Weak Recovery Does Not Create Jobs

Weak Economic Recovery Does Not Create Jobs

Fed speakers warn that rising unemployment would hurt consumers and restrain the economic recovery. Janet Yellen describes the recovery as I do, “L” shaped, but I do not see a gradual tilt that she does.

The commercial real estate market and problems among small businesses will weigh on the economic recovery. Small businesses have accounted for 45% of the job losses pushing the unemployment rate to 10.2%. Small businesses are counted on to create jobs, but that seems unlikely given tight credit conditions and uncertainties on healthcare reform.

The Dollar Index traded to a new low for the move at 74.86 this morning. The Index was lower between March 2008 and August 2008 with a low of 71.05. (Chart courtesy of Thomson / Reuters.)

click to enlarge

The dollar is extremely oversold on its weekly chart with a MOJO reading of 1.7. Note the up trend that connects the lows of April 2008 and July 2008 comes in at 74.48 this week. Resistance is the five-week modified moving average at 76.35.

Between April 2008 and July 2008 dollar weakness saw the Dow decline from 13,136 in mid-May to 10,828 in Mid-July.

Here’s my quote from USA Today Tuesday morning:

Rich Suttmeier of ValuEngine.com warns that using cheap dollars to speculate on other investments can backfire if the dollar rises in value and investors all run for the exit at the same time. "When it ends, it will end badly."

US Consumer Credit declined for the eighth consecutive month in September, the longest string in history as unemployment rises and banks tighten lending standards. The decline of $14.8 billion in September is a 7.2% annual rate reducing this debt to $2.46 trillion. This seems to match the so-called money on the sidelines that the stock market bulls say will rush back into stocks.

Fannie Mae taps its $200 billion taxpayer lifeline by another $15 billion after its third quarter $19.8 billion loss. The total for Fannie reaches $59.9 billion. Freddie Mac also reported a loss, but avoided the need to tap its $200 billion lifeline for the second consecutive quarter. Freddie’s total take to date is $50.7 billion bringing the total for the two GSEs to $111 billion up from $85 billion at the end of July.

The US Treasury increased its Enterprise MBS purchases to $202 billion from $161 billion. This facility has no limit but expires on December 31, 2009.

Fed Support – The Fed purchases of Enterprise MBS is limited to $1.25 trillion and sunsets at the end of the first quarter 2010. Spent so far is $911 billion up from $682 billion roughly three months ago. The amount of GSE debt has been reduced to $175 billion from $200 billion with $150 billion spent to date. This is up from $105 billion. Conservatorship has now cost tax payers $1.4 trillion and counting.

The housing bailouts have not helped homeowners as serious delinquencies continue to rise.

Despite all of the foreclosure prevention plans Fannie Mae continues to see a surge of borrowers falling behind on mortgage payments as the unemployment rate rises.

Since the end of July Subprime ARMS Seriously Delinquent are up to 38.7% from 36.5%. The All Loans Seriously Delinquent category is up to 8.0% from 7.2% since the end of July.

That’s today’s Four in Four. Have a great day.

Disclosure: I hold no positions in the stocks I cover.

Comments

[Dave Wrixon:]

I can understand a recovery not creating jobs if real wages are rising either due to longer working hours or high hourly rates, but when you have falling wages, falling hours and no indication of pay rises in nominal terms let alone real terms (when compared with some meaningful store of value such as Gold or the Euro), how the hell can that be a recovery? Spending simply cannot go up unless consumers have more money, and counting stimulus is very dubious when they are going to have to pay it back with interest through increased taxation. Have the banks actually started increasing the amount of credit available?

Nov 11 10:32 AM

[ryanclarke:]

The banks are not lending to the U.S. consumer ... the banks are only lending to other banks. As to the Fed and Obama ... his economic team is trying to decide the following two outcomes ... do they want a repeat of the Jimmy Carter experience of sky high inflation with as minimum decrease in both business and consumer debt loads as the Fed can manage ? Something akin to Argentina in 1985 ... or do they want to defend the dollar by both raising short term interest rates and renouncing U.S. debt owned by China and Japan as well as throwing in the towel on pumping oil out of Iraq and thus induce a 1930s style American depression ? In my opinion, in either case the end result is a depression, but in the latter case, the prudent savers of the society are not punished to such a degree as in the former.


On Nov 11 10:32 AM Dave Wrixon wrote:

> I can understand a recovery not creating jobs if real wages are rising
> either due to longer working hours or high hourly rates, but when
> you have falling wages, falling hours and no indication of pay rises
> in nominal terms let alone real terms (when compared with some meaningful
> store of value such as Gold or the Euro), how the hell can that be
> a recovery? Spending simply cannot go up unless consumers have more
> money, and counting stimulus is very dubious when they are going
> to have to pay it back with interest through increased taxation.
> Have the banks actually started increasing the amount of credit available?

Nov 11 03:05 PM

[penniless_t...:]

There are no jobs because there is no recovery. By this time next years unemployment will be at 15%.

Nov 17 05:44 PM