to the less intellectually curious, there are two graphs missing, so
you have to go to the url.
http://www.suddendebt.blogspot.com/
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 dispro****tionately 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
fi****ng. 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 relation****p 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?
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