seeing top line revenue growth.  You have to wonder if they are sacrificing their workers in order to meet profit expectations.

The consumer data continues to point towards much slower growth so where else could the earnings be coming from?  We got more poor retail data today that provided more proof that the consumer is on strike.

The only conclusion I can draw is companies continue to slash jobs and costs as they try and survive our Great Recession/Depression. 

The problem here is you can only cut so much before it starts hurting sales and profits.

I predict that you are going to see a big drop off in earnings in the second half of the year as the consumer continues to deleverage.  Many companies are now running about as lean as they can.  You can only become so productive!  

The fact that jobless claims are once again trending higher after all of the cuts we have already seen is staggering and very alarming.

I mean look at the graph above.  At one point we were seeing jobless claims at 750k.  Anything over 400k is considered to be recessionary.  We peaked at a little above 400k during the last recession earlier this decade.

Our Great Recession/Depression has been destroying jobs for over two years now and it is showing no signs of slowing. 

Perhaps we shouldn't be surprised these days when we see news like this:

"WASHINGTON — The number of Americans who are receiving food stamps rose to a record 40.8 million in May as the jobless rate hovered near a 27-year high, the government reported yesterday.
Recipients of Supplemental Nutrition Assistance Program subsidies for food purchases jumped 19 percent from a year earlier and increased 0.9 percent from April, the US Department of Agriculture said in a statement on its website.
Participation has set records for 18 straight months."

The Bottom Line:

The disconnect between Main St and Wall St has never been larger.  The people in this country continue to suffer and things appear to be worsening. 

Investors continued to pile into treasuries today.  The 10 year yield ended the day at around 2.9%. 

The market pretty much flatlined as it prepares for the jobs number tomorrow.  It will be interesting to see how this report is spun if it's negative.  I am sure they will use the "census worker" excuse if we get a bad print.

I think tomorrow is a big day.  The volume has been anemic heading into the jobs number.  This tells me investors are very concerned about where the economy is headed.  When you see the jobless claims numbers you can see why.

I wouldn't be surprised to see some serious volatility after the jobs number tomorrow as the market begins to contemplate the idea that the economy might be heading back into a recession. 

Mr. Market is also pondering the idea that deflation might be rearing it's ugly head.

I think by Q1/2011 we will see a negative print on GDP.  The bond market is almost always right and its telling me that it sees the same thing.

Tomorrow will be interesting...Stay tuned.

Disclosure:  No new positions taken at the time of publication.


CT-Hilltopper said...

The market never left the recession. I believe the fact that the NBER hasn't officially called a new recession is proof that my claim is valid. They aren't calling a new one because we never left the last one. The only thing left to call is to call what we are in it's correct name...a depression.

Jeff said...


Yup. Interested to see tomorrow's jobs number.

I have this feeling it might be ugly although futes are up.

I'll be here with the data tomorrow!

Anonymous said...

Hi Jeff,

I have been reading your blog for quite some time and must say I really enjoy it. I have a question that may be you can answer. I am a newbie and do not have the economic background. My field is science but I have always been fascinated with business and economics.

Why can't the Feds jus inflate us out of our debt. This is pretty much the only option except for debt default. If we default, that is pretty much the end of our financial system as we know it. I can not imagine these private enterprise elitist (the FEDS) allowing their cash cow and power to end that easy. In addition, they may feel that we are different from Japan and Greece in that our currency is the reserve currency. Our government can produce as much government bond as it wants.

Other countries like Japan/China and even countries like India/Vietnam has no choice but to buy our debt/bonds because it is a consequences of their trade surplus with our trade deficit. If they do not take back US dollar/bond for their goods, what are they going to take. If they let their currency float and allow their good and currency to go up, then we would not be able to afford their cheap products any longer. This would lead to drop in their exports and economy.

In addition, they would want to do whatever they can to support our economy because who else would buy their cheap good to keep their economy going.

They also already own a lot of our debt and if they were to allow the bonds to crash, in essence they would be hurting themselves.

I appreciate your response.

Jeff said...


Thanks! Glad you are enjoying the blog.

Inflating out of our debts is a very possible scenario as to how we get out of this but it has consequences and its not good for the Fed/Banks.

The first problem with inflating out is you create a huge inflation problem because it collapses your currency.

This then makes everyting unaffordable for 95% of the people and creates chaos and social unrest.

The Fed then has to raise rates in order to stop the inflation so that people can afford to live.

If the Fed refuses to raise rates the bond market will do it for them because no one will want to own our debt thats denominated in our weak dollars.

The will chase debt backed by stronger currencies. This will result in higher rates.

Higher rates then destroy housing prices and the banks balance sheets.

Deflation is no better because prices collapse and unemployment soars which also once again kills the banks balance sheets.

Unfortunately every avenue out of this will be extremely painful.

I personally hope we see a deflationary spiral because things will remain more affordable.

This is at least how I see it.


Anonymous said...

Assuming we dont inflate, before we default I would expect we sell some more stuff.

There is alot of property we have title to that would be valuable to others. Most extreme of these would be Alaska. A drastic step indeed, but you could sell it and pay off roughly 1/3 of the entire debt with the proceeds.

Im sure some think this will never happen, but you only need to look at history to see it happens all the time. You think the alaskans were happy when we bought it from russia and they were no longer "russians" like they were all their lives?

Jeff said...


Good point.

Kinda like Greece is doing now as they try and peddle a few islands.

Anything's possible at this point.

Consumer credit data at 3pm.

Hold onto your seats!