If This Is a Recovery...

No one goes into Wal-Mart (WMT) and asks to pay extra sales tax. Thus sales taxes are reasonable barometers for retail sales. This week we look at how taxes are doing in a period of economic recovery. Then we turn our eyes to a very interesting (and sobering) analysis of possible future unemployment rates. This is an anecdote to the happy-face analysis of employment numbers you get from establishment economists. There will be a lot of charts and tables, but I think readers will find it very interesting.

If This is Recovery, Where Are the Taxes?

I keep reading about surveys that show that retail sales are up. But as noted above, no one pays extra sales taxes, or decides they need to pay more income taxes. The surest way to measure retail sales is sales taxes. Want to know how incomes are doing? Look at income tax receipts. Let's look at sales taxes first.

First off, I can find no single source of recent sales tax information. It is all one-off, but it is consistent. Sales taxes in my home state of Texas are down 12.8% year-over-year, and we're in the fifth straight month of decreases of 11% or more. Projections are for sales taxes to continue to decline into 2010.

There is a very revealing study by the Pew Center on state taxes, called "Beyond California". Everyone knows how badly off California is. The Pew Center looks at how the rest of the states are doing, and focuses on 10 states that also have severe problems. Sales tax receipts are down 14% in Arizona, and state income taxes are down 32%.

On average, revenues are down almost 12%. Oregon has seen their revenues collapse a stunning 19%. New York is down 17%, with a deficit of 32%. Illinois has a projected deficit of 47% of its budget, second only to California with 49%. You can see how your state fares here.

The Liscio Report notes that all states had negative year-over-year sales tax collections in October, and the weighted average decrease was 10.2%, down from a negative 7.2% in September.

Sales at Wal-Mart stores slipped by 0.4% in the third quarter. Actual government figures show that retail sales were down 1.5% in September from the previous month and 5.8% year-over-year. So how do we keep seeing headlines about retail sales being up, as unemployment keeps rising?

Remember that such reports are usually based on surveys, and generally cover mid-sized and up retailers, leaving out smaller businesses. Further, if you are a retail chain that has closed 10% of its stores, the remaining stores should in theory benefit from getting your loyal customers into them.

Last Business Standing

Yesterday I was with an associate, and I hesitated in asking them how their business was doing, because I knew things had been tough at the beginning of the year. But I did ask, and they said sales were up over the last months and business was looking better. Surprised, I asked them what made the difference. "Ah," they said, "less competition. Our competitors have gone out of business."

Best Buy (BBY) and other electronic retailers had to benefit from Circuit City disappearing. That is Schumpeter's creative destruction at work. Not very good for total employment, but it does help the profitability of the survivors.

So, if things are so bad, how did we have 3.5% growth in the third quarter? First off, things are not as bad as they were in the past year. We are in fact getting close to an economic bottom, at least for now. Second, the 3.5% number is a preliminary estimate. A study by Goldman Sachs (GS) suggests that the number will be revised down by at least 0.5% and maybe as much as 1%.

Why? The estimate does not really take into account how poorly small businesses are performing. If you look at small-business indexes and compare them to historical GDP numbers, you get the smaller number mentioned above. And since at least 2% of the GDP was from the stimulus package (Cash for Clunkers, houses, tax cuts), the economy on its own was flat. That begs the question, what happens when the stimulus runs out?

And the answer is that we won't know for some time, as the stimulus is just getting ramped up.

"According to CBO estimates, only 21% of [the stimulus] spending will occur in 2009; another 38% will come in 2010, and 22% in 2011. After that, its effect will dissipate quickly." (The Liscio Report)

But David Rosenberg notes that what the federal government is giving, the states are taking away. The Pew Study shows that at least nine other states are in appalling shape, so it is no wonder that David writes:

Stimulus, What Stimulus?

"Fully nine states are in fiscal distress and only two have balanced budgets. States like Michigan are planning 20% budget cuts for the coming year. Indiana is planning a 10% spending cut in light of a 7.4% YoY revenue decline. How can the economy really be out of recession if government revenues are still deflating?

"The states are filling around 40% of their fiscal gaps with the federal stimulus (so much for spending on "shovel ready" infrastructure projects). Even after the fiscal help from Washington, the state governments will still face a projected deficit of $142 billion for 2011 (versus $113 billion in 2010). All in, the restraint in the state and local government sector is estimated to drain a full percentage point from U.S. GDP growth in 2010 and more than fully offset the stimulative efforts from Washington. The U.S. economy is more likely to post growth of little more than 2% next year, rather than the 5% currently being discounted by the equity market."

The Reality of Unemployment

All this is, of course, going to put continued pressure on employment. As I noted last week, the number of unemployed actually soared by 558,000, to 15.7 million, as measured by the household survey, not the 190,000 you read about in the mainstream media. Unemployment is sadly continuing to rise by significant amounts.

In August, I did an interview with CNBC from Leen's Fishing Lodge in Maine. The unemployment numbers had just come out. I did a back-of-the-napkin estimate that we would need about 15 million new jobs over the next five years just to get back to where we were when the recession started.

That works out to a need for about 125,000 new jobs each month to handle new workers coming into the market (which comes to a total of 7.5 million over five years), plus the 8 million and rising jobs we've lost. That is a daunting number. It amounts to 250,000 new jobs a month every month for five years. And we are still losing more than that number a month, let alone adding the needed 250,000.

Look at the chart below (click to enlarge). It shows the establishment survey employment figures for the last ten years. Only once, in 1999, did we actually add over 250,000 jobs a month for a whole year. And that was during the internet boom.

Sadly, the private sector has shed over 300,000 jobs since 1999. Think about that. We have had a decade where there have been no new jobs added by the private sector. Real incomes are roughly where they were, and the stock market is down. Talk about a lost decade.

I love it when someone does the really heavy lifting for me, and my friend Mike Shedlock of Sitka Pacific Capital Management has done a wonderful job of taking that speculation of mine and putting it into a spreadsheet that helps us get a real handle on what unemployment is likely to look like for the next ten years. I am going to make use of his basic analysis and then modify some of his assumptions in the spreadsheet he provided me, in order to think about different scenarios.

All three scenarios are based on assumptions, so let's see what Mish started with. There is a wealth of data available from the Bureau of Labor Statistics and the Census Bureau. According to the Census Bureau Population Estimates we are going to add about 2.5 million working-age (16 years old and up) citizens a year, from now until 2020. The numbers varies slightly year to year. Mish used an estimate of the average, summing up the buckets from 16 to 100+ for the years in question and rounding the result.

You can go to the BLS site and look at Table A-1, which shows the civilian noninstitutional population (those over 16 not in prisons), the participation rate (those who are working and/or want to work), the unemployment rate, the number employed, those not in the labor force, and those who want a job. Those are starting numbers for the charts below.

For those interested, you can read Mish's very full (and quite detailed) analysis at his blog site. But let's look at his assumptions:

• Job losses are likely to continue for a minimum of another year.
• When job gains start, they will be very slow at first, then pick up.
• An extremely generous monthly job gain stat over the course of the year would be 150,000 jobs.
• A falling participation rate (boomers retiring) will continue to mask reported unemployment.
• Starting in 2013 the labor pool will start decreasing because of Boomer demographics.
• The noninstitutional population will rise by 2.5 million workers a year.

The spreadsheet below (click to enlarge) needs a little explanation. Let's start with the assumptions. Mike starts with current working-age population and adds 2.5 million people a year. He assumes that Boomers will retire at 65 (something which all the surveys say is not going to happen). And his last estimate is what the unemployment numbers will be. Everything else is based on those assumptions, which leads to the first column, or the expected unemployment number.

By the way, we know that everyone will want to make different assumptions. I am going to create three scenarios, but you can go to Mike's blog and at the bottom of the post is a link to the actual spreadsheet. Have fun. Let's look at scenario 1.

This assumes there is no double-dip recession, and jobs roughly rise along the same lines as the last recovery. Actually, Mish is far more optimistic, as in the very first chart you will notice that job losses were negative in the first year after the end of the recession and flat the second year. Mish has jobs rising by 120,000 next year and 600,000 the second year (2011), and then a fairly robust recovery. Below is the graph of the unemployment numbers under such a scenario.

Notice that unemployment stays at or above 11% for three years. Pessimistic? Mainstream and usually very optimistic Mark Zandi predicted this week that unemployment would rise to 11% by the middle of next year, right in line with this scenario. Also note that total jobs rise by 14 million over ten years. Hardly doom and gloom. Again, Boomers all retire on time and there is no double-dip recession.

Let the Good Times Roll

What would it take to get back to 5% unemployment? I played with the spreadsheet and came up with the following numbers, which get us below 5% by 2020. I assume no recessions for the next ten years, and 2 million new jobs a year after 2011, which I start off with almost 1.5 million jobs. Of course, we have never done that, but let's be optimistic (click to enlarge).

And the graph below shows the unemployment numbers for the Good Times Scenario.

Want to get to 5% within five years? Add 3 million jobs a year starting now. With no housing recovery, a smaller auto industry, and financial firms getting leaner.

The Quick Double-Dip Scenario

When I called the last two recessions about a year before they happened, it was not all that hard. We had inverted yield curves, falling leading indicators, and a lot of other data that pretty much pointed to a recession. Believing that we had a housing bubble and a looming credit crisis also helped my conviction in calling the last recession.

I think we are in for a double-dip recession in 2011, yet I readily admit there will be little if any statistical evidence in advance this time. This is more of an instinct call. I have serious doubts that we can have what amounts to the largest tax increase of all time in what will be a very weak (albeit growing) economy, without putting us back into recession. And Speaker Pelosi thinks it is a smart thing to add another 5.4% surtax on what will already be a rising capital gains and dividend tax.

Taxing small businesses, and that is what the tax increase amounts to, is a very bad idea in a weak economy. Small businesses are where the job growth comes from. Taking money from productive businesses and giving it to government is a fundamentally flawed concept.

Now, if they decide to postpone the tax increase, or phase it in slowly, then maybe we avoid the double dip. But right now it doesn't look like that will be the case. So, let's quickly see what a double-dip scenario might look like. Let's be optimistic and assume we only lose another 1.2 million jobs in the next recession, since we have already lost so many in this one (8 million and counting). And then the economy comes roaring back in 2012 with 1.5 million jobs and continues to grow rather smartly for the rest of the decade. No further recession. We absorb the tax increases and move on with our economic lives.

Unemployment under such a scenario would rise to just under 13% and stay above 10% for 8 years. Take a look at the chart and graph (click to enlarge).

Think 13% is too dire? This week David Rosenberg said unemployment would rise to between 12-13%. The former Merrill Lynch economist was one of the few mainstream economists who called the recession and the credit crisis. The so-called "Blue Chip" economists told us at the beginning of 2008 that unemployment would peak out at 6%. While Rosie is not optimistic of late, he has a rather solid record of being right.

We are at 10.2% unemployment today. The economy lost jobs for 21 months after the end of the last recession. That would easily take us into 2011. Another million lost jobs will take us well over 11% and close to 12% (remember, you have to add in the increasing population), even without my double-dip scenario.

This letter is getting long and it's getting late, so let me close with a few thoughts.

First, 12% unemployment is horrendous by American standards. But Spain is now at 20%, and much of Europe has been in the 10% range for years.

Second, Americans are not used to the concept of 12% unemployment or 10% rates for extended periods. That is going to cause a serious backlash across the political spectrum. Couple that with the discomfort over $1.5-trillion deficits and there could be some serious political changes in the coming years. I think the message will be more anti-incumbent than one party or the other.

Third, the only way out of this morass is to create an environment where small business can thrive. As I've noted for the last several weeks in this letter, government spending does not increase GDP over time. It is a temporary nonproductive stimulus. It takes private investment to create jobs and increase productivity. Over the next few months, I will write more about how to do that.

Author's Disclaimer:

John Mauldin is president of Millennium Wave Advidufsors, LLC, a registered investment advisor. All material presented herein is believed to be reliable but we cannot attest to its accuracy. Investment recommendations may change and readers are urged to check with their investment counselors before making any investment decisions.

Opinions expressed in these reports may change without prior notice. John Mauldin and/or the staffs at Millennium Wave Advisors, LLC and InvestorsInsight Publishing, Inc. (InvestorsInsight) may or may not have investments in any funds, programs or companies cited above.

PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING IN MANAGED FUNDS. WHEN CONSIDERING ALTERNATIVE INVESTMENTS, INCLUDING HEDGE FUNDS, YOU SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS: OFTEN ENGAGE IN LEVERAGING AND OTHER SPECULATIVE INVESTMENT PRACTICES THAT MAY INCREASE THE RISK OF INVESTMENT LOSS, CAN BE ILLIQUID, ARE NOT REQUIRED TO PROVIDE PERIODIC PRICING OR VALUATION INFORMATION TO INVESTORS, MAY INVOLVE COMPLEX TAX STRUCTURES AND DELAYS IN DISTRIBUTING IMPORTANT TAX INFORMATION, ARE NOT SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER.

Communications from InvestorsInsight are intended solely for informational purposes. Statements made by various authors, advertisers, sponsors and other contributors do not necessarily reflect the opinions of InvestorsInsight, and should not be construed as an endorsement by InvestorsInsight, either expressed or implied. InvestorsInsight is not responsible for typographic errors or other inaccuracies in the content. We believe the information contained herein to be accurate and reliable. However, errors may occasionally occur. Therefore, all information and materials are provided "AS IS" without any warranty of any kind. Past results are not indicative of future results.

Comments

[j-dub:]

So, from the information I've gathered so far, we will be in a:
jobless, homeless, incomeless, debt ridden, currency appreciationless, recoveryless recovery.

GO USA


(on an anecdotal note, I was attending an MBA information session here in Florida, when the second speaker got up to talk. Talking about job opportunities in this economy, I have never seen a more obvious hatred towards ones own spin when she said,"As we recover.........."
Her eyes rolled so much they almost fell right out of their sockets and she lingered on the word recover as if to say,"Who am I kidding?"
Pretty telling)

Nov 15 05:11 AM

[very rare:]

As far as the taxes issue, how much is bought on the internet where there is basically no sales tax. (I know because I shop there a lot) Even if they taxed the internet sales, I still would save money not driving my car to shop plus, I can shop the whole world from my recliner. Tax (sales tax) from where the buyers base is from. How difficult is that? All online stores need to know where the money will come from. Even Paypal has to know where you live to OK payment.

Nov 15 08:21 AM

[bbro:]

We will get positive job growth in 2 to 3 months.....the ratio of non farms to jobless claims turned up in March 2009, it brokes its 12 month moving average in August 2009...going up. and the 12 month
moving average will turn up in 2 months. When this 12 month moving
average turns up we will get job growth. The ISM non manufacturing business
activity index 3 month moving average projects job growth within several months. As much as Mr. Mauldin's Texas Republican politics is a part of his economic opinion the stimulus has paid out 206 billion in tax cuts.grants.and loans. There is another 379 billion to go in Fiscal year October 2009 to October 2010.

Oh yeah I know Rosenberg predicted the current crisis but he has
also notorious incorrect predictions too.

Nov 15 08:57 AM

[bbro:]

David Rosenberg said the S&P 500 was going to 600 By October 2009.....

Nov 15 09:02 AM

[ari5000:]

Priced in gold, David Rosenberg's prediction of 600 by Oct. 2009 is not that far off...

Nov 15 10:05 AM

[Alphameister:]

I think you wanted "antidote," not "anecdote" in your first paragraph, John, but otherwise an excellent warning of the economic challenges we face. Consumer sentiment took a big drop recently and there is a reasonably good correlation historically between consumer sentiment and stock prices.

You talk about fiscal stimulus coming to an end in 2011, but I see an almost certain succession of stimulus programs as politicos strive to thwart the most depressionary forces since the Thirties. The recent extension of unemployment benefits and the housing tax credit (the latter certain to show diminishing returns) are a good indication of the desperate patchwork fixes to be seen as we try to stave off the inevitable severe adjustments needed to become a viable economy once more.

The U.S. is not headed for a typical post-war economic recovery, and the bull market of the past eight months is on very fragile ground.

Nov 15 10:25 AM

[bbro:]

Ah yes....GOLD....Gold is up 28% since March....S&P is up 60%....


On Nov 15 10:05 AM ari5000 wrote:

> Priced in gold, David Rosenberg's prediction of 600 by Oct. 2009
> is not that far off...

Nov 15 10:38 AM

[bbro:]

S&P 500 is as of Friday 7.64% of GDP...historical median in a
low inflation environment ( 4% yr over yr or lower) is 9.4%


On Nov 15 10:25 AM Alphameister wrote:

> I think you wanted "antidote," not "anecdote" in your first paragraph,
> John, but otherwise an excellent warning of the economic challenges
> we face. Consumer sentiment took a big drop recently and there is
> a reasonably good correlation historically between consumer sentiment
> and stock prices.
>
> You talk about fiscal stimulus coming to an end in 2011, but I see
> an almost certain succession of stimulus programs as politicos strive
> to thwart the most depressionary forces since the Thirties. The recent
> extension of unemployment benefits and the housing tax credit (the
> latter certain to show diminishing returns) are a good indication
> of the desperate patchwork fixes to be seen as we try to stave off
> the inevitable severe adjustments needed to become a viable economy
> once more.
>
> The U.S. is not headed for a typical post-war economic recovery,
> and the bull market of the past eight months is on very fragile ground.

Nov 15 10:40 AM

[John Lounsbury:]

The structure of unemployment (not just the extent) and the extent of home price depreciation are just two of the factors that make this recession difficult to compare to prior downturns post WWII. The charting observations made by bbro, which I have documented in articles, are indeed correct. In the past, these would be much easier to interpret. However, the factors listed below are just three of the reasons this time is different:

1. In the recession considered to be the worst before this one (1981-82), the total number of jobs lost was 1.661 million (would be 2.22 million adjusted for today's higher population). Of these 45% (approximately 1 million relative to 2009 total population) were permanent.

The corresponding numbers today are 8.39 million jobs lost (more than 3.75 times as many) and 56% are permanent (4.70 million, 4.7 times as many).

We have to deal with 4.7 million jobs that are never coming back. This is a dislocation much more severe than ever experienced in post WW II history.

2. The second dislocation much greater than anything since the Great Depression is the unprecedented decline in home values. With median values dropping at least 20% in many regions, and more in some, the economic distress on consumers is draconian. The fact that prices still have not returned to long-term trend lines is indicating that further problems may occur, in spite of government efforts to put in a floor for the market.

3. The collapse of the financial system we have seen is like a 100 year flood. When the firms saved only by unprecedented government support through assumption of substantial government ownership are included, the financial crisis dwarfs even the magnitude of the Great Depression. I have written articles making these comparisons last summer.

We all tend to interpret situations based on our past experiences. We have so many factors outside of the range of experience of those living today that there are bound to be many false projections. That is why a few, like John Mauldin, continue to examine our situation with viewpoints outside the box of our common experiences to our great benefit.

The fact that we are in uncharted waters and will remain there for some time is simply not appreciated by many.

Nov 15 11:00 AM

[bbro:]

In an attempt to look outside the Box....Household debt service payments as a % of GDP is 10%....if we use 1986 as the last time we
were a"Normal" economy under the rules of the New Normal i.e. 8%
savings rate.....our household debt service payments as a % of GDP
was 8.8%. Not diminishing the importance of dealing with idebt s it not
possible that Mr. Maudlin's original thesis 5 years ago of a Muddling
Along Economy was correct and last year was an overreaction to
an exogenous event. As an aside housing is an inventory problem
and time often takes care of inventory imbalances. The value of the stimulus package is not just growth or jobs but allows for repair of
an inventory imbalance without killing the patient.

Nov 15 11:26 AM

[Michael Shu...:]

A narrow answer to the question of retail sales is the confusion among investors -- and of course, blow dried media pundits -- about retail sales and consumer spending. Government statistics on consumer spending include spending health care -- typically exempt from state taxes. Health care spending, doing very simple math, 17% of the economy or 17 into 65, the percent of the economy that is consumer spending and you can see health care spending is at least 25% of consumer spending. And expenditures are rising monthly due to medical cost inflation. You can do the math and see why retail sales are much worse off than consumer spending. And retail sales drive many kinds of employment, drive rents on retail space and so on, shipping, manufacturing and so on. Bottom line: the fall of retail sales is much worse than consumer spending in general and, in my opinion, not recover to previous levels, holding down employment, especially at the lower end go the job market. Recent surveys by ChangeWave (changewave.com) show consumer spending is flattening out. That being said, do not short the retailers, the Street continues to love them, if you want to short traditional retail, go long Amazon as I recently wrote in my service, ChangeWave Shorts (also ChangeWave.com.

Nov 15 11:42 AM

[Glen L.:]

@bbro: "As much as Mr. Mauldin's Texas Republican politics is a part of his economic opinion the stimulus has paid out 206 billion in tax cuts.grants.and loans. There is another 379 billion to go in Fiscal year October 2009 to October 2010."

As much as your Democrat politics is a part of your opinion, where do you think the stimulus funds came/will come from? From (a) taxing the productive non-government sector, the very people who are struggling to stay afloat in this economy and who would be hiring if you don't overtax them; (b) from China et al; and (c) from the government printing press. All of which is Keynes on steroids and horrible from an economic perspective. Furthermore, your rosy employment picture is false, because by far the biggest increase in hiring is being done by the Federal government, and we all know how productive THAT sector is in the economy.

So get down off your partisan horse and learn the lessons of history. The Great Depression was started by a Republican and made far worse by a Democrat who continued and exacerbated the former's failed stimulus, monetary and taxation policies. The exact same thing is happening this time, but the results are going to be far worse, due to the exponential increase in the size of the Federal government since 1930.

Cheers,
Glen L.

Nov 15 11:47 AM

[MarkitWacha:]

As the currency collapses, manufacturing will pick up the slack. The illegals will leave to go back to where they've been sending their dollars.

Texas employment markets are stable, which is why the idiot extremist socialists from the coasts are coming here to Dallas in droves. I can literally flip off 4 Californians at once by raising my hand through the sunroof when I'm driving to and from work.

Nov 15 11:52 AM

[yellowhoard:]

The unemployment numbers that the author estimates are rosy in my opinion.

At rates slightly higher than what we currently have, we'll see a cascading effect on tax revenues and government expenditures that will require QE on a level that will dwarf what we are currently seeing.

The rest of the world is aware of this. They will dump the dollar. Interest rates will have to rise substantially and businesses will close at a record pace.

We are circling the drain.

Nov 15 11:54 AM

[Glen L.:]

John Mauldin: thanks for a great piece. It's easy to see that you (and Mish) have put a ton of work and thought into it.

But.... why so rosy an outlook? ;-)

I just finished reading Robert Murphy's excellent "Politically Incorrect Guide to the Great Depression". He makes a very strong case that the Fed was responsible for the 1929 crash, that the Depression did not end until 1946, and that both Hoover and FDR pursued avante-garde socialist and fascist economic policies in what was generally a well-meaning effort to alleviate the pain, policies which utterly failed because they were based on economic fallacies and ignorance. What are we seeing now if not exactly the same mistakes, only much larger in magnitude?

The only way out of this is for the average citizen who still has a job to start saving and prudently investing to rebuild the capital base, and for government to shrink dramatically and reduce the tax burden, allowing entrepreneurship to flourish again. Every other recovery scenario is based on inflating one bubble or another, with disastrous consequences. The stimulus packages are just the federal government bubble, which is the biggest fiasco of them all.

Nov 15 12:03 PM

[Old Trader:]

I suspect that the "good ol' days" of 5% unemployed being considered "full employment" are behind us, and we'll be much closer to the European model (somewhere in the 8-10%, as mentioned in the article).

I just posted some suggestions on addressing the unemployment problem on my instablog, and hope to get feedback from the SA community.

Nov 15 12:07 PM

[dividend_gr...:]

If all the money sits in banks as cash, where will the demand come from?

If there are no demands, where will the jobs come from?

If the federal government does not spend now, who does? American consumers already knee deep in debt?

Nov 15 12:20 PM

[John Lounsbury:]

Glen - - -

I gave you a thumbs up but had to think about it because you gave far too simple (and in my opinion misleading) summary of the Great Depression. I have studied that time period quite extensively and the statement you made is simply oversimplification of a very complex situation. I refer to your statement:

<The Great Depression was started by a Republican and made far worse by a Democrat who continued and exacerbated the former's failed stimulus, monetary and taxation policies.>


On Nov 15 11:47 AM Glen L. wrote:

> @bbro: "As much as Mr. Mauldin's Texas Republican politics is a part
> of his economic opinion the stimulus has paid out 206 billion in
> tax cuts.grants.and loans. There is another 379 billion to go in
> Fiscal year October 2009 to October 2010."
>
> As much as your Democrat politics is a part of your opinion, where
> do you think the stimulus funds came/will come from? From (a) taxing
> the productive non-government sector, the very people who are struggling
> to stay afloat in this economy and who would be hiring if you don't
> overtax them; (b) from China et al; and (c) from the government printing
> press. All of which is Keynes on steroids and horrible from an economic
> perspective. Furthermore, your rosy employment picture is false,
> because by far the biggest increase in hiring is being done by the
> Federal government, and we all know how productive THAT sector is
> in the economy.
>
> So get down off your partisan horse and learn the lessons of history.
> The Great Depression was started by a Republican and made far worse
> by a Democrat who continued and exacerbated the former's failed stimulus,
> monetary and taxation policies. The exact same thing is happening
> this time, but the results are going to be far worse, due to the
> exponential increase in the size of the Federal government since
> 1930.
>
> Cheers,
> Glen L.

Nov 15 12:24 PM

[bbro:]

You want to take away social security and Medicare go ahead ( good luck getting elected too)....the last time the world you dream of existed was in 1893....
good times for all.....


On Nov 15 11:47 AM Glen L. wrote:

> @bbro: "As much as Mr. Mauldin's Texas Republican politics is a part
> of his economic opinion the stimulus has paid out 206 billion in
> tax cuts.grants.and loans. There is another 379 billion to go in
> Fiscal year October 2009 to October 2010."
>
> As much as your Democrat politics is a part of your opinion, where
> do you think the stimulus funds came/will come from? From (a) taxing
> the productive non-government sector, the very people who are struggling
> to stay afloat in this economy and who would be hiring if you don't
> overtax them; (b) from China et al; and (c) from the government printing
> press. All of which is Keynes on steroids and horrible from an economic
> perspective. Furthermore, your rosy employment picture is false,
> because by far the biggest increase in hiring is being done by the
> Federal government, and we all know how productive THAT sector is
> in the economy.
>
> So get down off your partisan horse and learn the lessons of history.
> The Great Depression was started by a Republican and made far worse
> by a Democrat who continued and exacerbated the former's failed stimulus,
> monetary and taxation policies. The exact same thing is happening
> this time, but the results are going to be far worse, due to the
> exponential increase in the size of the Federal government since
> 1930.
>
> Cheers,
> Glen L.

Nov 15 12:27 PM

[ebworthen:]

Put down the hopium pipe, and the tattered paradigm flag of a Donkey or Elephant. Republicrat - Demican....same thing.

Politics is the distraction.


On Nov 15 08:57 AM bbro wrote:

> We will get positive job growth in 2 to 3 months.....the ratio of
> non farms to jobless claims turned up in March 2009, it brokes its
> 12 month moving average in August 2009...going up. and the 12 month
>
> moving average will turn up in 2 months. When this 12 month moving
>
> average turns up we will get job growth. The ISM non manufacturing
> business
> activity index 3 month moving average projects job growth within
> several months. As much as Mr. Mauldin's Texas Republican politics
> is a part of his economic opinion the stimulus has paid out 206 billion
> in tax cuts.grants.and loans. There is another 379 billion to go
> in Fiscal year October 2009 to October 2010.
>
> Oh yeah I know Rosenberg predicted the current crisis but he has
>
> also notorious incorrect predictions too.

Nov 15 12:28 PM

[bbro:]

What kind of partisan horse you think John Mauldin rides???


On Nov 15 12:27 PM bbro wrote:

> You want to take away social security and Medicare go ahead ( good
> luck getting elected too)....the last time the world you dream of
> existed was in 1893....
> good times for all.....

Nov 15 12:28 PM

[bbro:]

And there goes America's regional party,,,the GOP...gotta get more than the South.....
On Nov 15 11:52 AM MarkitWacha wrote:

> As the currency collapses, manufacturing will pick up the slack.
> The illegals will leave to go back to where they've been sending
> their dollars.
>
> Texas employment markets are stable, which is why the idiot extremist
> socialists from the coasts are coming here to Dallas in droves. I
> can literally flip off 4 Californians at once by raising my hand
> through the sunroof when I'm driving to and from work.

Nov 15 12:32 PM

[searcher:]

How many years will it take till were being warned about a paucity of workers as the boomers die off?

Nov 15 01:01 PM

[Windsun33:]

This, to me, is the really scary part: <...the private sector has shed over 300,000 jobs since 1999. .>

10 years of births & legal and illegal immigration in the millions - and we are worse off now than we were in 1999. That sounds to me like some major jobs market deflation. All this in the middle of 15+ years of massive federal, state, and local government growth. As the author noted, I think the next 1-4 years will see some massive anti-incumbent shifts in voting. Would not surprise me to see both parties fall below 25% of registered voters.

But even now with all the unemployement, we have trouble finding workers in the "mid skills" range. We can find dozens of people with liberal arts degrees, or people with no skills (which is often the same thing). But trying to find an electrician or website building "guru" is almost impossible.

Nov 15 01:05 PM

[Econ 1:]

So market valuations can be made to look as though they are within a reasonable multiple (depending on your time frame for one thing) but where is the earnings growth going to come from in the next 3-4 quarters? Cost-cutting in the form of firing half your work force is not a sustainable path to growth.

I just checked the Brookings Institute and corporate tax revenues projected for 2009 are down over 50% over 2008.

My question is how can anyone say this market is fairly valued (after this rally) after taking into account that business revenues (as measured by proxy against collected tax revenues) is HALF of what is what a year ago? Publicly traded companies are not the whole economy. Small business is getting hammered by this administration's policies and social engineering.

Where will earnings growth come from? Please don't say more government spending--because these revenues are down even WITH what few dollars have made it to the street from the horribly inefficient, wasteful, and corrupt stimulus pipeline.

Nov 15 01:57 PM

[WTF@USALOL:]

SOS from Mr. Maudlin. Yes, no surprises here, unemployment is going higher, business are still going under, Rosenberg still negative. None of this is new, he just keeps putting out the same sanguine data. And none of it matters as long as the Fed stays at ZIRP and the government floodgates are open. As frustrating as it may be FUNDAMENTALS DO NOT MATTER. The Almighty dollar that we all have come to love probably has another 20% downside potential as Benbie and Timmy G have made such an absolute mockery of our currency.

Nov 15 02:23 PM

[Alphameister:]

Social Security was poorly conceived, has been poorly implemented, and can only be judged a colossal failure by anyone perceptive enough to imagine more well-conceived alternatives. It has been a major step in this country's willingness to trade freedom for a bit of security. There is a reason that Congress has adopted a much more generous, taxpayer-funded retirement program for themselves.

The Medicare program is equally flawed and irresponsible. Nothing has been more devastating to the black community than the "war on poverty." The road to hell is indeed paved with good intentions (though it is difficult to credit economic stupidity behind such good intentions when a cynic might easily see the protestations of such good intentions as merely an effective path to power and all the perquisites of power).

Warren Harding took a very provocative, "simplistic" approach to the depression he inherited in 1921. He slashed government spending and taxes. Within two years, the country was back to full employment and embarking on a boom that would end badly (giving Hoover and FDR a chance to work their mischief; neither had learned anything from Harding's success). Does anyone see a willingness in today's capital to learn from Harding's success?

Both the above article and comments make no mention of the current political leaders' determination to impose heavy new taxation (indirect or direct) in the form of health-care "reform" and cap-and-tax legislation. Any business owner/manager worried about the effects of such legislation on their profitability will be very slow to add workers in this "brave new world."

Does anyone believe that a younger generation steeped in the politics of entitlement and increasingly divorced from any commitment to excellence of performance as the path to success will accept graciously the obligations being foisted on them by the irresponsibility of their elders? We are heading toward a revolt, and I'm afraid it's a revolt that is long overdue.

Nov 15 02:23 PM

[Formyx:]

@John Mauldin
>Third, the only way out of this morass is to create an environment >where small business can thrive.

This is one of the biggest illusions; i.e. that small business can be an engine of growth. Most small businesses are entirely dependent on the presence of big business. Simply keep track of communities which have been gutted completely when big business (or govt) moved out.

Obviously, there will be some small businesses that make it big ( i.e. entities that have some sort of advantage ), however for the majority of enterprises with a few employees the relationship is 100% parasitic on big business.

It is logical to assume that a good restaurant has a positive beta to the growth of a big employer in town than the other way around.

In an environment where creation of business is nurtured, the few big winners will pull the smaller entities as well.

Nov 15 03:32 PM

[davidbdc:]

Interesting thoughts. I think the number of immigrants is too high. People come to the USA for opportunities and in the past we were destination #1. But more and more I hear less and less younger people talk about going to the USA when I travel overseas on business. I think we are one of the prime destinations, but just one of many.

Also, I agree that small business is in danger of being run over by government largess. Once you create an environment that people shy away from starting businesses your sunk. That is exactly the situation in Belgium, France, Germany, etc.....people know that dealing with the bureaucracy is horrendous and that they keep little of the profit....so they don't bother.

As the last of our manufacturing footprint is allowed to wither and die, along with it goes our hope for sustained employment for those without advanced degrees. This is a serious economic and social issue that gets no attention in Washington DC. We urgently need a national industrial policy and a national energy policy that puts the interests of the US ahead of other countries. Another decade of sending $250 Billion a year to the Middle East and Trillions to China for cheap junk will be the last round of nails in the coffin.

Nov 15 04:39 PM

[bbro:]

would love to know what sort of productivity numbers would come off of these numbers???

Nov 15 05:07 PM

[JohnLocke:]

"So, if things are so bad, how did we have 3.5% growth in the third quarter? First off, things are not as bad as they were in the past year. We are in fact getting close to an economic bottom, at least for now. Second, the 3.5% number is a preliminary estimate. A study by Goldman Sachs (GS) suggests that the number will be revised down by at least 0.5% and maybe as much as 1%."

Did you really quote Goldman Sachs? How can you in good faith trust anything that GS says...

Still an interesting article, Thanks

Nov 15 05:10 PM

[Spin:]

John, thank you for a well written, thought provoking article. I have to admit that I was in the non-believers camp even before reading your piece.

I see the Congress and Senate as part of the problem - not part of the solution. There is little or no leadership from Washington. Just politics. Both sides of the aisle are to blame for what got us in this mess and keeping us stuck in the muck.

Nov 15 05:43 PM

[Poor Texan:]

The unemployment number is probably understated. Many undocumented workers who worked off the clock have left due to lack of work. (It's much cheaper to survive in a less developed economy). Workers on unemployment will be glad to pick up a few bucks off the clock so they don't disturb their main source of income thus relieving the pressure on the employer to hire. So slowly but surely the tax base erodes and depreciation of the currency becomes the only way for the government to keep the appearance of solvency. Meanwhile, investment dollars go overseas where, even in a no growth scenario, there is profit in the local currency's relation to the dollar. The Canadian dollar is almost at par with the U.S. dollar; not so many years ago the Canadian dollar was only worth seventy five cents. However, there will continue to be a brisk market for tax shelters as the rich look for ways to protect their net worth. Just study Buffet, Gates and Soros for examples.

Nov 15 07:51 PM

[damienhaas:]

I think the main issue John is talking about is employment. Big companies normally are more efficient and turn to outsource workforce oversea and does not create jobs effectively. However small business normally operate locally and tend to provide more employment.


On Nov 15 03:32 PM Formyx wrote:

> @John Mauldin

Nov 15 07:52 PM

[Formyx:]

@damienhaas

If that were the case, we would not have ghost towns. That is, if you believe small businesses have staying power on their own. A tour of the great old mill towns of the north-east, the old steel towns of Pennsylvania or the car assembly towns in Michigan disproves that.

Great cities are usually built around national or global players. It is not a question of what sector provides more employment. Small businesses provide more. But a necessary condition for them to exist is that big business exists nearby.

Nov 15 08:47 PM

[Brad Ferris:]

Taxes are going to rise or new taxes will be created as all levels of government attempt to deal with their revenue shortfalls.

Nov 15 10:35 PM

[Options Tra...:]

This is a recovery but it takes time to get the real economy back to how it was before the crisis.

Remember, its a recovery, not a growth economy yet.

Nov 15 11:41 PM

[Nikola:]

"I can't believe it's not Recovery!"

Nov 16 03:46 AM

[Marvin Clark:]

John, I agree with everything you say except your conclusion; we are in the early stage of a depression. The next phase of this depression is when cities and states "officially" run out of money and the "severance package" class runs out of funds and can't find work. The bell will toll for this economy in the spring of 2010 when it is announced that YOY state and federal tax revenue is down double-digits.

Nov 16 05:17 AM

[SmBlkBob:]

My prediction is huge free fall beginning in March 2010.

This may be accelerated depending on how Black Friday goes.
My feeling is there are still enough people with credit to get through Christmas but not beyond.

Judging by how friends are acting however, I vote for an early free fall.

Bob

Nov 16 06:13 AM

[jrainspe:]

Since all scenarios are from assumptions, let's just remember what happens when you ASS-YOU-ME.

Nov 16 07:04 AM

[damienhaas:]

Not sure how effective big business will help small business, I still remember when Wal-Mart invaded the town and a lot of Mom and Pa businesses disappear....


On Nov 15 08:47 PM Formyx wrote:

> @damienhaas
>
> If that were the case, we would not have ghost towns. That is, if
> you believe small businesses have staying power on their own. A tour
> of the great old mill towns of the north-east, the old steel towns
> of Pennsylvania or the car assembly towns in Michigan disproves that.
>
>
> Great cities are usually built around national or global players.
> It is not a question of what sector provides more employment. Small
> businesses provide more. But a necessary condition for them to exist
> is that big business exists nearby.

Nov 16 09:32 AM

[Formyx:]

@damienhaas

You ignore the millions of small suppliers to WMT.

Nov 16 09:42 AM

[baird:]

Taking away Social Security and Medicare is obviously nuts but what could improve the situation would be a relative reduction in benefits which could make a dramatic difference in the long term viability of both these programs.


On Nov 15 12:27 PM bbro wrote:

> You want to take away social security and Medicare go ahead ( good
> luck getting elected too)....the last time the world you dream of
> existed was in 1893....
> good times for all.....

Nov 16 09:49 AM

[Boxed Merlot:]

On Nov 15 01:05 PM Windsun33 wrote:

> we have trouble finding workers… trying to find an electrician
> … is almost impossible…


This opens up another area of concern that is often overlooked. Some of the most highly experienced and qualified workers are retirees from unions that are under direct mandate to discontinue any form of pursuing employment in their former fields of endeavor. If caught doing so, they suffer loss of retirement benefits and face the scorn of the rest of their “brotherhood”. So, “life, liberty and the pursuit of happiness” better not include the continued enjoyment of practicing a trade one dedicated their life to once an artificial “milestone” is past that disallows your doing so.

Nov 16 11:58 AM

[commoinsens...:]

what policies are hammering small business today? none of this legislation has been implemented and the tax rates are the same as they were during the bush administration. business sucks because banks are not ledning, big business is downsizing. not current admin policies.


On Nov 15 01:57 PM Econ 1 wrote:

> So market valuations can be made to look as though they are within
> a reasonable multiple (depending on your time frame for one thing)
> but where is the earnings growth going to come from in the next 3-4
> quarters? Cost-cutting in the form of firing half your work force
> is not a sustainable path to growth.
>
> I just checked the Brookings Institute and corporate tax revenues
> projected for 2009 are down over 50% over 2008.
>
> My question is how can anyone say this market is fairly valued (after
> this rally) after taking into account that business revenues (as
> measured by proxy against collected tax revenues) is HALF of what
> is what a year ago? Publicly traded companies are not the whole economy.
> Small business is getting hammered by this administration's policies
> and social engineering.
>
> Where will earnings growth come from? Please don't say more government
> spending--because these revenues are down even WITH what few dollars
> have made it to the street from the horribly inefficient, wasteful,
> and corrupt stimulus pipeline.

Nov 16 11:59 AM

[philais:]

Not only immigration to high, it is that the visa system bringing them here is corrupt.

Second point is that the amount of outsourced jobs that we have lost are more than our current unemployment. I recently called American Express to rebook a flight and was directed to an Indian call center. When the agent couldn't help and need a supervisor. I thought, "good I'll get back to the US centers." Only problem, no more US call centers! I got a supervisor from India.

With punishing corporate tax rates along with labor taxes and Medicare taxes etc. rules , regulations and soon to be increased health care costs being incurred, the big corporations don't have to take it anymore. They simply move "service labor" out side the US and import it back without consequence under the guise of "free trade."

There is nothing "free trade" about this. Now, I'm not a labor advocate, I'm a small businessman who is forced to stay here in the US and try to compete.

Exportedservice jobs and then imported labor services by all large and small corporations should be subjected to a "labor tariff" It is interesting that the Council on Foreign Relations basically takes the position on exported labor as "Sorry Charlie" and that jobs would leave anyway...
www.cfr.org/publicatio... ... is crap! The only thing FREE is to the corporations doing it. We all understand that tariffs are killers to trade among nations, but, tariffs on "service labor trade" has not yet been discussed. What trade war would occur from a "labor tariff"?


On Nov 15 04:39 PM davidbdc wrote:

> Interesting thoughts. I think the number of immigrants is too high.
> People come to the USA for opportunities and in the past we were
> destination #1. But more and more I hear less and less younger people
> talk about going to the USA when I travel overseas on business.
> I think we are one of the prime destinations, but just one of many.
>
>
> Also, I agree that small business is in danger of being run over
> by government largess. Once you create an environment that people
> shy away from starting businesses your sunk. That is exactly the
> situation in Belgium, France, Germany, etc.....people know that dealing
> with the bureaucracy is horrendous and that they keep little of the
> profit....so they don't bother.
>
> As the last of our manufacturing footprint is allowed to wither and
> die, along with it goes our hope for sustained employment for those
> without advanced degrees. This is a serious economic and social
> issue that gets no attention in Washington DC. We urgently need
> a national industrial policy and a national energy policy that puts
> the interests of the US ahead of other countries. Another decade
> of sending $250 Billion a year to the Middle East and Trillions to
> China for cheap junk will be the last round of nails in the coffin.

Nov 16 12:21 PM

[speeddaimon:]

Yes, tell us all about those small businesses in China making inferior lead laden goods to sell to Americans with a large consumer appetite and no eye to quality.


On Nov 16 09:42 AM Formyx wrote:

> @damienhaas
>
> You ignore the millions of small suppliers to WMT.

Nov 16 01:23 PM

[William Leg...:]

Excellent article. My money is on scenario 3, at best. USG currently lacks the will, fortitude, and desire to achieve any better.

Nov 16 03:21 PM

[bobbybutte:]

as a person who has become financially independent SOLELY from allocating capital and NOT by spewing this anti capitalist nonsense let me add some things here

Unemployment is not as high as they say I know many peeople who are working under the table while collecting unemployment

stop extending benefits and instead provide tax credits to those who guarantee jobs for 5 yaers and provide health insurance and the numbesr will change

This guy predicted depression and hes dead wrong

dont believe me ask buffett who has made 158 billion for he and his investors not this pessimist

Nov 16 04:06 PM

[Tomcat101:]

Regarding sales taxes and unemployment- I work in HR for the state of North Carolina. Within the last 3 months or so we have actually started hiring again. I can assure you that this would not be happening if state revenues were not begining to improve.

I also have a relative that just got hired by the state of Virginia- twice. She was hired in April and hated that job so bad she quit, and then was hired for another Virginia state job.

And they keep saying how teenagers can't find work. My teenage son, with a bare minimal amount of effort, just got a job at Pizza Hut.

I believe a big part of the "unemployed" are people who don't want to work anyway, or are people who are here illegally. I can't speak for the whole country, but in NC and VA, there are jobs out there if you look hard enough.

So, I'm cautiously optimistic, at least for now. Hard to say what will happen next year when Obama jacks up our taxes though. Plus, with the dollar falling and gas rising, that is bound to be putting pressure on low income people.

Nov 16 05:44 PM

[dc1095:]

Earnings growth will come from abroad. >50% Dow earnings and >70% of S&P earnings now come from abroad.

The market is not as precarious as the US unemployment story. Where should US money go besides domestic equities?

Housing's recovery will be a long time coming and bonds will offer little. Emerging market equities won't take it all.

Only the exploding housing market softenend the unemployment picture following the 2000 recession, and housing and manufacturing jobs are now far worse off than they were then.

We're in for the mother of all jobless recoveries, but domestic equities may not be that bad.

dc1095


On Nov 15 01:57 PM Econ 1 wrote:

> So market valuations can be made to look as though they are within
> a reasonable multiple (depending on your time frame for one thing)
> but where is the earnings growth going to come from in the next 3-4
> quarters? Cost-cutting in the form of firing half your work force
> is not a sustainable path to growth.
>
> I just checked the Brookings Institute and corporate tax revenues
> projected for 2009 are down over 50% over 2008.
>
> My question is how can anyone say this market is fairly valued (after
> this rally) after taking into account that business revenues (as
> measured by proxy against collected tax revenues) is HALF of what
> is what a year ago? Publicly traded companies are not the whole economy.
> Small business is getting hammered by this administration's policies
> and social engineering.
>
> Where will earnings growth come from? Please don't say more government
> spending--because these revenues are down even WITH what few dollars
> have made it to the street from the horribly inefficient, wasteful,
> and corrupt stimulus pipeline.

Nov 17 12:28 AM