The Unemployment Numbers: A Bearish Take
Sorry -- I found the unemployment numbers to be quite bad, and not because I write a newsletter on shorting stocks (well, I also recommend some longs based on a contrarian view of the Street's conventional wisdom.) When these data are released, regardless of the months, I look at three data points - net employment gains or losses, long-term unemployment and gains in income. This month something else became important -- the labor force participation rate.
What all investors and traders should be looking at is the net impact of any of these reports on national income and the ability of the consumer to spend. And these are still shrinking big time.
Net Employment Gains: We are still losing jobs, and even if the Street wants to trade the second derivative -- the decline in the rate of decline -- a quarter of a million jobs lost is five football stadiums fewer people working and spending less money than last month. Impact on the economy: quite negative.
Long-Term Unemployed: This jumped to more than five million, up 589,000. A terrible number indicating large pockets of the economy are toast -- and unable to spend almost anything except on necessities. Impact on the economy: also quite negative.
Income Gains: The increase in the work week was noise -- one-tenth of one percent -- and the income gains were 2.5%, which is less than the real rate of inflation due to increases in gasoline and healthcare costs. And since this is an average number, and millions fewer people are working, including a quarter of a million last month, national income continues to decline. Impact on the economy: no impact -- not a good thing when the economy needs a boost.
Labor Force Participation Rate: Since the country lost jobs and the unemployment rate stayed the same, fewer people are looking for work -- and therefore fewer people are looking to increase their income, holding back any potential gain in national income and consumer spending. This is not a good thing for the economy.
My focus is national income -- this recession is now being driven by a lack of consumer spending due to the recession, a staggering loss of consumer wealth in their homes and portfolios, and the incredible pullback in consumer credit we have seen in the past two years -- more than $4 trillion dollars by year-end.
Since 70% of the economy -- this number is shrinking, actually -- is consumer spending, the continuing declines in national income means the recession is still getting worse and the nonsense about the second derivative is just that, nonsense.
Am I being too negative? Maybe, in part due to the new mandates in the financial broadcast media to only smile and have upbeat commentators. Not one commentator I saw on CNBC, Fox Business or Bloomberg had a bad word to say.
What does that tell you?
It gets tiring and since these networks are posing as journalists, balance is needed for people interested in getting in or out of the market.
What does this mean for investors or traders? For investors who value any kind of fundamentals, the market, over time, will respond to a "W"-shaped recession or a bottom with no climb up -- which means it will go down.
There will be a statistical bump in GDP in either Q3 or Q4, but it will be just that, statistics based on inventory restocking, a one time event. And import and export flows and the market may go up in response to these numbers.
For traders, the play is bonds -- look at the TBT, the double inverse ETF on 10-year Treasuries. They are trading down right now as the Street assumes the Fed will respond to the end of the recession by ending interest rates. The Fed will do no such thing but that trade is there, right now.