Jobless Recovery November 14, 2009
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Let me begin by saying- there is no such thing. I could think of a few oxymorons to go along with this idea; Larger half Almost exactly Genuine imitation Unbiased opinion Exact Estimate LOL!
Since this “jobless recovery” is tied to the rallying stock market and housing sector, let’s begin by analyzing the cause of the recent stock market rally. What is fueling the stock market and causing the rally? One idea that stands out above all others has to do with the unemployment numbers. Media tries to put a positive spin on unemployment figures claiming the RATE of new unemployment claims is decreasing. Here is a possible explanation:
The largest expense any company incurs is labor. As laborers are let go, the expense of salaries and benefits is reduced thus improving the company’s profits. So naturally, the stock market which trades on future earnings is rallying to catch these earnings. This is a double edged sword. What will companies do once their labor force is reduced to a skeletal level? At some point new products must be invented and manufactured… Your guess is as good as mine for predicting that date.
The Housing market; is being legislatively propped up by federal and local governments. The Worker, Homeownership, and Business Assistance Act of 2009 has extended the tax credit of up to $8,000 for qualified first-time home buyers purchasing a principal residence. It also authorized a tax credit of up to $6,500 for qualified repeat home buyers.
Mortgage Problem: A new law does not cover many mortgages that are “investor owned.” This excludes many homeowners whose mortgages were securitized. This refers to mortgages packaged into securities which were purchased all over the world. In short, these bundled mortgages are governed by contracts specifying what the servicer can and cannot do with the bundle. If renegotiating the mortgage would be contrary to that contract, California’s new protection will not apply. Additionally, recent rulings have mandated that the note holders be present for foreclosure hearings- how do you assemble fractional note holders from all over the world? This seems like a job creation opportunity!
Up to this point the conversation is focused on cutting expenses and government incentives. Since our RATE of unemployment has slowed-perhaps we can see “the bottom” of this recession?! The only sustainable exit from a recession is via JOBS- jobs that are long lasting and provide the ECONOMIC CONFIDENCE to our consumers. As consumers gain economic confidence, small businesses are formed, retail purchases increase, consumers have disposable income and the economy expands.
The Employment Development Department of California reports that Unemployment is down to 12.2% and the number of people unemployed in California was 2,247,000 – down by 13,000 over the month Oct 2009, but up by 799,000 compared with September of last year.
How will the existing 2,247,000 unemployed folks find work? How can economic confidence be restored without these workers? I look forward to your comments and feedback.
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Continued Success, Pete
Pete – I do agree with your comments. I believe there are 2 basic indicators that lead us out of a recession. The first is job growth. For the economy to grow by any significant amount you have to have job growth. To say that the recession is over or nearing an end because the rate of job losses is slowing is wishful thinking in my opinion. The second is new housing starts. The housing market has a lot to do with what happens in the US economy. When we start to see increasing levels of housing starts we can feel better that the recession has indeed ended.
Pete,
You are right as far as jobs go. We will have a very slow recovery. I believe we will have high unemployment through 2014. We need to remember that consumer spending is 70% of our economy. We have a true unemployment of 17%. Then we probably have 30% of our workforce scared of losing their jobs. They are also cutting back on spending. If you have almost 50% of our workforce cutting back on spending, a slow economic enviornment is likely. We will have a recovery in manufacturing and from exports, but that will not be enough. You need to remember that the stock market is working from a very low base and is looking at future earnings. Most of what you see today is from productivity and cutbacks. The market is looking at stability and not a lot of growth.
Ray
Thank you for sharing this with me!