Let me get this straight: The U.S. loses census job hires to layoffs, unemployment increases but the percentages decrease because people are "leaving the labor force."
"Hi, I'm Bill. I'm leaving the labor force so I'm not actually unemployed. I've just decided not to work. Therefore, I'll continue to spend as if I am employed."
Not likely.
People who "leave the labor force" and "don't work" will not be "spending money" they don't have. Ergo, 9.5 percent unemployment is a sham and the U-6 is also a 16.5 percent sham. At this point, forget about certainty because there is none.
One thing we can be certain about at this point is our senses, including common sense. While visiting carpet and furniture stores in the Washington, D.C. area during June, I noticed a sparse crowd in the stores. In fact, at one furniture store, it seemed like only my wife and I were buying anything. That tells me that nobody is doing home improvement anytime soon.
It also tells me to look for further layoffs at home-related retail stores by the time summer is over. Of course, many of these jobs are commission-based as well.
But, the situation is much worse than that because many unemployed persons will not have jobs to return to, and new unemployed persons ARE entering the labor force. A CNN article, 7.9 Million Jobs Lost--Many Forever, explains it rather well. At the end, Scot Melland, CEO of Dice Holdings, a provider of specialized career web sites, said, "Many of the jobs we lost are never coming back."
We constantly hear that the economic engine in the U.S. is consumer spending. That's common sense. Consumers spend, businesses earn money and pay their employees. Now, let's take out the first part of the equation--add some debt burden to it--and what do we have? Businesses don't earn money, layoff more people and spending declines more.
Nouriel Roubini once told Bill Maher that he's not "doom-and-gloom." He's a realist. And, any realist can see manipulated numbers like 9.5 percent unemployment and 16.5 percent in the U-6 (part-timers who want full-time jobs and people who are frustrated and have given up looking for jobs) does not help. But, this term "left the labor force" is just ridiculous.
In Washington, D.C. and surrounding areas, times are not as bad because we have the Federal Government, government contractors, special interest groups and the people working there help the local economy generate some revenue. But, even D.C. is hurting somewhat and these groups have taken their hits in the past couple of years.
Beyond D.C., small, mid-size and regional banks continue to close on Friday afternoons as the FDIC tries to pretend it's still solvent. They're not even half way through yet, so don't expect alot of small, start-up businesses to begin hiring without access to credit. The Small Business Administration can only do so much. Bad construction and commercial real estate debt has alot to do with many of these bank failures. Banks are "kicking the can" down the road rather than taking those lumps right now.
As for the large banks, don't expect them to lend to small businesses either unless they have stellar credit. The large banks still haven't deleveraged from all the bad residential real estate debt and continue to face more bad debt in the future.
We'll likely see stronger companies gobble up weaker ones and more bankruptcies (don't even ask me how "Blockbuster" hasn't filed for bankruptcy yet). The American Bankruptcy Institute reported a 14 percent increase in bankruptcy filings during the first half of 2010, CNN's Bankruptcy Filings on the Rise article said.
Uncertainty not only weakens consumer confidence but Wall Street confidence as well, and my prediction of another crash in the next 12 to 15 months looks pretty good. Remember that many companies earned their profits from laying people off. How will they earn their profits this time around? Granted, banks no longer have to do mark-to-market accounting of their assets, helping them to survive.
And, remember, European contagion continues as Moody's says it may downgrade Spain's sovereign debt ratings. That means that Spain's government, like Greece, is broke. As other governments stop spending (because they only had printed money to spend), the contagion will likely filter to France, Germany and England until it moves across the pond to the U.S.
Sorry for this negative outlook on the eve of a July 4th celebration. The U.S. will falter, but it will eventually recover as well down the road. That's the optimistic part. There will be a recovery someday down the road. However, without proper deleveraging, it just will not be for about another decade.
Like Roubini, I'm not doom-and-gloom. I'm just a realist.
Robert Michaels
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