The Truth About Jobs

Yesterday morning, many market participants were practically giddy over the Initial Jobless Claims report which indicated that the number of new applicants for unemployment insurance dipped below 600,000 to 565,000. The airwaves have been filled with optimistic chatter declaring that the recession and the job market may finally be turning a corner. What about replacement do they not understand?

A dead giveaway as to the impairment of the job market can be found in the continuing claims data. Continuing claims increased by 159,000 to 6.88 million. Why the disconnect? It is really quite simple. The economy is approaching (or is at) replacement levels of activity. In other words, employers are running out of workers to lay off. If Continuing Claims were to start dropping I would be cautiously optimistic, but only if the economy began adding jobs soon after. However, we are not there yet. Face it, the economy is mired in an economic tar pit.

What does this mean for the second half of 2009? The impaired economy will go on and on. Remember, unlike Non-Farm Payrolls and the Unemployment Rate, which are lagging indicators, Jobless Claims are coincidental indicators. Also, keep in mind that last week was a shortened work week due to the Independence Day holiday. Government offices were closed on Friday July 3rd. This may have prevented some displaced workers from filing claims.

Further evidence that fixed income investors believe that the global economy will be impaired for a protracted period of time was Wednesday's very strong 10-year U.S. treasury auction. Among the buyers were foreign central banks. The bond market has historically been a better predictor of future economic condition than the stock market. The bond market is telling us to manage our expectations and to be prepared to a long march out of this deep economic valley.

There are reports now that some owners of pools of mortgages are selling homes at far lower prices than where banks are willing so sell foreclosed homes. The media pundits are bemoaning that this will depress the housing market. Au contraire mes amis.

Selling homes at fire sale prices will further depress home prices, but it could speed a recovery in the housing sector as it moves the huge excess supply of homes more quickly. What it does hurt are the banks. Remember, banks have been reluctant to mark mortgages held on their balance sheets to market, preferring to value them on a hold to maturity basis. If homes are being sold at huge discounts, they drive the values of the impaired loans being held by banks lower. This is true whether one uses a current market or hold to maturity valuation. Why does it affect the hold to maturity value. Many banks are trying to sell the properties securing the impaired loans on their balance sheets. When an impaired property is sold, the outstanding mortgage is settled for however many dollars the property was sold. If home prices are driven lower because of aggressive selling and lower prices, hold to maturity values will decline. Maybe the government should hurry up and configure a plan to handle the dissolution of a large financial institution?

Comments

[conceptwizard:]

I have resolved to let the "Green Shootists" trumpet all the way to the slaughterhouse.
The masses always run headlong into the guilotine. When the markets are high the masses jump in when the markets go to low the masses jump out. No one bothers to perform due diligence anymore and source out the facts of what is actually causing the recession. They hear a piece of good news and Buy..buy..buy. They hear bad news its sell.sell..sell...and round and round we go. Were we stop nobody knows.

We are smothering in Debt! Peronally, Commercially, Governmentally, Municipally, Globally. That is not going to change anytime soon. People have spent all they can spend they are suffering lifetime losses, Banks have lent all they can lend they are suffering lifetime losses, Governments have no concept of debt so they dont care, they just keep on digging the whole bigger. With less people working we have 30% less tax revenues, but wait lets plant a green shoot, then no one will know how deep this crap really is.

It does not really matter what the employment number is because the jobs that are already gone will not be replaced. That will stifle the recovery for years, and increase the national debt into oblivion.

I wish a true leader would arise from all this and really make the changes necessary to make America great again, we are being sold short.

Jul 10 12:08 PM

[Cold Reality:]

The unemployment data is fraught with misinterpretation and omission, and people should stop deriving encouragement from a marginal decline like the one posted on Tuesday.

You are quite right in citing the fact that thousands of companies have no more workers to lay off. And as the economy shrinks, and there are fewer workers to lay off, this "initial claims" number is bound to decrease, despite the fact that there is no net improvement in the economy overall.

This same type of fallacy applies to the overall numbers of unemployed claims. The data does not take into account the numbers of people who have exhausted their unemployment insurance benefits and have stopped filing.

As the percentage of total unemployment increases, as has been the case for months, there is not much to shout about in "Initial Claims" data.

Jul 10 01:24 PM

[the rabble:]

What in the world were you thinking.?! How in the wildest stretch of the imagination could someone utter..."employers are running out of workers to lay off...", and a comment...."does not really matter what the employment number is...". In all the calculations and analysis try plugging in (using the governemnts own idiodic method of determining ) a unemployment rate of 25%, then try 35%. You honestly don't think the number of people without jobs (from this point on) could not double.? I'll agree that the numbers don't really matter when you reach about 25% unemployment. (gov index) At that point discussions/analysis/f... about finacial and economic models and cause/effect in banking/stock/mfg/etc. (pick one) will be replaced in the financial/governement and media by a reaction to, and atttempt to deal with a "social structure" that is going to be awfully different than what we have today.

Jul 10 01:42 PM

[Mr. Morbid:]

You people need to learn to look at the bright side. Right now suicide rates are rising most rapidly amongst upper middle class white men and women, many of whom have, or were recently let go from good jobs. This presents a wonderful opportunity for job-seekers, and for relieving the rest of society from a huge population of potentially chronically unemployed and under-employed workers! And just think of the opportunities created in terms of job openings and overtime for grave-diggers, mortuary and crematorium attendants! If more baby-boomers-especially the affluent ones who can afford those premium interment extras just decide to off themselves, we'll all be in for a bright future! Problem solved!

Jul 10 02:40 PM

[Michael Murphy:]

"Remember, unlike Non-Farm Payrolls and the Unemployment Rate, which are lagging indicators, Jobless Claims are coincidental indicators."
OK
"Initial Jobless Claims report which indicated that the number of new applicants for unemployment insurance dipped below 600,000 to 565,000."
OK, this coincident indicator is getting better. Leading indicators started getting better quite a while ago. Further evidence the recession ended in June.
seekingalpha.com/artic...

Jul 10 06:05 PM

[Bernard Thomas:]

I don't think it could double. Could layoffs continue? Sure, but at a slower pace as the economy slows to replacement rate activity. I have a decidely negative view of employment and believe we will see more job losses, but at a slower pace. I am not saying that the slower pace is a sign of an approaching turnaround, but that we are beginning to sette in at the bottom of an economic crevasse.


On Jul 10 01:42 PM the rabble wrote:

> What in the world were you thinking.?! How in the wildest stretch
> of the imagination could someone utter..."employers are running out
> of workers to lay off...", and a comment...."does not really matter
> what the employment number is...". In all the calculations and analysis
> try plugging in (using the governemnts own idiodic method of determining
> ) a unemployment rate of 25%, then try 35%. You honestly don't think
> the number of people without jobs (from this point on) could not
> double.? I'll agree that the numbers don't really matter when you
> reach about 25% unemployment. (gov index) At that point discussions/analysis/f...
> about finacial and economic models and cause/effect in banking/stock/mfg/etc.
> (pick one) will be replaced in the financial/governement and media
> by a reaction to, and atttempt to deal with a "social structure"
> that is going to be awfully different than what we have today.

Jul 10 11:35 PM

[Bernard Thomas:]

We are seeing a dead cat bounce as the markets had contracted too far, too fast. Get ready for a protracted stagnant economy. There is no levering out of this one.


On Jul 10 06:05 PM Michael Murphy wrote:

> "Remember, unlike Non-Farm Payrolls and the Unemployment Rate, which
> are lagging indicators, Jobless Claims are coincidental indicators."
>
> OK
> "Initial Jobless Claims report which indicated that the number of
> new applicants for unemployment insurance dipped below 600,000 to
> 565,000."
> OK, this coincident indicator is getting better. Leading indicators
> started getting better quite a while ago. Further evidence the recession
> ended in June.
> seekingalpha.com/artic...

Jul 10 11:37 PM

[Bernard Thomas:]

You make an excellent point. Continuing claims continue to rise, in spite of workers running out of benefit. I expect continuing claims to fall, but not because unempoyed workers are finding jobs, but because they have exhausted benefits. Does anyone here besides me remember the stagnant 70s? We are about to see a repeat performance of no job growth and a sideways trading stock market. Be thankful that a global economy and demand for dollars (there is no other reserve currency) will keep long-term rates "relatively" mild.


On Jul 10 01:24 PM Cold Reality wrote:

> The unemployment data is fraught with misinterpretation and omission,
> and people should stop deriving encouragement from a marginal decline
> like the one posted on Tuesday.
>
> You are quite right in citing the fact that thousands of companies
> have no more workers to lay off. And as the economy shrinks, and
> there are fewer workers to lay off, this "initial claims" number
> is bound to decrease, despite the fact that there is no net improvement
> in the economy overall.
>
> This same type of fallacy applies to the overall numbers of unemployed
> claims. The data does not take into account the numbers of people
> who have exhausted their unemployment insurance benefits and have
> stopped filing.
>
> As the percentage of total unemployment increases, as has been the
> case for months, there is not much to shout about in "Initial Claims"
> data.

Jul 10 11:42 PM

[a. palmer jr.:]

What did we expect when about a fourth or more of our workers are pencil and paper shufflers. Not much real work in the US is being done as compared to the "good times" as far as real product goes. Eventually it has to come back to haunt us. The other countries in this global economy have enough paper shufflers of their own and they don't need our services.

Jul 11 09:59 AM

[Gregman2:]

Morbid: you need to have your own blog--you have the same sense of humor as Colbert. The biggest problem we're having now is how things are measured. Since no news is good news, wouldn't consumer sentiment be higher if the government just simply forgot to measure/report say, the latest unemployment figure? Same with Case-Shiller: maybe a prolonged holiday from reporting the latest news...would affirm the notion that Ignorance IS bliss!;-)

On Jul 10 02:40 PM Mr. Morbid wrote:

> You people need to learn to look at the bright side. Right now suicide
> rates are rising most rapidly amongst upper middle class white men
> and women, many of whom have, or were recently let go from good jobs.
> This presents a wonderful opportunity for job-seekers, and for relieving
> the rest of society from a huge population of potentially chronically
> unemployed and under-employed workers! And just think of the opportunities
> created in terms of job openings and overtime for grave-diggers,
> mortuary and crematorium attendants! If more baby-boomers-especially
> the affluent ones who can afford those premium interment extras just
> decide to off themselves, we'll all be in for a bright future! Problem
> solved!

Jul 11 11:05 AM

[John Preston:]

Berrnard...

There are places...not in Detroit...where employers have found enough poor soluls to lay off...

Take Yuma, AZ for instance....Unemployment is this area is 24% at last count.....

The fact that respected economists have, for several years now, written on the relationship between housing/wealth effect (See Shilller..see Bostic...just google "housing wealth effect"...)...and consumer spending...and all those who have championed the fall of home values seem to have ignored this realtionship....why should we be surpised that unemployment has gone up.

I wonder if the headlines read "Another 2 million 'customers' were sidelined this month due to the economy", if there would be a different attitude and different solutions suggested....

I do believe that the economy can get a lot worse....if enough poorly formulated thought and rhetoric become the rule ofr the day.

The mindset of those who cheered for housings demise, and the collapse of new home construction.... and chanted "down...down..down" as the CS index fell..were actually laying a large portion the foudation for the current mess....

When we needed proactive solutions...we got destructive attitudes...

When we needed rationale thought, we get headless banter..

Yes, things can and will get worse, if we keep up the wrong behavior.....

By the way, good analysis....


On Jul 10 11:35 PM Bernard Thomas wrote:

> I don't think it could double. Could layoffs continue? Sure, but
> at a slower pace as the economy slows to replacement rate activity.
> I have a decidely negative view of employment and believe we will
> see more job losses, but at a slower pace. I am not saying that the
> slower pace is a sign of an approaching turnaround, but that we are
> beginning to sette in at the bottom of an economic crevasse.

Jul 11 11:21 AM

[consumerons...:]

Ok. You poor gloomy downcast people. Thumbs-down me all you want. I'm not working at a resort in the Ozarks that's having the best business it's ever had since I started there 7 years ago. I'm not working six days a week getting up at 4 AM to be in by 5 weekdays and getting up a 3AM to be in by 4 on weekends. I'm not glued to the grill ( I'm a cook) unable to grab a minute's peace for nine hours at a crack (NOT exaggerating). I haven't been able to save $800 a month this summer because I've been putting in so many hours - all while making $8.75 an hour, either.
I also know a few people who work in Branson. They're not sick and tired of day-long ass-kickings by vacationers, either.
Now. I don't know all about all of your numbers and where they come from or how they're compiled and gathered.
But if you're betting real money that the economy's tanking, I'm betting real money it isn't. The people who are making me put in more, longer, harder hours than ever before where I work are not exactly behaving as though they're trying to cut way back because next month their job might be gone. You go on telling each other how bad it is.
This year, because of how "bad" it is, I'll probably save and invest about $4,000 in good dividend-paying stocks. All on $8.75 an hour and a LOT of hours.

Jul 12 08:37 PM

[consumerons...:]

One more thing. I do believe some of this stuff. I believe the jobs that are disappearing are high-paying jobs. Probably some union jobs. People who think each ounce of their sweat should cost as much as a pound of mine might have to rethink that, huh? Too bad. Adapt and learn to live on less. I'll be damned if it costs ME $30 or $40 an hour to live. Why should it cost that much for anyone else? At the rate I'm saving and buying good dividend-paying stocks and building my income, I'll probably be done working before I'm 60. I am now 52. And my job isn't threatened because the cost of employing me won't drive my employer out of business. However...if YOUR job is threatened by the fact that I won't quit shopping at Wal-Mart and support your high-paying job by "buying American" I'm not sympathetic to that. Why should people at my level pay more for anything in order to help keep someone making five times more than we do? THIS is the new economic reality. Live within your means and you are limited not by how much you make but by how much you spend. I don't have a college degree. SO...I don't expect to be paid more than someonr who spent years racking their brains getting one. But I'm doing mighty fine with what I have.

Jul 12 08:55 PM

[consumerons...:]

Don't like what I said? Awww....poor me.

Jul 12 10:29 PM

[expat in China:]

Osarks?

Mr cook you must be good and the word is getting out based on the companies growth, be proud and make the owner give you a raise you know hes making money. It is true that workers that do the job as expected and support the growth of their companies will succeed. I am also proud of you because of your hard work and smart choices combined with good stock picking.

Can you share some of the names of the dividend paying investments? Are there many for sale signs in the area for homes and commercial properties?

Jul 13 04:41 AM

[consumerons...:]

Thanks, Expat.
I use direct stock purchase plans and most of my money's going into utilities. I have nine holdings,
AEE, AEP, PGN, PNW, OKE, WIN, PEP, and HOG.
I don't trade, and I'm the ultimate "buy and holder" - like to keep my taxes simple. I buy and KEEP. Some may think it's stupid but I view the money I spend on good dividend-paying stocks as a "sunk cost."
Wish I hadn't bought HOG. I'll add no more money to it unless it either suffers a big drop in price or it looks like its cash flow is improving. When I bought it, its debt/equity ratio was 0.41. A month or two later it issued another $10B in bonds and I knew then I'd made a mistake. Oh well, live and learn.
And the "buy and KEEP" thing? Working wonderfully for me. Forces me to truly look at a company with a long-term perspective. HOG still has a strong brand. Just look through a biker mag sometime. They'll be back.


On Jul 13 04:41 AM expat in China wrote:

> Osarks?
>
> Mr cook you must be good and the word is getting out based on the
> companies growth, be proud and make the owner give you a raise you
> know hes making money. It is true that workers that do the job as
> expected and support the growth of their companies will succeed.
> I am also proud of you because of your hard work and smart choices
> combined with good stock picking.
>
> Can you share some of the names of the dividend paying investments?
> Are there many for sale signs in the area for homes and commercial
> properties?

Jul 13 06:05 AM

[consumerons...:]

Oh, and SCG.

Jul 13 06:07 AM