As jobs go, so does the economy - and financial markets. This was always true but even more so today because of Americans' hand-to-mouth existence (saving rate down to zero) and record-high debt (household debt is 134% of disposable income vs. 92% just ten years ago). More than ever, the lifestyle of spend-borrow-spend is teetering at the edge of the employment precipice. And with personal consumption making up 70% of GDP, job losses now have a disproportionately negative effect on the economy.
So, how are jobs doing? Putting aside the poor performance of qualitative indicators like part-time jobs and people dropping out of the labor pool statistics because they cannot find a job, even headline numbers are starting to look decidedly unhealthy. Weekly initial jobless claims spiked to 407.000 yesterday and continued claims to 2.937 million (see charts below, click to enlarge). After initially modest damage, the employment picture is now deteriorating at an accelerated pace.
And how about financial markets? Looking at stocks in particular, I sense a heightened willingness by leveraged speculators to go bottom fishing. They interpret the bad employment data as lagging indicators that will soon peak, and at lower levels than previous recessions. Their optimistic reasoning is that Fed and Treasury initiatives have the power to provide the economy with enough fuel to keep demand going, even under current conditions.
I disagree, precisely because these conditions are so fundamentally problematic and cannot be soon turned around by using a lot of monetary policy and a bit of fiscal stimulus. Furthermore, I do not subscribe to the "sheeple" concept, which I find derogatory in the extreme. I am certain Americans are well aware they are being crushed in the vise of low earned income and high debt, and that their ability to borrow ad infinitum to maintain spending has ended. Therefore, a long period of family balance sheet repair is ahead of us, with reduced consumer spending a given.
I believe I do not have to spell out what this means for the economy and, furthermore, what it means for politicians who send out "tax rebate" checks (i.e. more money borrowed from abroad), urging Americans to go shopping. Little wonder the current administration has such abysmal approval ratings, a fact that is further damaging consumer confidence.
One of these days there may come a politician with a sound, independent understanding of the relationship between peoples' income statements and their balance sheets, one that won't rely on voodoo economics and Street advisers. He/she may even get elected... I can dream, can't I?