Surprise! More Jobs Lost & Unemployment Surges
A: Well, not a surprise actually. Anyone surprised by this report simply has decided to keep their head in the sand, to hold on to hope. That's OK, as long as you don't make extreme tradable bets based on this hope. As I have discussed over the past few months here on UrbanDigs, the likely next fed move will be a CUT, not a hike, as the fed futures traders and mass media led us to believe. Today's surge in unemployment, downward revisions in past jobs data, and continuing shedding of US jobs, puts the spotlight back towards economic growth. As a result, fed futures are now in the process of shifting their bias towards a rate cut, from bets on a rate hike previously to combat commodity inflation.
First the news, from Bloomberg:
Payrolls fell by 84,000 in August, and revisions added another 58,000 to job losses for the prior two months, the Labor Department said today in Washington. The jobless rate jumped to 6.1 percent, matching the level of September 2003, from 5.7 percent the prior month.In late July, I had the privilege of speaking at the Inman BULL vs BEAR (link to summary of what speakers said) debate with amazing bloggers such as Bill from Calculated Risk, Yves from Naked Capitalism, and John Williams of Shadowstats. The video of this debate from about 6-7 weeks ago is at Inman Videos.
Those at the debate were a bit taken back by the negativity bias of the panel, but instead should have been appreciative to get such unbiased, real-time forward looking opinions on the state of the macro economy, credit markets, and housing market. Attendees heard first hand my thoughts on the near term which included the following statements:
a) massive credit deflation/contraction
b) deteriorating jobs market / rising unemployment
c) strapped consumer from commodity inflation makes for a perfect storm
d) pipeline pressure for Case Shiller Index
e) no 'V' shaped recovery in housing
f) years of deleveraging process / overly optimistic wall street CEO's to instill confidence
g) GSE's ability to fund themselves short term
h) no wage inflation
We are at now now. The story is the same, and to me it seems pretty clear how it will end. John Williams hyper inflation may come, but it will be as a result of all the intervention that our government & fed are likely to do as this cycle continues.
Over the past few months, everyone was expecting a rate hike to combat the inflation problem. Right now, we do not have the TYPE OF INFLATION THAT OUR FED WILL RAISE RATES FOR. If we had wage inflation and a rapid expansion of credit/money supply, then yes, our fed will aggressively raise rates. But we do not have this. Mish has been the poster boy for this mis-understood dynamic for a while now, and his blog GlobalEconomic Analysis is a daily must read; no matter how gloomy it may seem!
Readers should understand the environment we are in. Unfortunately, this is the process that we must go through to eventually see the light. Lets not delay it, lets not postpone it, lets use judgment on any bailouts, lets let those companies that should fail, fail, and let those who took unprecedented risk using too much leverage be punished and not let the taxpayers foot the bill. This story is not yet over.
Posted by jeff
Fri Sep 5th, 2008 11:15 AM
Noah,
I have been on the deflation side for a while believing that inevitably job losses would quash any ability for consumers to pay up and any urge for employers to grant raises. We all knew the unemployment was coming and now the first wave is here. But I think these layoffs still stem from the first shellacking in financial markets. Since then we had the oil price spike and mortgage rate spike, which I am afraid have already put another downward cascade in housing prices and consumer pain into motion. Will the relief from oil price declines be eaten up by job losses as implied in today's WSJ? At the root of all of this is a loss of confidence in financial institutions, which is keeping rate cuts from doing a blessed thing to help the economy. The government must step in to steady the financial system and get credit flowing again. I think they will....though the longer-term implications are not pretty....as you point out.
Posted by office-noah
Fri Sep 5th, 2008 01:36 PM
I think they will too at some point when GSEs and maybe another top firm is close to failing. They seem to be in the bail everyone out mode. I bet they are working on package now, as we speak, and will execute it at the right time. I would bet markets will fly, assuming we are down at the time.
That would likely get the credit spigots flowing. Funny thing about this oil selloff, everyone wanted it. Now they realize its a sign of global slowing. Doh. We dont need that. And this dollar rally is not too good for the only thing keeping us afloat, exports and large multinational earnings.
Posted by jeff
Fri Sep 5th, 2008 02:39 PM
Agreed. Earnings from overseas are going to come down as foreign economies slow, one would have thought that the markets would be anticipating this, but apparently, not enough so. the good thing as that layoffs in many cases will take place overseas not here as expense profiles were never jacked up in the U.S., it should be less painful than continued commodity price increases, which hit every U.S. consumer directly in the pocketbook. Choices of evils.