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Economic Review

10/5/2009

A Jobless Recover is No Recovery

Last week’s manufacturing and more importantly, employment report quickly provided a reality check for the US economy…it’s simply not recovering to a pace of sustainable growth.  Non-farm payrolls disappointed a majority of street expectations and revisions to previous reports were negative as well.  Yes, the rate of change of monthly declines has probably subsided somewhat from the falling off the cliff pace, but reality is that corporations remain in job cutting mode.  As the unemployment rate continues to rise, it’s only natural that the rate of increase in joblessness begins to slow, otherwise there would be an outright crisis. 

The unemployment rate has now doubled from when the economy began its quick descend over a year ago and the real unemployment rate is edging its way much closer to 20% than to the 10% mark, given underemployment and those just quitting the search.  Finally, the US equity market, which simply was trading up on air released some of the wind that was propping it up.

The bottom line remains that the US needs to reward savers and increase the saving rate to spur real investment to fix the balance sheet of private consumers (but this will take a very long time).  Currently zero interest rate policy is punishing those who practice sound financial personal management.  The other major problem is the continued shift of US jobs to low wage nations.  The US can maintain free trade of goods but needs to produce  those goods at home and trade abroad.  Recovery you say?  Yes, cash for clunkers may help produce a positive 3^rd quarter GDP but just keep an eye on job creation.

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