Unemployment Hits 8.5% / The New Normal
A: I usually don't report on these numbers anymore because the financial blogosphere is filled with discussions on it, and I try to keep the focus here on Manhattan (by the way I'm checking on the total inventory widget # that seemed to drop by 600 today). But it was something that Bill Gross of PIMCO was just discussing on CNBC when talking about the jobs report and the recent rally that motivated me to write this. He said, '...we are in for a NEW NORMAL'. I don't normally plug the guy at the firm who is going to be a major beneficiary of treasury/fed actions, but in this case he is exactly right. The new world is going to be much less sexy than the world we got used to over the past five years or so, just be prepared.
First off, the unemployment rate has spiked to a 25-year high if we use the U3 measure of employment; here is the visual on that:
But the U3 doesn't paint the entire picture because it excludes those who are working a part-time job but wish to work full-time and can't find one, and those disgruntled workers who simply gave up looking for a job altogether. That measure is the U6 measure, and that rate hit 15.6%. Bloomberg reports, "Unemployment in U.S. Increases to 8.5%, 25-Year High":
The U.S. unemployment rate climbed in March to the highest level since 1983 and the economy lost more than 650,000 jobs for a fourth consecutive month, a sign renewed reductions in spending might slow a recovery.Should GM be placed into a pre-packaged bankruptcy, the unemployment rate could tick up even more with the amount of jobs lost as part of a restructuring effort tied to the automaker and the residual side effects at the suppliers, dealers, etc.. I think I am on record for expecting the U3 rate to hit mid 9% or so by years end, and peaking around 10% or so. It's highly possible I have to revise that higher.The jobless rate increased to 8.5 percent, as forecast, from 8.1 percent in February, the Labor Department said today in Washington. Employers cut 663,000 workers from staff, bringing total losses since the recession began to about 5.1 million, the biggest slump in the postwar era.
Back to Gross's comment on the new normal. Stages 7 & 8 seem to be IN PROGRESS now of the 11 stages of the slowdown discussed last October:
STAGE 7 (Early In Process) - Economic Data: This is where we start to see confidence reports really dive, GDP really contract, Unemployment really rise, manufacturing contract, etc..Time goes slow and it feels like these lagging reports don't ever get better.When STAGE 9 is upon us, regulation, we will see that, "The new world will be a lot less sexy than when credit was on its way to its peak." Just like Gross said this morning! Nobody likes a crisis like the one we are facing, and unfortunately the actions that are taken by treasury/fed/congress to stem this crisis could have unintended consequences that kick in right when things seem to be turning around. That is the reasoning behind STAGES 10 & 11 of the cycle. Let us be prepared.STAGE 8 (Early In Process) - Mainstreet Blues / Saving / Capacity Reductions / Budget Crises: the real pain of job losses, and the slowdown hit the people. Time slows down and it feels longer than it is. However, this time it is likely to be longer than past recessions. Saving increases, and spending decreases. This makes the economic data noted above continue for longer than expected. The cycle feeds on itself for an economy that is driven 70% by the consumer. Capacity is reduced to adjust to the slowing demand. With the slowdown comes less revenue for cities and states. Traffic volume is down a record 5.6% in August as consumers cut out unnecessary spending/driving; driving costs money. The Terminator already called for a special session as California's budget shortfall surpasses $3Bln. It would be narrow sighted to think they are the only one in trouble.
Comments (15)
Your SE numbers read 10,449 and in general are about 1000 less than yesterday. What gives?
Posted by Be | April 3, 2009 9:25 AM
I have an email into SE support on that.
Posted by Noah | April 3, 2009 9:28 AM
Just re-read your stages piece, it's spot on. You ruined my whole day.....deperessing. I'm not going to share this information with my dependent variables, because they might become closely correlated to my foul mood about what we have to look forward to. I'm grouchy anyway about my fat tail and that my distribution is no longer lognormal, as my probability density has gone assymptotic. Not only that I think I just saw a black swan in the back yard. I hope your statistically insignificant, because if not we face some tough times ahead. TGIF!
Posted by jeff | April 3, 2009 10:29 AM
there's a broker missing. i can tell from the listings in my building. their site must be down.
Posted by sue | April 3, 2009 10:40 AM
Slightly off topic but IASB (international accounting standards board) today refused to follow FASB footsteps in M2M modification. This has certain implications for European bank earnings.
http://debtsofanation.blogspot.com/2009/04/
debts-of-spenders-iasb-refuses-to.html
Posted by In Debt We Trust | April 3, 2009 12:03 PM
Hi "In Debt We Trust",
that's an interesting point. Are there any large US banks (presumably with a gobal investor base) who publish both US GAAP and IASB-based accounts or do they only use US GAAP?
Thanks
Posted by Thomas | April 3, 2009 12:34 PM
very interesting !! Thanks for providing. BTW, I added your site to blogroll, keep up good work
Posted by Noah | April 3, 2009 12:35 PM
yes, very interesting site. your "about me" makes for some powerful reading.
Posted by brenda | April 3, 2009 12:38 PM
Thanks Noah,
Btw, before you guys go rushing out to short European banks please consider that the biggies - Deustsche Bank, SocGen, HSBC - are all top 5 AIG CDS counterparties. In other words, they will be made whole by us taxpayers and have their losses buffered to a certain extent.
As for UK banks, well that is a 50/50 gamble either way. The UK govt has already shown a commitment to throw trillions of pounds into a black hole. They are zombies in every sense of the word but even the undead can manage a dead cat bounce or two from political interventions.
Posted by In Debt We Trust | April 3, 2009 12:49 PM
very true...how do you feel about this rally? Sustainable for short term or sucker rally on FASB ruling and PPIP plan?
personally, I think it has legs, but if we go another 10-12% higher, it will be tough not to add to protective short positions.
Posted by Noah | April 3, 2009 12:59 PM
I think the rally is sustainable for a bit longer.
Watch currencies - the usd/jpy broke 100 this morning and as I write this it continues to flirt w/that #. Trillions of govt liquidity from central bankers is definitely having an effect by encouraging traders to take risks again.
Let us not get into the lies and exaggerations of govt statistics for now - that is a whole separate area that other bloggers cover much better (including you).
Posted by In Debt We Trust | April 3, 2009 1:09 PM
Get short. The pain will resume mid month when the banks report. the only thing that's changed since since 2 months ago is that the real economy has weakened. sure over the next year there is 10% upside left in the stock market....but there's 40% downside from here....time to put the trade on and turn off the screen....you know you will be right....just don't get greedy and short more when spx breaks below 666!
Posted by wall street | April 3, 2009 10:24 PM
Actually, Bill Gross has been referring to the future "new normal" for quite a long time.
Check out his April PIMCO commentary:
http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2009/Investment+Outlook+April+2009+Evolution+or+Revolution+Bill+Gross.htm
" ... transitioning from levering to delevering, globalization to deglobalization and lax regulation to reregulation leads to ... slow global growth, a heightened risk aversion, a distrust of conventional investment model portfolios, and a greater emphasis on surviving as opposed to thriving ... the bird in the hand – as opposed to the one in the bush; stable and secure income – as opposed to uncertain capital gains; a government-regulated utility model – as opposed to innovative yet risky venture capital investments."
Gross's warnings about excessive liquidity, unsustainable debt and unrealistic asset prices were continuously bashed by financial media commentators and talking-head economists cheerleading the bubble. Unable to counter his logical analysis and foresight, they branded him a nay-saying pessimist.
Posted by JB in NYC | April 4, 2009 12:05 AM
This rally is the real deal and we have a good ways to go. Scanning charts this weekend and I see many climactic sell offs in key stocks and sectors. All are showing classic signs of bottoming. Traders check out the monthly chart of TXT, a big conglomerate. The biggest volume bars came at the end of the run down, capitulation. There are dozens of charts like this. Everyone who wanted to sell has sold. Only thing left to do is buy, especially when there is blood in the streets.
The same cannot be said for the RE market. Yes the run-up in Manhattan RE prices was fueled by the stock market but the Wall Street that poured the gasoline no longer exists. As stocks show signs of life more people will put their money in what they view as a rising asset class. RE is no longer seen as a way to riches. Funny when you think about the beginnings of the RE boom. It followed the stock crash of 2000-2001. Now we are going to see the reverse. Just have to be on the right side of these cycles. That requires one to go against the prevailing trend when it gets climactic. Tough when everyone is so giddy.
Posted by cfranch | April 4, 2009 10:58 AM
Honestly, it can go either way at this point. The vix is at "do or die" support levels. The yen looks like it may go back to 110-115 and bring back the carry trade - there may be a period of consolidation for traders to adjust to the renewed >100 USD/JPY.
But bears have Q1 Earnings on their side (however gamed the numbers may be), overall fundamental reality, and history (GD sharp rallies and selloffs) on their side.
The safest way is to be in cash or play market neutral strategies like straddles or butterflies. That's just my opinion though.
Posted by In Debt We Trust | April 5, 2009 10:03 PM