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December U.S. Job Losses Implications for Economic Recovery

Economics / Recession 2008 - 2010 Jan 08, 2010 - 02:06 PM GMT

By: Sy_Harding

Economics

Best Financial Markets Analysis ArticleThe Labor Department’s report that 85,000 jobs were lost in December was certainly a disappointment, much worse than the consensus forecast that job losses had bottomed in November and perhaps as many as 10,000 new jobs may have been created in December.


The catalyst for those forecasts was the surprise report a month ago that only 11,000 jobs were lost in November, a dramatic decline from previous months.

However the loss of 85,000 jobs in December was a disappointment only because Wall Street, Main Street, Washington, and investors had cranked their hopes up too high based on that one surprise report in November.

Prior to that report even the most optimistic analysts expected the jobs recovery would lag well behind the economic recovery. It was recognized that companies don’t begin adding employees until after an economic recovery has been underway for quite some time. They handle improved business first with their current workforce, then by adding overtime for existing workers if necessary. If business continues to improve they usually contract with temp agencies to add temporary workers. Only when they are confident the economy and their business are on a sustainable recovery track do they add permanent workers and the expensive benefit packages that entails.

So the report for December was disappointing only because hopes had been cranked too high after November’s surprisingly positive report. The disappointing jobs report for December actually changes nothing. Once the initial disappointment subsides investors can go back to expecting a normal jobs lag, which is to say that job losses will continue to improve, but will not turn positive in a sustained way until the second half of the year.

A greater disappointment was that it had also been hoped a positive jobs report would launch the market out of the extremely narrow, low volume, nerve-wracking, trading range it has been in for two months now. But it also did not change that situation.

The catalyst for market direction over coming weeks will now more likely to be fourth quarter earnings reports, which are just beginning to be released. If the economic recovery is real, those earnings need to improve based not on more cost-cutting and lay-offs, but on rising sales.

There was some positive news in that direction in a report released by the Commerce Department on Friday, which was that sales at the wholesale level rose 3.3% in November, well above the consensus forecast of a 0.9% increase.  
But you know what the economy really needs? It needs a new technology breakthrough, one with great promise of rapid growth and new job creation.

Most previous recoveries from recessions that were V-shaped and more rapid than normal, were launched with normal government stimulus, but their continuation was then fueled by new technologies; plastics; transistors (yeah, I’m going back a ways with those two); the biotech industry; space exploration; personal computers; automation; the Internet; and so on.

At the present time, new tech developments seem to be just improvements on existing products in already overcrowded fields; computer gaming, Internet social networking, medical equipment, smartphones, handheld computers, e-readers, and the like, where an increase in business for one company often comes at the expense of a decline in a competitor’s business.

The last recovery, from the 2001 recession, was launched by typical stimulus efforts, but without a new technology breakthrough, it then needed continued government stimulus efforts and involvement to keep it going; record low interest rates and easy money, which quickly created the next bubble, in real estate.

The current recovery was also born of massive government stimulus efforts, and so far has also been sustained only by a continuation of those efforts.

That should work to carry the recovery through to mid-year. And anticipation of that, and positive fourth quarter earnings, should work to carry the stock market rally through the first quarter and into April or May.

But a big question mark enters the picture once the market can anticipate those stimulus efforts expiring or being withdrawn.

While another economic recovery sustained primarily by government involvement, low interest rates, government spending and deficits, forced consumer spending, etc. is probably better than a stick in the eye, it isn’t the kind of ongoing recovery we need or can afford.

We need innovative new products and technologies that will bring recoveries like those of the 1980s and 1990s, which not coincidently, were accompanied by the last secular bull market in stocks of 1982 to 2000. I’m tired already of this ten-year (so far) secular bear market.

Sy Harding is president of Asset Management Research Corp, publishers of the financial website www.StreetSmartReport.com, and the free daily market blog, www.SyHardingblog.com.

© 2010 Copyright Sy Harding- All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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