Creeping Toward Recession

by: Markos Kaminis

The popular press has lauded the supposed improving labor market over recent weeks. In fact, just one week ago, we heard all about the four-year low tally of weekly jobless claims. Then a day later, the government abruptly reported that March only added 120K jobs to the U.S. labor force, spurring us to write our report entitled, "Main Street is Not Well." Well, Thursday, the Labor Department revised that record low tally regrettably higher by 10,000 poor souls, and then added insult to injury by reporting this week's count was 13,000 higher than that even. Might this be an early sign of the new economic stumbling block I've been warning would arrive this year?

After taking a beating since the Employment Situation Report, the shares of employment services firms have been on the move higher since Wednesday, perhaps on reassurance from FOMC voting member Dennis Lockhart before the market open. The SPDR S&P 500 (SPY) and the shares of job facilitators moved upward again Thursday, with Robert Half (RHI), Korn Ferry (KFY), Manpower (MAN) and Monster World Wide (MWW) all higher between 1% and 2%. It would seem that traders moving out of a short-term slide and looking for a near-term revive may be missing a more important fundamental driver.

The DOL said initial weekly jobless claims for the week ending April 7 spiked to 380K, taking the four-week moving average upward by 4,250, to 368,500. The total number of Americans claiming benefits of some sort declined to 6.95 million, but the 97,833 Americans left out this week may not be celebrating their new jobs. Unfortunately, they may simply be part of the long-term unemployed pool that has exhausted their benefits under the "extension" program.

Meanwhile, the layoffs are still coming, with Yahoo (YHOO), J.C. Penney (JCP) and Sony (SNE) being the latest major employers to announce significant changes. Sony said Thursday it would shed approximately 10,000 employees globally, either through layoff or the shedding of businesses. A new round of cuts are coming to the public sector as well, with layoffs being pondered in school districts and across other city worker segments in cities like Las Vegas, Detroit, LA and smaller municipalities across the country too. Of course, this anecdotal news is inconsistent with the latest report from Challenger, Gray & Christmas indicating announced corporate layoffs softened in March, but Challenger also warned of the likelihood of new public sector cuts. Furthermore, Challenger cannot capture a good portion of the nation's employers, small businessmen, where confidence recently waned, though job creation was one bright spot for the segment.

This brings me to an important point. American economic data up until now, while offering some red flags in manufacturing, housing and the consumer segment, has been inconclusive with regard to showing a slowdown or the first signs of new recession. Yet, data emanating from Europe and emerging China has offered enough reason for concern, and any realization of such concern should hit home for the American economy and the stock market hard. The situation is already concerning enough to the Chinese, who have recently taken supportive action, and to the Europeans, who hang on for dear life.

I do not expect to see significant sign of trouble here at home in the first quarter GDP data. Yet, data like Thursday's jobs report offer perhaps early signs of what may follow. Finally, the Iran trigger is cocked and ready to speed the global economy into recession, should someone get itchy. It's certainly enough to spur a market scare like we saw over the last week or so, and perhaps serves as a taste of what is next. For this reason, I recently offered investors several ideas for the long run, some of which hedge against such risk.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.