The Die Is Cast

This morning's employment report for September is the worst yet for this cycle, and we'll probably see even deeper pain in the months to come. But for now, the last shred of hope that maybe, perhaps, somehow the U.S. could avoid recession has been definitively dashed, once and for all in today's jobs update.

Nonfarm payrolls slumped by 159,000 last month, the biggest monthly loss for the labor market in five years and the ninth straight month of red ink for job destruction, the government reports. That's a sharp drop down from the relatively moderate losses we've seen previously, as our chart below shows. Although unemployment was unchanged at 6.1%, the steady jobless rate for September should fool no one. The message from the labor market is clear: The one-year-old financial crisis is now taking a bigger toll on the broader economy, and the pain is still gathering steam and cutting deeper.

The mounting troubles for the economy have been bubbling for some time, of course, as we have chronicled throughout this year. Back in March, we laid out the case for why a recession was virtually certain. Unfortunately, the corroborating evidence has continued to pile up since then. Earlier this week, for instance, we learned that car sales and factory orders suffered hefty declines last month, adding more signs that there's still plenty of trouble ahead.

The unwinding is upon is, and there's not much that the Federal Reserve can do now to ease the pain. Cutting interest rates at this point won't help much beyond the margins, although some are calling for cut in Fed funds to 1% from the current 2% and there's a sense that the cut could come before the FOMC is scheduled to meet on October 28 and 29.

"Cutting short rates as close to zero as possible," writes Ian Shepherdson of High Frequency Economics in a note to clients today, "is a key ingredient of the policy mix required to prevent a pre-depression economy becoming a real depression economy."

But let's be clear: This process will roll on until it's had its way. The government can help some by, say, extending unemployment benefits and buying up those securities from financial institutions that no one else wants. There's some additional insurance in dropping interest rates too. But no one wants to lend, and consumers are cutting back on non-essential purchases, and so borrowing at any price looks unappealing for most folks. That defensive posture's not likely to change anytime soon, and therein lies a key part of the challenges that await.

One of the few bright spots in all of this is the continuing fall in oil prices. The NYMEX November '08 contract for crude, for instance, is currently in the low-$90 range, which is near the lows for the past 12 months. Lower energy costs will help ease the financial pain weighing on Joe Sixpack. But even continued price declines in gasoline, heating oil, etc. — assuming that's coming — won't be enough to turn around the pain bubbling elsewhere in the economy.

Ultimately what's needed to change the economic tone is an upturn in sentiment among consumers, investors and businesses. That will come, but not until deep into 2009 at the earliest. And that's the optimistic outlook.

For now, the die is cast. It's unclear how deep and how long the economic correction will be. October promises to be a critical month in providing clues about how this downturn plays out in the coming quarters (years?).

For now, however, it's going to be a long weekend, no doubt the first of many. It's time, dear readers, to pace yourself and keep an eye out for opportunity in the capital and commodity markets. But patience is essential, along with a cool head.

Comments

[Al-USA:]

Ok, good advice thanks. I feel sorry for the average American who still needs to pull a paycheck and loses his job. What with the RIPOFF, err, bailout to the tune of $700,000,000,000+ and the damn politicians would not pass an increase in unemployment benefits.... It just goes to show you, the "evil" bankers rule.

2008 Oct 03 04:27 PM

[User 265729:]

Ya! The die is cast. DOW OFF -157 after the bill is passed and market futures dip globally...

Oh! After voting in favor of a bill that provided a $700 billion bailout to help the inept on Wall Street continue their scam, plus $100 billion in pure pork to bribe Congressmen and Congresswomen to vote for this bill Nancy Pelosi states:

"The party on Wall Street is over."

Ya Nancy! The party is over on Wall Street. It looks like the party's moved to Washington DC. I guess you tax and spend types are already talking about Bailout II - The Sequel.

Nancy, they are already lining up for bailouts now... California... $7billion, New York... on and on. Say Nancy, Guam... Are they a part of the United States? Maybe you could sell Guam back to Spain for a few billion... Why stop there? You could sell Alaska back to Russia and thereby preventing Palin from running on the ticket with McCain.

Nancy, when I look at people like you, Frank, Paulson, Bush... I just become overwhelmed with confidence in our country economy...

The die is cast alright... We are all gonna die in this economy...

2008 Oct 03 04:28 PM

[Owen:]

You've been saying we're in a recession since March, and you've been wrong each month since then. Sure, at some point you'll probably be correct, just like a stopped clock is correct twice a day.

I was looking for new information, interpretation or insight in your article, but all I found was speculation without any facts on which to base it.

2008 Oct 03 04:28 PM

[Moses:]

Owen if you don't think we are in a recession then you are probably one of those people who believe the GDP Deflator was 1.2% last quarter. When this is all said and down you and people like you will be known as "bagholders." Congratulations.

2008 Oct 03 04:35 PM

[User 265729:]

Moses, you may wish to inform Owen, that he may wish to consider getting off the tracks. The runaway trail is coming...

2008 Oct 03 04:50 PM

[Owen:]

Moses and Curbs-In,

I survived the last few recessions--both the real and the imaginary ones--very well, but thank you both for your concern.

Curbs-In, I realize that short sellers like you provide an important function in the market, increasing the liquidity and all that. However, your kind of trash talk ("Ya! We're all gonna die!") is more suitable for places like the Yahoo Message Boards than here. Please try to keep discussion here civilized and on topic. Thank you.


On Oct 03 04:35 PM Moses wrote:

> Owen if you don't think we are in a recession then you are probably
> one of those people who believe the GDP Deflator was 1.2% last quarter.
> When this is all said and down you and people like you will be known
> as "bagholders.&quot.... Congratulations.

2008 Oct 03 05:03 PM

[User 265729:]

Owen,

Sorry I'm short on confidence in the U.S. Government and Wall Street since this seems to bother you. Looking at the performance of the markets for the past few weeks I'd guess that there are more of people like me in the world than people like you.

But let's make the point about your comment that my input is somehow "off topic"... Perhaps you need to reread the content contained in this article again... So... One of the "bright spots" is oil... And why is that a bright spot Owen? I think they call it no demand because the world' economy will be so screwed-up, be it recession or depression, (the topic of the article), that nobody will be driving anywhere and industries will not be using petrochemicals. Real bright spot, eh Owen?

Owen, thanks for your bio on the various crisis you've survived... I'm impressed... Owen, I'm an old man and not far removed from the "big one." You haven't seen anything yet, young man. Back then most of America was still rural and those in urban or near urban areas still had family roots on the farm. When this, as George Bush puts it, "sucker goes down", most Americans won't have a family farm to run to for the basics. You Wall Street types will be wondering what to do with yourselves at the corner Starbucks...

This time Owen, all of the Madison Avenue magic will not create an illusion of wealth that isn't there... It's been mirros and smoke for almost 15 years... The smoke is clearing...

2008 Oct 03 05:26 PM

[Socialism c...:]

The employment report has dashed the last hope of avoiding recession??? Unemployment is a *lagging* indicator...and the revised GDP last quarter was 2.8% *growth*. We have not had a single quarter of negative GDP yet, much less two consecutive -- which is the definition of recession. We had growth aligned with a bad number for a lagging indicator, and that's cause for concern going forward? Where did you study your economics??? That fact actually makes me optimistic going forward!

2008 Oct 03 05:28 PM

[inthemoney:]

I will trsut my eyes more than I trust government's fairy tale GDP and unemployement numbers. We have been in recession for 2 quarters already. Why does government increase SSN payments by 5.5% to adjust for inflation but deflates GDP by only 1.3%? Does it make sense to you?
The official unemployment number is useless. There is another number that is more accurate, - labor force participation.

----------------------...
The official unemployment rate only includes workers who are actively seeking a job. The labor force participation rate, which includes the number of working-aged people with jobs, fell slightly to 66.0%.
----------------------...

Even if you assume that 10% of these people choose not to work because they have other means to provide for themselves( and that is a high number), then is still leaves 23% of people who need a job and don't have one.

2008 Oct 03 05:40 PM

[User 265729:]

Socialism cannot compete!,

I don't know... USG stats are restated more often than not to get a short-term bump in confidence. Just this week, and I don't recall what it was off the top of my head, a USG indicator was readjusted down almost a full percentage point.

One of the first lesson I learned in my undergraduate economics class went something like... "What's the unemployment rate... Anything you want it to be..." Things are just so manipulated that it's hard to say...

My on the ground view that I have is dismal... Markets with fewer shoppers, higher prices, rotting food (due to fewer shipments and longer transit times), empty shelves and/or half/understocked shelves, gas stations with no gas, people can't even afford the electricity to cool their homes.

I'm starting to see a lot of spooky things and my contacts in Europe and Asia are seeing much of the same..

2008 Oct 03 05:42 PM

[Lin:]

curbs-in , Well said . I'm not old , but very ill .I have tried to die x2 already . I'm glad that I lived when America was doing well . I too , read that comment from G. W. Bush re this sucker going down . this bailout isn't going to fix anything , merely prolong it till the election . then the " greater Depression " will strike . I think the market already knows this . Young folks won't be able to deal with this , as they never had to deal with ' rough times, or living on a string . Good Luck , ya'll

2008 Oct 03 05:47 PM

[fnu149:]

Basic economics: Demand vs. Supply. If you think about it, demand on a vast majority of goods will continue to go down, therefore, we will be in for some pains ahead. Previous years earnings and growth in prior years will need to be adjusted to reflect the current situation. The demand curve won't improve because we're just in the beginning cycles of consumers demanding less.

I believe when you see a great deal of companies report "same stores sales growth" are negative, then the system is probably in the cleaning process.

2008 Oct 03 05:53 PM

[User 265729:]

Owen and others... I wanted to offer you a paragraph you might find interesting... I know I'm an old man, but you might read it an find a "back to the future" aspect to it:

"True, they have tried. But their efforts have been cast in the pattern of an outworn tradition. Faced by failure of credit, they have proposed only the lending of more money. Stripped of the lure of profit by which to induce our people to follow their false leadership, they have resorted to exhortations, pleading tearfully for restored confidence. They only know the rules of a generation of self-seekers. They have no vision, and when there is no vision the people perish."

Source? The First Inaugural Address of Franklin Delano Roosevelt. You may find it interesting to to read or hear the complete speech here:

www.americanrhetoric.c...

Clearly, Bush, Paulson, Bernanke, Pelosi, Frank and others are offering nothing more than the same failed path. The more thing change, the more they stay the same. Funny, it's my understanding that Bernanke is actually a scholar of the Great Depression. Out of all of them, he should know better...

2008 Oct 03 06:06 PM

[longtermstocks:]

If other countries devalue their currency by diluting it. Does not this help the US? It seems like Russia & the EU are doing the same thing we are. But what is the net effect? Global inflation?

2008 Oct 03 06:14 PM

[longtermstocks:]

The Chinese symbol for "crisis" is made up of the symbols "danger" and "opportunity".

Crisis can then mean "opportunity" in a time of "danger".

The key is finding the opportunities.

2008 Oct 03 06:14 PM

[Jackson Cash:]

The only thing that comes to mind is the quiet words of the virgin Mary, "I'm fu**ed."

2008 Oct 03 06:19 PM

[closedbooks:]

Dozens of new Trilateral Commission - Illuminati conspiracy theory books will soon hit the shelves. - some to be best sellers.

2008 Oct 03 06:37 PM

[Jackson Cash:]

I can't wait for the transparency of this to evolve. I can see the in 5 years "Rescue Plan Investment - BAD INVESTMENT".

Well, on the good side, if you are an illegal alien, the US taxpayer just bought you a free house.

2008 Oct 03 06:48 PM

[anarchist:]

inthemoney, you say the Government increased SS payments 5.5%, I don't remember my SS check reflecting that recently-when did that happen? I could have bought a sic-pac of beer with all that unexpected cash (if it were on sale).

2008 Oct 03 07:02 PM

[sickofthehype:]

Wow. Upbeat crowd. Was feeling pretty good today until I stopped here.. Yeah, things suck alright. However, for or against this 'plan' it had to be done. Our economy is built on spending and built on debt, and given the passage of this 'bill' we're going to see inflation in monster proportions.

Yes, the other countries are devaluing their currencies as well, so sure, there will be 'global inflation' in mass amounts. Just wait until this 'new money' is in the system. Inflation will start climbing in a big way. The bright side is that we just might inflate our way out of the housing price debacle, but the bad side is everything will cost more across the board.

This Von Mises crack-up boom theory is starting to really make sense isn't it?

2008 Oct 03 07:21 PM

[investor88:]

James has written a clear and informative article on the current adverse economic trend saying "The die is cast" for a recession.

I particularly like the display of the US Bureau of Labour Statistics monthly change in non farm payrolls. Until the monthly change in non farm payrolls reverses decisively, the economy's underlying momentum won't begin to trend up. Right now the economic strength continues to weaken ie recession. The stock market follows the direction of the underlying economic strength, albeit with a lag of six months give and take a few months.

Someone wise said the Great Depression of the 1930s caused the stock market crash of 90%, NOT the other way round. Having said this, if we are not sure of the economic trend then just looking at the stock market indices is a good guide.

Right now looking at fundamentals [lousy] or price action in the charts [lousy] we come to the same conclusion that worse is yet to come, probably well into 2009. Conclusion of James article is insightful ie look for opportunities [like bear rally in this and that, short this and that, trade short term this and that to make "coffee money"] but pace yourself, be patient, keep a cool head. Todd Harrison of marketwatch.com formula is all cash with some money for short term trading long or short, until sometime probably in a year or two when the sun shines again to really invest.

2008 Oct 03 08:32 PM

[sheople:]

Don't say "the party's over". We did what we're supposed to do. We just gave Wall Street 800 Billion Dollars! They can party some more. It is just one more nail in the coffin of the dollar and extends the time it will take for us to overcome this economy, but hey, "That's what we're here for!" All a person has to do is look at how our politicians voted on this sellout to see that.

2008 Oct 03 08:59 PM

[User 265729:]

Lin:

Thanks for the comment. Yes. There are people who think that they lived through the "worst" in the 1980's. I guess having to wait a week or two to buy their Duran-Duran CD was really tough going. Too many people with a limited frame of reference...

If this goes badly, we could be talking massive unemployment and major population relocations the like of such the world has never seen. Economic collapses have the possibility of bringing about human misery every bit on par with a major war.. Let's hope these Wall Street sharks haven't really screwed us big time. Like I said before, during the Great Depression, the Untied States' economy still had a strong rural/agricultural component. No more.

2008 Oct 03 09:05 PM

[nevket240:]

It isn't the financial dislocation that will destroy you, USSofA, it's the social dislocation. That is starting and will really bite in 5-10 years time.

regards.

2008 Oct 03 09:24 PM

[SA Guest:]

I confess I watch CNBC - there are a few decent commentators still there such as Art Cashin. This is his commentary just before 9am this morning (Fri Oct 3. 08) -- and is worth watching as he describes the three scenarios for today's Bail Out vote -

www.cnbc.com/id/158402...

2008 Oct 03 10:21 PM

[User 265729:]

vrspace:

CNBC... Is that the channel that has five screens and two tickers going simultaneously? It gives me motion sickness... I prefer to watch Bloomberg and I read the Financial Times.

2008 Oct 03 10:54 PM

[Steven Hansen:]

nothing is pre-ordained. will this turn into a depression? don't listen to anyone because nobody really knows. if people were that smart we would not be in this mess.

an economy carries a lot of momentum. it currently has a lot of downward velocity. there were a lot of published indicators which were pointing down for many months. these longer term indicators show velocity down is increasing.

2008 Oct 03 11:35 PM

[Stone Fox C...:]

Wouldn't say that a recession is guaranteed. The ISM report today was still positive so a large part of the economy was still growing. Very possible that Q3 was still was positive which means it'll take negative Q4 and Q1to qualify as an official recession. Heck, it took job loss reports over 200K to produce the last recession. Why is 159K in one month so bad? And yes, everybody will respond with something negative. It is really amazing the level of negativity these days.

2008 Oct 04 12:00 AM

[1worldcurrency:]

Can Pelosi and Boehner be unseated? I say yes. Let's organize and send a message. Boehner's opponent is Nick von Stein, a Vet. Will check on Pelosi. votevonstein.com/
What's to lose?

2008 Oct 04 01:08 AM

[zep:]

Isn't the $700B rescue money going to participate in the multiplier effect and eventually result in several $trillions in much needed liquidity?

2008 Oct 04 01:54 AM

[Owen:]

Curbs-In,

I'm not interested one bit in whether or not you are confident in the US government or Wall Street. For all I care you can place your trust in the AARP and Donald Duck. Yes, there are obviously more people like you in the stock market than people like me, thankfully, which is why people like me can make money betting against people like you. Thank you!

I have lived through three wars in my country before coming here, fought in one, and went through my first recession in the 1960s, so please don't pull the age card on me. When age doesn't come with wisdom, all that's left is one old fool.

Your condescending, patronizing tone is a pathetic attempt to hide your own ignorance. Don't lecture me, please. It is highly unlikely that I or any of the other veteran investors on this site has something useful to learn from you.


On Oct 03 05:26 PM Curbs-In wrote:

> Owen,
>
> Sorry I'm short on confidence in the U.S. Government and Wall Street
> since this seems to bother you. Looking at the performance of the
> markets for the past few weeks I'd guess that there are more of people
> like me in the world than people like you.
>
> But let's make the point about your comment that my input is somehow
> "off topic"... Perhaps you need to reread the content contained
> in this article again... So... One of the "bright spots" is oil...
> And why is that a bright spot Owen? I think they call it no demand
> because the world' economy will be so screwed-up, be it recession
> or depression, (the topic of the article), that nobody will be driving
> anywhere and industries will not be using petrochemicals. Real bright
> spot, eh Owen?
>
> Owen, thanks for your bio on the various crisis you've survived...
> I'm impressed... Owen, I'm an old man and not far removed from the
> "big one." You haven't seen anything yet, young man. Back then
> most of America was still rural and those in urban or near urban
> areas still had family roots on the farm. When this, as George Bush
> puts it, "sucker goes down", most Americans won't have a family farm
> to run to for the basics. You Wall Street types will be wondering
> what to do with yourselves at the corner Starbucks...
>
> This time Owen, all of the Madison Avenue magic will not create an
> illusion of wealth that isn't there... It's been mirros and smoke
> for almost 15 years... The smoke is clearing...

2008 Oct 04 01:55 AM

[AmericanInE...:]

All of this mess can be laid directly at the feet of the retarded democrats and their minions at ACORN. Free-market conservatives warned of the systemic risk Fannie & Freddie posed but Barney Frank & co. were deaf, dumb and blind. All of this is a direct result of socialism and government intervention in the housing market already. If the market had been truely free, many of these loans would have never been made because the risk would have been very real for the banks - no Fannie/Freddie to sell bad paper to. Now, unfortunately, the Feds are the only ones with wallets big enough to clean up their mess. Poetic justice, this paper ends up right back where it originated and the American people will be worse off for it. Did Wall Street have a role, of course! However naive they may have been about the MBSs on their books, those bundled pieces of paper only had value because of the 'too big to fail' Fannie & Freddie. The liberals built a house of cards and it collapsed. We'll be bailing out California & NY very shortly as well. When will the socialists learn???? Utopian idiots.

2008 Oct 04 04:47 AM

[thannagan:]

Wow. All this negativism, some based on reality, but more in "the sky is falling" variety. And then, on the other hand there's Buffet putting his toe in the water. Hmmm ...

2008 Oct 04 10:10 AM

[peterthepai...:]

where's the money? there was credit...now there's debt...

the tap is turned off and this is what happens...without the drug of easy credit..the sucker goes cold turkey...

if this aint no recession..hell when it is!

2008 Oct 04 10:41 AM

[Bettyblue:]

Socialism cannot compete:

It appears you believe the official statistics. Those statistics are heavily manipulated.

2008 Oct 04 07:53 PM

[Russian Bull:]

dear owen, turkeys usually live very nice lives full of experience and wisdom and valuable life experiences.

and then thanksgiving rolls around and they get their heads chopped off before they know what is coming.

i'm just saying experience and history aren't always worth the value people put into them.

typing from iphone so mea culpa on lowercase

2008 Oct 05 07:03 AM

[Did U Think...:]

We won't ALL die in the coming depression but some of us will for sure. This is the greatest bubble popping of the past 200 years. Don't try to sluff it off lightly "Owen". People who discount the danger will be the first with begging bowl in hand.

2008 Oct 05 07:30 AM

[Owen:]

Read the whole thread, Russian Bull. I wasn't praising the virtues of age or experience. I was responding to some old fool who felt he can talk down to me just because he was born a couple of years before me.

The ability to think rationally and analyze data carefully in times of panic is much more important than age or experience. Both Warren Buffett and John Bogle were much younger than I am now when they got started in their career.


On Oct 05 07:03 AM Russian Bull wrote:

> dear owen, turkeys usually live very nice lives full of experience
> and wisdom and valuable life experiences.
>
> and then thanksgiving rolls around and they get their heads chopped
> off before they know what is coming.
>
> i'm just saying experience and history aren't always worth the value
> people put into them.
>
> typing from iphone so mea culpa on lowercase

2008 Oct 05 10:56 AM

[H-Bomb:]

Hey Ponzi,

Come back in a year. There will be crow waiting.

2008 Oct 05 09:23 PM