Friday, September 04, 2009

Today's Employment Report

This morning's employment report information provided the headline news that unemployment has now risen to 9.7%.

A little over a month ago, I wrote this piece, comparing the economic outlooks of several well-known pundits. In particular, I focused on Mort Zuckerman's views, which I happen to share,

"Then we have a very detailed, persuasive editorial in last Tuesday's Journal, written by Mort Zuckerman. In his piece, the chairman of US News & World Report, and head of Boston Properties, dwells almost exclusively on the under-representative current unemployment rate of 9.5%.

Zuckerman lists 10 separate, but related points, all of which provide evidence that the demand side of the economy, via consumer spending, will almost certainly be much lower in the next few years than most pundits, analysts and economists realize.

Among his points, Zuckerman cites: underemployed, those no longer even looking for work, workers 'employed' but on unpaid leave, part-time workers who were once full-time, shorter work weeks among the employed, a 65% capacity utilization at US factories, and, finally, the longest average length of official unemployment- 24.5 weeks- since this data item has been tracked back in 1948.

For good measure, Zuckerman adds that low consumer confidence and high debt levels have increased the savings rate which will, of course, dampen any subsequent recovery, as the consumer's 'marginal propensity to consume' will be much lower than in recent years. He laments that now, when a truly job-creating, infrastructure-building federal spending bill would help, it's too late. That's because $787B was allocated for what has been, to date, largely increases in Medicare and other state-based transfer payment programs.

In effect, Zuckerman would conclude that people like Bank of New York's Hoey mistakenly believe that there will be sufficient consumer demand to justify rebuilding inventories, building new cars and houses."

This morning, with the release of the unemployment numbers, CNBC had a brief 'discussion' among some pundits and their usual non-pundit, senior economic idiot Steve Liesman.

Bob Barberra was actually bullish, believing that some rather innocuous elements of the data indicated a recovery was already well underway. Mark Zandi, an economist with S&P, disagreed, but in a manner so subtle that one really had to pay close attention to catch it.

Zandi closed his remarks by noting that, with such high unemployment, some of the hopeful signs others noted, such as hours worked or weekly income, weren't all that significant. Instead, Zandi expressed the view that the still-increasing unemployment rate was going to overwhelm those modest signs of some added consumer spending power.

Rick Santelli closed his own comments by noting that the 9.7% topline unemployment rate would be the headline news for the day and weekend.

I went back to my post concerning Zuckerman's piece to remind myself of something I've only seen him illuminate. That is, much of the continuing unemployment data simply defines away, or omits, the fact that the report's perspective excludes certain classes of the unemployed who no longer look for work, and miscounts or under-represents those effectively now on part-time schedules.

One thing is sure, though. The immensely expensive "stimulus" bill passed early this year has done nothing to mitigate the continued rise in unemployment. We don't yet know for certain whether an economic recovery is underway, but there are collateral signs that it is not.

For example, in today's Wall Street Journal, there is an article detailing the unexpected deterioration of the financial condition of consumer borrowers once rated as prime. Their mortgage and credit card debt is growing delinquent at a faster pace now than subprime loans are continuing to deteriorate.

It doesn't take much logic to see this hitting bank earnings and capital, causing another round of private-sector financial shrinkage. Not to mention dampening consumer demand and affecting consumer sentiment.

I personally believe, as I've written in a prior post, that many economists are using inappropriate models and assumptions from over 25 years ago. Models and assumptions which are tied to a different type of economy and workforce than we now have. As such, I don't think they are correctly accounting for today's business IT allowing for previously-unimagined control of overheads and inventories.

If economic recovery is based upon expectations of inventory rebuilds, I just think that's overly optimistic for the next few quarters.


Anonymous said...

Mr. Skeptic: If economic recovery is based upon expectations of inventory rebuilds, I just think that's overly optimistic for the next few quarters.


I hunted around for the prior post you referred to on companies having better inventory controls, and wasn't sure which you were thinking of.

I do note though that Barrons had an interview with an analyst of consumer stocks, which mentioned companies had made strong improvements in inventory controls. In particular, it mentions that JCP and JWN have done majore imporvements to their IT, and Home DEpot is in the process of improving its IT. The analyst says that this use of technology is a big factor in her rating of discretionary stocks.

C Neul said...


Thanks for your comment. And, btw, it's sceptic, not 'skeptic.

I, too, hunted for the post I was recalling. If I can't find it, I'll just write it.

My point is more broad and longer term than a few companies' recent IT moves.

In general, over the decades since the recession of the early 80s, which began under Carter and ended under Reagan, business has changed radically. But I don't think many economic models have kept pace.