Friday, April 4, 2008

It's The Jobs, Stupid

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?


  1. H,

    I seem to recall that you used to be a proponent of "Monster" as being a better indicator of the jobs situation than the official statistics. Do you have any latest data from that source?


  2. Re: Monster data

    The Monster employment index for March came in at 167, down 10% from March 2007. Though it was up slightly from February (165) the index is not seasonally adjusted. The company remarked that "..the slight increase is March was below historical levels for this time of year and reflects a continued slowdown in overall employers recruitment activity."


  3. Thank you for continuing this blog in times that are getting rough.

    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.

    You have one who is well known by american savers. I was impressed by the way he challenged Bernanke more than once.

    But of course the problem is elsewhere. American "real" savers are a minority. And US has been supported by non-resident buyers of its currency (and associated debt products) for a couple of years.

    When the support will stop, this politician will have his/her time.

    Alas the time is clearly not now.

    I expect US hyperinflation within two years the old classical way :
    - via Bernanke tricks for bank salvation and supports,
    since Ben helicopters are NYC only ..
    - via federal budgets for welfare in lieu of taxation,

    The bitter potion will come later. The prescribing doctor has well.

  4. Francois,

    I believe the US practically cannot hyperinflate. There are too many dollar-denominated assets out there in the world outside the US and they will get dumped fiercely if there is an attempt to do so, driving real interest rates very high.

    Foreign bond buyers will then go on a strike, further exacerbating the situation. I sense that some of them are already getting very concerned with what Bernanke is doing.

    Alternatively, however, the US could just default (a deflationary event). Again, this is already happening with some US securities, particularly those linked to mortgages.


  5. Dear H.,

    You hit one off-the park w/this post. Despite you and few other intelligent bloggers (Calculated Risk, Prof. Roubini, and Mish among others) depict fundamental flaws of the current economical crisis, the Fed and the Street so far managed to keep the equities fairly stable.

    Would you consider this trend in equities to continue and if/so how long?

    Keep up the good work.


  6. He/she may even get elected... I can dream, can't I?

    You might want to HOPE instead of dream. (now greenie can call me a commie!)

    On the anecdotal evidence front I've had 3 people with six figure incomes initiate conversations about how much more expensive their totals have been at the grocery store recently. If these people are noticing, it's bad. One of them recently took a week of vacation and just stayed home. There is a growing awareness that lots of people are effectively broke.

  7. "I do not subscribe to the "sheeple" concept, which I find derogatory in the extreme."

    Americans voted for the Bush gang twice, the second time mainly by fear-mongering. Now they're being led to slaughter (Wall Street bailouts, Fed power grab)by the same tactic, and neglect to educate themselves about the problem. The term is appropriate.

  8. Actually Bush did not win the popular vote both times.

  9. Great post Hellasious:

    However, it is my personal opinion, that we are headed in the right direction.

    My observations are such that, we are experiencing a collective disillusion. I believe this is healthy.

    We are organisms bestowed by the process of Natural Selection with inferior sight, hearing, locomotion, sense of taste and smell, etc. etc. All the anecdotal evidence is indicating that we have been bestowed with inferior brains as well.

    I recently, (and I don't know for the life of me why I get into such debates) argued with the Pastor of a fundamentalist church in my area. He was quite certain that we did not evolve from apes. I yielded to the apparent evidence that he was correct with the condition, that it was the apes that evolved from us.

    My best regards,


  10. hellasious

    you say it would be hard to hyperinflate, but how can we continue to do all these "bailouts" and tax breaks without ultimately trying to "print our way out of this"

    if we go the other way and keep dropping interest rates won't that backfire on the long end of the curve anyhow because foreign investors will finally tire of a worthless dollar?

    i am trying to get a handle on how this interest rate situation might play out, you started a commentary on it, if you could expand in a reply or a future blog entry it would be greatly appreciated.

    thanks for a great blog.

  11. I agree, inflation now seems to be the only route left, but why should it be hyperinflation.

    10-20% will do very nicely. Us foreigners will be miffed, but when faced with a steady annual decline, or complete collapse, we'll grumble a bit, settle for the inflation, and be grateful that the status quo is maintained.

    In the longer term we might look to diversify and thus destroy US hegemony, but who cares these days about the long term?

  12. Hell,

    As always, thanks both for your insights, but also your humanity...Agree with you about 'sheeple'

    Just one point: surely encouraging Americans to go shopping with tax cheques is just another way of sending money to China?


  13. Marcus,

    I agree completely, only a flock of sheeple could put Bushler back in office and as for him not winning the election, he came close enough to steal it. Instead he and DC should have been dragged by the ankles to Madame Defarge's basement. And Pollo loco is right about the commie charge, any suggestion that the US isn't staffed by saints, especially when it comes to dealing with other countries, always brings out the commies-under-every-bed brigade.

    As for hell's dream of honest politicians, that will have to wait until we have honest voters who are willing to put the welfare of the country as a whole uppermost and by that I don't mean a bigger budget for the Pentagon.

  14. Hellasious, the term sheeple may be a bit harsh, but what do you call the willfully ignorant?

    Jeff Huber has an interesting piece on the topic today over at Pen and Sword.

    I sense an awakening of the masses over the next few years.

  15. I've said this in a couple of forums: I don't believe the stimulus money is expected to be used for consumption. I believe they think consumers will pay down debt, putting the money into the banks and credit card companies.

    And as for being squeezed, a lot of the people I've run into were pushed out of good paying jobs during the tech bust and have been stuck in low paying entry level jobs ever since. I call it career deflation. I expect to see more of it as this recession plays out.

  16. He/she may even get elected.

    It wouldn't matter. Until the lobbyist are thrown out of DC and campaigns are funded by the taxpayer with strict spending caps nothing will change regardless of who is the President.

  17. Listen folks, I did not grow up in USA, but in a place ruled by real commies. I know how commies look and smell like and recognize them from 10,000 miles away.

    Typically when commies came to power in those places like ours, it was not that the place was previously ruled by saints. In fact, there were often crooks or criminals as bad as the Bush gang in power. People correctly recognized that the ruling gang was evil.

    However, as a solution, they brought an even worse bunch of idiots into power. And remember that commies always say the right thing before coming to power and many of them honestly believe them. They say 'working people should be given power', 'power should be divided equally among all people', 'farmers are the real people building the country - not bankers', 'the people have right to get free education and healthcare from the government'.

    Only problem is commies are collaboration between dreamers and evil powergrabbers. In our country and everywhere else, the university professors always loved the commies and commies treated the professors nicely. Why? The professors dream up with ideas about why government should make elaborate plans to build alternate energy research programs, and then commies use those in their manifestos to make bigger power grab..

    You guys know nothing about communism...silly.

  18. Interesting to watch the financial media and its guest pundits confirm Upton Sinclair's dictum that "it is difficult to get a man to understand something when his salary depends on his not understanding it." Aging boomers, collapsing home prices and collateral values, debt-to-GDP at pre-Depression levels, peak oil, peak soil, environmental degradation - no problem! Because, see, the sheeple have those $600 checks coming! We'll have ourselves a nice, shallow recession, and the Dow will soar to new heights.

    Actually, the curious resiliency of the American stock market is eerily reminiscent of the seeming imperviousness of the Japanese market in 1987. We all know how that played out just a few years later. The market's resiliency is also a telling sign of how little Wall Street and the corporatacracy it serves worry about Main Street, now that they have access to infinitely cheaper labor elsewhere.

    Hell, I'd be interested in hearing in more detail your views on the hyperinflation vs. deflation scenarios. The recent rise in commodity prices has been truly parabolic, but you wouldn't expect to see food riots in developing nations if over-leveraged speculators were entirely to blame.

  19. It's an election year! All incumbents want to stay in office so they'll keep the economy going no matter what it takes. Bailouts, $600 checks, everything under the sun, future be damned.
    The real problems will start once the election cycle is behind us. Broke, left with declining tax revenues and our credit worthiness tarnished things will get interesting. I wonder how eager foreigners are to continue funding our excesses? Some got burned pretty bad on the current financial melt out below.

  20. H,

    Great blog!

    I ran across an interesting report from the front lines of retail. Many items here correspond with things you have warned of many times here.

    In particular,

    * the company in question is quickly racheting back inventory costs by sending less to the stores

    * broad-spectrum price increases (passed along from foreign suppliers?)

    * consumers at the limit strapped for cash or credit.. nobody buying

    * reductions in labor costs across the board, although under-reported (reduce hours not layoffs)

    it's unclear what retailer this is.. the best guess on the site based on various clues was sears or kmart.

    The original is here:


  21. fat tail rider,

    You left out peak ground water, try googling Ogalala aquifer. W/respect to hyper inflation, Hell dismisses that as a possibility. Instead he's been consistently expecting deflation as potentially trillions of debt either is defaulted on or called in by creditors. One factor I've not seen him adress is how rising import prices will affect inflation in the US unless he's assuming a global contraction. Peter Schiff perdicts that as prices rise abroad, US output will be exported overseas in search of better prices. The govt would have to impose export controls to prevent shortages and imports might have to be rationed, i.e. oil.

  22. yoyomo,

    When great minds like Hell and Schiff come to diametrically opposite conclusions on hyperinflation vs. deflation, all we are left with is price action - and even that is maddeningly ambiguous. I can't recall a time quite like the current situation, when there didn't seem to be any safe haven. Into the teeth of the tech bubble, there were bonds. As we began to emerge from the tech-bubble recession, there were emerging markets and commodities. Those havens may still be intact - unless of course, Hell is right and Schiff is wrong and the current recession goes global. One sobering observation favoring Hell's view - in the last two crashes (1929, late '80s), it was the emerging-empire economies of the U.S. and Japan that suffered the most. China has a quarter of the world's population and 7% of its arable land, and its major waterways are polluted almost beyond repair. It is much more poorly equipped to deal with an economic downturn than its American and Japanese historical analogues.