Posted on 05/05/2009 7:36:23 AM PDT by FromLori
The market's on fire, up more than 30% since early March, and there are economic green shoots all over the place. So what could go wrong?
Well, for one thing, that "lagging indicator" known as Unemployment, which could still come around and bite us in the arse.
Jim Welsh of Welsh Money Management, via John Mauldin's Outside The Box:
In the first three months of 2009, more than 2 million jobs were lost, causing the unemployment rate to jump from 7.6% to 8.5%, the highest since November 1983. The unemployment rate increased in March in 46 states, with California, the world's eighth largest economy, hitting 11.2%, the highest since January 1941...
As noted in recent months, post World War II recessions have on average caused personal income to fall between 4% and 7%, and this one has further to go. Wages and salaries shrank at a 4% annual rate in the first quarter, and according to Deutsche Bank, payroll-tax withholding receipts collected by the Treasury Department are down 8.2% from a year ago. This suggests that personal income growth will remain weak in coming months, and shave more than $250 billion from total income and future demand. Changes in temporary jobs lead reversals in the overall labor market by 6 to 10 months. In 2007, a continuous decline in temporary jobs and hours worked led me to forecast a decline in jobs in 2008. When non-farm jobs fell in January 2008, most economists were shocked, and the stock market sold off sharply. In March, employers cut 71,700 temporary workers, so any real improvement in job growth is many months away.
(Excerpt) Read more at businessinsider.com ...
Most economists are quick to note that unemployment is a lagging indicator, and they’re right. But the magnitude of the job losses shouldn’t be dismissed so glibly, given the impact they are having on the banking system. The American Bankers Association reported that 3.22% of consumer loans were delinquent at the end of 2008. That is the highest level since the ABA began tracking overall loan delinquency rates in the mid 1970’s. And that was before 2 million jobs were lost in the first quarter.
An average of 5,945 bankruptcy petitions were filed each day in March, up 9% from February and 38% from a year ago. The soaring job losses since last September are certainly behind the increase in bankruptcies.
The surge in job losses are working their way up the income ladder, with an increasing number of middle income and upper middle income workers being affected. This is pushing many of those who previously were considered prime credit risks over the edge. Two-thirds of mortgages in the U.S. are held by the best credit risk, prime borrowers. According to the American Bankers Association, 5.06% of prime borrowers have missed at least one mortgage payment. Since prime borrowers are such a large group, this represents 1.8 million mortgages. Although the delinquency rate for sub prime mortgages is up to 21.9%, it only accounts for 1.2 million mortgages...
According to RealtyTrac, job losses result in a home foreclosure 10% to 15% of the time. If job losses narrow from the monthly average of 670,000 in the first quarter to 325,000, almost 3 million more jobs will be lost before year end. That will translate into another 300,000-450,000 foreclosures, and an unemployment rate of almost 11%. But what if that estimate of job losses is too optimistic?
New research by the Federal Reserve and Boston University of credit spreads of 900 non-financial companies from 1990-2008 predicted changes in the economy ‘phenomenally’ well. Based on their initial research on low to medium risk corporate bonds with more than 15 years to maturity, the researchers went back to 1973 and found the analysis still worked well. With the massive widening of corporate bond spreads last fall, the researcher’s model predicts the economy will lose another 7.8 million jobs by the end of 2009, and industrial production will fall another 17%. In the spirit of optimism, let’s assume this ‘phenomenal’ model is off by 35%, due to the extreme nature of this credit crisis. That still results in another 5.1 million lost jobs, and an 11% drop in industrial production. In that scenario, the unemployment rate climbs to near 12.5%, the underemployment rate breaches 20%, and another 500,000-750,000 foreclosures result.
An unemployment rate of 12.5%, if memory serves, is a tad higher than the Fed is using in those bank stress tests.
The stock market could be a massive fakeout.
The Fed pumped cash directly into the accounts of the Primary Dealers, another $8.5 billion. That’s a record buy in this government pumping.
The retail investor could get, once again, taken to the woodshed while the big cash gets out.
Vox Day reports anecdotally that steel production/orders is WAY down all across the industrialised world. Steel is so ubiquitous that it’s trending is a much better indicator of economic performance than are the stock markets. What we’re seeing right now in the markets is a bear rally.
The inflationary tidal wave will kill us...not the unemployment tsunami...although, by the time POtuS is done, there won’t be enough of our country to recognize anyway, if we don’t stop him...and soon...
Remember how Reagan got ripped to shreds over the unemployment rate back in ‘83?
Funny how silent those people are now.
Last week it was bailout Chrysler with tax payer dollars, give 55% of the company to the UAW. Today it was announced the UAW wants to sell their shares.
My head hurts everytime I get more news from TV/Internet/Newspaper/Etc.
dead cat bounce
We have entered a new period of low growth - now that, for better or worse(probably worse) - the government has become our partner in the private sector.
Don’t expect much of a recovery, therefore.
I suspect that, everytime Mr. Bernanke speaks hopefully about the economy recovering, he must imagine that he is whistling past a graveyard.
A vee-shaped recovery in not likely. Probably more like and extended U or and L.
There’s more pain to come. That’s the reality.
The euphoria seen in the markets over the past nine weeks is based on hope and not reality.
As Bernard Baruch once said, “two plus two still equals four.”
Indeed.
And the “bizzaro” market will soar on this news
The Brown Clown said that 150k jobs were created.....guess he lied again
The highest since the last time a globalist socialist fascist was president.
The best indicator I have is local. We have many large privately owned trucking companies and they are friends of mine. They tell me that it is almost impossible to get freight lined up out of most large metros. “Deadheading” is killing them. They tell me its worse now than in Jan. and Feb. When freight is not moving that means orders are not being made by retailers. Don’t believe the numbers coming out of the govt. “Liars figure and figures lie”
That's as bad news as the steel news. You're right - if there's nothing to ship, then there's nothing being made, and companies can't long afford to hold onto employees who don't have any orders to fill.
I find myself conflicted. I mean, if the economy goes south, it's a big black eye for Obama and the Dems. But at the same time, if the economy goes south, millions will be out of work, and they will be hurting, and I definitely don't want that. I don't think we can (or want to) let ourselves turn into the Democrats, who spend the entirety of Bush's last term hoping....HOPING....that the economy would go down the tubes, just so they could get back into power.
The kool-aid drinking sheep will lap it up.
It is ON PURPOSE, (Cloven-Piven) it is not an effect of being "stupid"..
"They" are NOT STUPID.. they know exactly what they are doing..
If America does not rise up.. the house of cards will come down..
With Americas "money" backed BY NOTHING.. serious inflation will be the result..
Did I say NOTHING can STOP THEM?.. Oh! yeah I did..
This "COUP" was brilliant not staged by idiots..
Short of gun fire there is nothing to STOP THem..
Some reading of Antonio Gramsci and Saul Alinsky can wise you up..
There is no mystery of How this happened..
Socialism is a political disease.. democracy is the carrier..
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Democracy is the road to socialism. -Karl Marx
Democracy is indispensable to socialism. The goal of socialism is communism. -V.I. Lenin
The meaning of peace is the absence of opposition to socialism .-Karl Marx
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