Grim Jobs Report Hints at Double Bottom

We have always been of the opinion that this recession will be w-shaped, with two dips as the effects of the economic stimulus packages recede, and investors and authorities alike come to the realization that we had been riding an air bubble all along this fake bull market. The non-farm payrolls data of last week only confirmed the suspicions of bears. The unemployment rate went up by another 0.1 percent, and the monthly payroll cuts exceeded the August number by 60000.

Still, we caution against taking the shocking headline number too seriously however. The BLS has a habit of performing erroneous calculations in the month of August as youngsters leave the labor force to go back to school, and this distortion often causes swings and errors in the interpretation non-farm payrolls report in this season.

But while one month’s tally is not exceptionally important, there was enough gloom in the report to sustain anyone’s worst expectations. The BLS has now revised its past reports throughout this year, and has decided that it has been underreporting the newly unemployed by some 800000.

And that tally only counts the losses up till March. Now, many have been complaining about how unrealistic the assumptions of BLS are when it comes to the birth-death statistics of enterprises in this country. Finally, as more data becomes available, the BLS has indeed revised its releases to do away with its optimistic assumption about entrepreneurial dynamism. And the result does not look pretty.

According to a survey by Duke University and the Economist magazine, 43 percent of employers are still expecting to cut payrolls further into the next 12 months, notwithstanding the fact that this is already the worst recession of any since the end of the Second World War. Just imagine how severe it must have been for enterprises to reduce gear, and adapt to a peace time economy where you don’t have to churn out thousands or millions of trucks, tanks, guns, rifles. This recession has been so severe that job losses so far have even exceeded the 5 percent of the labor force registered in 1948, and there’s no sign that we’re at the end of it.

We are well-aware that the optimists claim that these losses will be corrected once the economy regains its dynamism, in tune with the age-old paradigm that regards unemployment as a lagging indicator.

Yet, as some say, quantity has a quality of its own, and, at least as far as we are concerned, this time the battering of the job market has been so severe that one does indeed have to reconsider all the usual scenarios in a post-recession environment. We believe that the US, and the world are going to go through, years of sluggish, below potential growth that will eventually pull down the potential as well. It’s perfectly sensible to expect U.S. economy to grow with a speed that we’re more accustomed to observing in Europe.

While in itself that is not a major issue (painful, but only natural after the burst of our national bubble), it does constitute a massive problem especially for those who are used to Americans gobbling up everything that they sell. Contrary to market consensus, Japan and China have not even reached half way through the total damage of this crisis. As American consumption evaporates, so will their prosperity, and who knows how far and wide the consequences of this big shock will be for the rest of the developing world.

Let’s remember that this is not an ordinary crisis. Many are telling you that everything is fine, we’re back to the extravagancies of the old days, but with such scary realities on the table, we suspect that only the incorrigible disciples of Pollyanna can claim a happy next decade for the world economy.

Comments

[User 353732:]

It depends on which America you live in.

There is the US where bonuses are surging , where credit is abundant and nearly free, where spending beyond income is as easy as issuing scrip, where wealth can be manufactured with quick twist of the wrist and markets do the will of a few rather than record the decisions of many. This is the US of the WashDc-Wall St Co-dominium where there is boom without end and every appetite and lust is slaked with other people's money. No crisis, no hardship.....just the best of times in the best of all possible worlds.

Then there is the America where real Americans live.The America where the boom of the Co-dominium is purchased with the fears and tears of Main St, of escalating unemployment and underemployment, compressing income, vanishing home equity, collapsing stores and small businesses, more risk and less reward, more penalties and fewer incentives, scarce and expensive credit grudgingly extended and capriciously constrained; of rising fees, taxes, state and municipal costs; more servitude and less liberty. In this America a protracted economic withering is what the evidence of the senses and daily experience reveals.

Two Nations; two economies; the Rulers celebrate their excesses and vices and congratulate themselves on their great success in lying, cheating, stealing and terrorizing their way to wealth and power. The Ruled mourn the loss of their country and endure the occupation.

Oct 14 05:46 AM

[Michael Clark:]

You make more sense every day. And you made a lot of sense on Day One, in all honesty.

"The Ruled mourn the loss of their country and endure the occupation." Can I use that description?

On Oct 14 05:46 AM User 353732 wrote:

> It depends on which America you live in.
>
> There is the US where bonuses are surging , where credit is abundant
> and nearly free, where spending beyond income is as easy as issuing
> scrip, where wealth can be manufactured with quick twist of the wrist
> and markets do the will of a few rather than record the decisions
> of many. This is the US of the WashDc-Wall St Co-dominium where there
> is boom without end and every appetite and lust is slaked with other
> people's money. No crisis, no hardship.....just the best of times
> in the best of all possible worlds.
>
> Then there is the America where real Americans live.The America where
> the boom of the Co-dominium is purchased with the fears and tears
> of Main St, of escalating unemployment and underemployment, compressing
> income, vanishing home equity, collapsing stores and small businesses,
> more risk and less reward, more penalties and fewer incentives, scarce
> and expensive credit grudgingly extended and capriciously constrained;
> of rising fees, taxes, state and municipal costs; more servitude
> and less liberty. In this America a protracted economic withering
> is what the evidence of the senses and daily experience reveals.
>
>
> Two Nations; two economies; the Rulers celebrate their excesses and
> vices and congratulate themselves on their great success in lying,
> cheating, stealing and terrorizing their way to wealth and power.
> The Ruled mourn the loss of their country and endure the occupation.

Oct 14 06:52 AM

[CautiousInv...:]

With no disrespect for the author, I would like to join the slight turn this comment stream as taken. When you own the Fed and congress, as the elites of the financial cartel do, you can do anything you want and receive anything you want. You can receive TARP funds, you can demand accounting changes, you can become a bank holding company and borrow at almost nothing, you remove yourself from traditional financial intermediation, you can engage in reckless gaming (trading) activities, you can forestall financial reform and you can rent Treasury's balance sheet for a couple of basis points. Life is good.

Oct 14 07:51 AM

[ebworthen:]

Agreed.

The housing debt bubble was manufactured and made gazillions for those who created it.

Now that the "recovery" is here, the creation of then next bubble to bring the "money on the sidelines" back into equities has begun.

However, gold, oil, and other commodities are up, which tells you that not all the peasants are fools.

Oct 14 11:20 AM

[thiazole:]

Can anybody point to a recession where high unemployment caused an L or W shaped recovery? I'm looking through recessions, and I'm really not seeing it. Even after the huge economic collapse in the early 30s, you had several years of strong GDP growth (and stock market growth) before the 1937 recession hit, and unemployment was MUCH worse back then (and please don't pretend that unemployment right now is anything like it was back then).

Oct 14 12:23 PM

[HardwoodFlo...:]

What do they expect when small to mid-size companies can't get financing and are having credit lines either reduced or pulled. You've got the Fed's saying lend and you've go tthe FDIC regulators saying don't lend. It's a total cock-up.

Oct 14 02:30 PM

[David Van K...:]

I realize that this article is about the economy, but it contains the phrase "fake bull market." Lots of articles on SA have contained this phrase or its equivalent for the past 7 months. There have been repeated warnings about the market having no fundamental support and predictions of imminent doom.

Meanwhile, the market is up 60%. 60%! Instead of conspiracy theories or calling the market rally fake because it's been propped up by government help, has anybody out there been investing in it and profiting from it? Isn't that the reason anyone participates in the market, to make money?

Will the rally end? Of course, they always do. Has it been helped along by government actions? Of course...has any bull market in history not been helped by low interest rates and other government actions? But it is decidedly not fake, someone out there must have profited from it, and many are still profiting from it. By all means protect your profits with sell-stops or hedges, but please don't act as if the rally never happened, because you think it shouldn't have happened. It's already in the books.

Oct 14 03:41 PM

[Jimbo:]

David Van K: I fear this rally is like character in the kids' cartoons. The character chases the bird until he is on thin air and off the cliff. I have stayed with this rally but I am very, very nervous. I feel all government data is being cooked. I see closed businesses all over and personally know several people out of work. I am 80 years old and I have never seen it this bad since I was a school boy in the 1930s. I see no real basis for genuine GDP growth but government money flowing into selected sectors. Meanwhile the folks in DC promise us no increased costs in health insurance and other fantasies. Two immutable Laws: All Behavior Has Consequences and There Is No Free Lunch.

Oct 14 03:59 PM

[Jason Rines...:]

I could provide the true value of assets in correlation with gold or oil for a contrarian viewpoint of how great the party is but I won't. Instead, I will net out and say two words and provide a link: Weimar Republic:

en.wikipedia.org/wiki/...

The United States is just a bigger banana republic. We are just a bigger banana republic. The result will be the same. In mathematical models such as CB "this time is different" only apllies to those who don't read historic charts after WWII. That is why lamestream media keeps repeating "worst data since WWII recession" instead of calling a spade a spade.

Once the looting has finished, the rape victim will have further oppression to be silenced. The hard way. I do hope this time is truly different in that regard but I don't think I will leave it up to 'hope' to ensure survival both economically and physically.

As for David's comment it does have some merit in the short term. A search on my screen name here at SA would reveal I advocated in the fall of 2008 not to fight against government trade and to watch Energy, Health, Higher Ed and IT sectors. I choose other methods to make money besides stocks and bonds so my advice at this point since I am now out of the stock market is from the cheap seats. Take it for what it is worth.


On Oct 14 03:41 PM David Van Knapp wrote:

> I realize that this article is about the economy, but it contains
> the phrase "fake bull market." Lots of articles on SA have contained
> this phrase or its equivalent for the past 7 months. There have been
> repeated warnings about the market having no fundamental support
> and predictions of imminent doom.
>
> Meanwhile, the market is up 60%. 60%! Instead of conspiracy theories
> or calling the market rally fake because it's been propped up by
> government help, has anybody out there been investing in it and profiting
> from it? Isn't that the reason anyone participates in the market,
> to make money?
>
> Will the rally end? Of course, they always do. Has it been helped
> along by government actions? Of course...has any bull market in history
> not been helped by low interest rates and other government actions?
> But it is decidedly not fake, someone out there must have profited
> from it, and many are still profiting from it. By all means protect
> your profits with sell-stops or hedges, but please don't act as if
> the rally never happened, because you think it shouldn't have happened.
> It's already in the books.

Oct 14 05:53 PM

[Jason Rines...:]

At your age it is in an honor that you are taking the time to lend wisdom here at SA. Thank you!

Some of us really appreciate blunt assessment and guidance. Why anybody would vote negative on your comment demonstrates dillusional thinking of the crowd, another reason to pay close attention to making an exit.

Remember Weimar Germany? I just posted a link above. I believe the big party will continue now until after the 2010 elections. Then drop like a rock and the government will utilize the rest of the reserves to pump up the markets again before the 2012 elections. I could get technical but I also like to utilize common sense.


On Oct 14 03:59 PM Jimbo wrote:

> David Van K: I fear this rally is like character in the kids' cartoons.
> The character chases the bird until he is on thin air and off the
> cliff. I have stayed with this rally but I am very, very nervous.
> I feel all government data is being cooked. I see closed businesses
> all over and personally know several people out of work. I am 80
> years old and I have never seen it this bad since I was a school
> boy in the 1930s. I see no real basis for genuine GDP growth but
> government money flowing into selected sectors. Meanwhile the folks
> in DC promise us no increased costs in health insurance and other
> fantasies. Two immutable Laws: All Behavior Has Consequences and
> There Is No Free Lunch.

Oct 14 07:16 PM

[Moon Kil Woong:]

Well no problem, the US government will spend when the US consumers won't and if foreign governments need dollars they will just give them currency swaps (thinking owning other's currencies couldn't be half as disasterous as owning their own).

Foreign governments right now are not worried about the dropping Us consumption as much as they are concerned about the mountains of US dollars reserves rotting away at ridiculously low interest rates as the dollar plummets over 10%. In the end, they must be accountable to the public even if the US public doesn't make their central bank accountable.

Oct 15 02:53 AM