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.
