Van Santos

The actual title of the article I just read was “US loses just 345,000 in May, raises hopes”

JUST 345,000?

Employers throttled back on layoffs in May and cut the fewest jobs in any month since the financial crisis erupted last fall — raising the brightest hope yet that an economic recovery will take hold later this year.

But with companies still reluctant to hire, the nation’s jobless rate rose to a quarter-century high of 9.4 percent, and it likely will keep rising into 2010, possibly within striking distance of its post-World War II peak of 10.8 percent.

“Less bad, yes,” Ian Shepherdson, chief U.S. economist at High Frequency Economics, said, summarizing the economy. “Good, no.”

The press is still in the “Less bad” mood, but this is still significant as the nation is now at 9.4% (reported).  More over, people are starting to revise their end estimates.  Previously economists were saying this wouldn’t go beyond 10%, now it is expected that unemployment may hit almost 11%.

Two large issues are on the horizon - taxes and energy cost.

1) The massive amounts of money spent for a stimulus that hasn’t worked will be coming back to haunt us soon.  As a result, the government will need to find a way to raise money in order to continue paying benefits.  There is only one way this will happen: raise taxes.  If they raise business taxes, that will impact earnings.  In turn, companies will look for cost savings in order to boost their profits.  Where do you think that will start?

Employees.

As such, more layoffs would come back into play.  While, possible, not as bad as 600K per month layoffs none the less.

2) Energy.

Oil/Energy is once again getting out of control for reasons NOT based on demand.  If energy continues to move toward $90, earnings will once again be impacted.  Again, here we go.  Companies will slow spending, construction will diminish, the consumer will cut back which means retail will hurt…  and there we go, layoffs will start once again as companies attempt to rightsize for the market conditions.

This is a bad cycle we are in and, I fear, it is going to be a prolonged cycle.

The now weekly continued unemployment claims data is out and we are now up to 6.79M – a new record. Last week we were at 6.66 Million.

In the week ending May 23, the advance figure for seasonally adjusted initial claims was 623,000, a decrease of 13,000 from the previous week’s revised figure of 636,000. The 4-week moving average was 626,750, a decrease of 3,000 from the previous week’s revised average of 629,750.
…
The advance number for seasonally adjusted insured unemployment during the week ending May 16 was 6,788,000, an increase of 110,000 from the preceding week’s revised level of 6,678,000. The 4-week moving average was 6,608,250, an increase of 123,750 from the preceding week’s revised average of 6,484,500.

Two quick points:

1) The initial claims are down from 636K to 623K. What we are now have is a situation where people will try to make good news out of bad. No matter how you spin it, this is still BAD news.

2) The Continued Unemployment Claims record of 6.79 Million is a record based on volume, not percentage. The percentage continued unemployment claims records was 5.4% in the 1970’s, right now we are at 5.1%

Not trying to be a fear monger here, I’m really trying to keep the positive of life in mind, but I do have to point out that Continued Unemployment Claims have hit a record high.

In the week ending May 16, the advance figure for seasonally adjusted initial claims was 631,000, a decrease of 12,000 from the previous week’s revised figure of 643,000. The 4-week moving average was 628,500, a decrease of 3,500 from the previous week’s revised average of 632,000.

The advance seasonally adjusted insured unemployment rate was 5.0 percent for the week ending May 9, an increase of 0.1 percentage point from the prior week’s unrevised rate of 4.9 percent.

The advance number for seasonally adjusted insured unemployme;nt during the week ending May 9 was 6,662,000, an increase of 75,000 from the preceding week’s revised level of 6,587,000. The 4-week moving average was 6,480,500, an increase of 131,000 from the preceding week’s revised average of 6,349,500.

The fiscal year-to-date average for seasonally adjusted insured unemployment for all programs is 5.071 million.

One must keep in mind that unemployment is a lagging indicator, but an initial claim of 631,000 is still significant. The record high of 6.66 million shows just how bad things have been in terms of employment in the U.S. during this recession.

Remember, as the automotive industry continues to “right size” one can reasonably expect the employment number to be negatively impacted.

Here is another indicator of the weak job market, brought to us by the friendly people at the U.S. Department of labor:

In the week ending May 9, the advance figure for seasonally adjusted initial claims was 637,000, an increase of 32,000 from the previous week’s revised figure of 605,000. The 4-week moving average was 630,500, an increase of 6,000 from the previous week’s revised average of 624,500.

The advance number for seasonally adjusted insured unemployment during the week ending May 2 was 6,560,000, an increase of 202,000 from the preceding week’s revised level of 6,358,000. The 4-week moving average was 6,337,250, an increase of 128,750 from the preceding week’s revised average of 6,208,500.

A few things to note regarding this data:

• The initial claims number, while high, is roughly 30K less than the peak number (for this recession) that was established a few weeks ago

• The continued claims of 6.56M is a new record

• If GM goes into bankruptcy, it is reasonable to expect that initial claims will remain high even if other areas of the job market improve slightly

• If initial claims remain high, there will be a cascade effect to other areas of the economy – namely retail.

Bottom line: The “green shoots” of hope seen by the Federal Reserve are long since gone. While the economy may be in a bottoming process, we are far from being in a good position.

The Federal Reserve and Timothy Geithner have said, on a number of occasions, that the economy is starting to show signs of a recovery.

Remember the “Green Shoots” Bernanke observed?  Remember how everyone was curious as to why THEY were not seeing said green shoots? I’m guessing you do, and I am guessing you are still not seeing them.

Well, over the weekend the White House appears to have ripped the green shoots of a recovery and tossed them aside – there will be no recovery for those in the job market until 2010.

Speaking on C-SPAN, Christina Romer, chairwoman of the White House Council of Economic Advisers, said that she expected theG.D.P. to begin growing in the fourth quarter of this year. Ben S. Bernanke, the Federal Reserve chairman, made a similar prediction last week.

But Ms. Romer also said that she expected unemployment to rise even after the economy turns, saying that the G.D.P. has to grow at a rate of about 2.5 percent before unemployment will fall. Before that happens, she said, it is “unfortunately pretty realistic” that the unemployment rate could reach 9.5 percent. A reasonable estimate for the G.D.P.’s growth rate in 2010, she said, is three percent.

9.5% on the unemployment in 2009?  To me that seems less than realistic.  

I’ve said a number of times that I expect to hit 10% by the end of this year. If the nation sees a loss of another 1.1M people by 12/31, the U.S. Unemployment rate will end up at roughly 10.2% 

Here is the big question, though: Will the government switch people from “unemployed” to “underemployed” (those who have given up hope and are no longer looking) in order to keep the reported unemployment rate under 10%? My guess is yes.

If one looks past the discussion of economic news and listens to the other information, Ms. Romer is giving the public a look at the next major target the administration has in mind: Health care

“When you actually look at that budget going out in time, the thing that is going to bankrupt us is government expenditures on health care,” she said. 

Insurers of all kinds, take note and start to duck and cover.  The heat will be rising for you very shortly.

The latest unemployment numbers are out and the situation continues to look grim. While layoffs slowed to 539,000 jobs lost in the month of April, down from 699,000 jobs in March, the unemployment rate continues to rise. The official government reported number currently stands at 8.9%, though the argument could easily be made that true unemployment is significantly higher.

Yes, the job loss rate slowed in April. That is nothing to get excited about, especially when you consider that this is the 16th consecutive month of job losses AND there is no sign of increased hiring activity. Simply put, the U.S. economy is far from recovery.

Only 4 months into the year, I still hold to my view that unemployment will hit 10% by the end of December.

UPDATE: The TRUE Unemployment number is…

Above I noted that the 8.9% unemployment rate is debatable. Why is that? The 8.9% represents “Totally unemployed, as a percent of the civilian labor force”.

Got that? Good. When one looks at “Total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers” then unemployment jumps to 15.8%

But what is this whole “marginally attached workers” thing you speak of?

Simply put, a marginally attached worker is a person who currently is neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the recent past.

They are the despondent, those who have given up hope. So, take those who still are looking for work (hopeful) and those who are not (given up) and one arrives at 15.8% - that is your TRUE unemployment number.

The automotive maker report yet another horrific month of sales.

U.S. auto sales fell 37 percent in March, a smaller-than-expected drop that encouraged hope the world’s largest car market is nearing a bottom after a freefall that has pulled the industry into a deepening crisis.

Break down the numbers:

• GM sales were down 45%
• Ford Down 41%
• Chrysler and Major Japanese Automakers down 36% to 39%

Of the current conditions, an S & P analyst said:

“We believe we may be at or near the trough of the industry’s year-to-year comparisons but do not see an uptick in industry demand before (the fourth quarter) at the earliest,”

Just to point out, this is the third month in a row that someone from S & P has stated we are at or near the industry year-to-year bottom. I guess they are following the theory that if one says it enough it will come true.

Update - 11:09 PM: For perspective, take a look at the sales numbers from Jan 09.  The latest numbers are far worse for GM and Ford. So much for finding a bottom, huh?

GM – also known as Government Motors – ask for ANOTHER 2.6B from the government

General Motors looks to be heading toward bankruptcy… a “controlled” bankruptcy… backed by taxpayer funding. 

Aside from the fact that GM obtained Billions from the government simply to stay alive this far into 2009, they still have the balls to ask for EVEN more money but this time they are playing the “clean technology” card.

General Motors Corp has asked for $2.6 billion of low interest government loans to support the development of three new hybrid vehicles, according to a business plan update released on Wednesday.

GM’s loan request, which would help develop two spinoffs from its all-electric Chevrolet Volt, raises to $10.3 billion the aid it is seeking under a U.S. Energy Department program designed to support development of fuel-efficient vehicles.

It will be interesting to see if the Department of Energy approves the loans or not. At this point it has become virtually impossible to even form a guess as to what is going to happen next in the automotive industry.

ADP Unemployment Report

Friday the U.S. Department of Labor is expected to announce the NonFarm Payroll report. While economists are predicting a loss of 670,000 jobs, ADP, one of the largest payroll company in the world, release actual number on Wednesday for the month of March – 742,000

Where will the unemployment rate under up this month? We are already 8.1% but with such a large number of layoffs in the month of March, I’m guessing we will be up to 8.5%… maybe a bit higher.

With no end in sight to the layoffs I still suspect the U.S. economy will see a recorded rate of unemployment of 10% by the end of the year.

Gas

Depending on where you live in the country, the price of gas will vary.  There are a number of factors that play into the regional price – local emission requirements, demand, refinery capabilities – but overall the price should be semi-reflective of the oil consumption/demand of the nation (or world) in general.

Have you noticed that the price of oil has dropped within the last year?  Damn right you did, because you say the price of gas drop significantly. Within the last month, however, have you noticed that the price of gas is starting to slowly creep upward?  You may not have noticed yet, but I’m guessing you will shortly.

In Chicago, the price of gas is ranging from $2 to $2.25.  Seeing that the price of oil is range bound from $35 to $45, doesn’t it see peculiar that the price of gas is starting to rise?

The rise in gasoline is directly tied to the oil companies – this time. 

When the price of oil was at $147/per barrel, the oil companies had no choice but to raise the price of gas.  To place blame on those organizations for the jump was unfair as they had very little control over the energy market, the futures traders and investors did.  This time, it seems, the oil companies are moving the price up due to technical issues, as well as the decision to cut refinery capacity due to “a lack of demand”.  

Such action on the part of oil companies appears as if they are testing the limits of the consumers.  

Unemployment

Yep, the nationwide unemployment rate hit 8.1% this past February.  That is a jump of half a percent from January’s 7.6%.  

Quite scary, no? 

Here is something even scarier: If you are black, unemployment is now at 13.4%

“Unfortunately, the black unemployment rate is typically about twice the white unemployment rate,” said Algernon Austin, director of the Washington, D.C.-based Economic Policy Institute’s Race, Ethnicity and Economy Program.

“In recessions, you typically see a black unemployment rate increase significantly.”

The coming week doesn’t have a lot of economic data, but the market will continue to look for evidence of a recovery.  My guess would be that the market will continue to bounce around current levels.

Things to watch

I have the last Futurama Movie, “Into the Wild Green Yonder” in my possession and hope to watch and review at some point this evening.  

I’m rather torn about watching this movie, as I believe this will be the last in the series.  The initial DVD Movie Release did very well despite the fact that the effort was sub par. The second movie was… just weird… while the third returned Futurama to the glory fans used to know. I would love to see the show continue on, but I fear the writers are trying too hard…  

On to another show…

Season Three of Venture Brothers is coming out on 03/24/09.  If you’ve never experienced the joy that is Venture Brothers, I suggest you start with Season 1.  You’ll find some of the best comedic writing on television, hands down.  

Do you, or your man, need a mirdle?

A London department store is hoping to cash in on the lucrative men’s underwear market Thursday by launching a throwback to the Victorian era, a gut-cinching garment that designers say will help men make it through these belt-tightening times.

The stretchy contraptions resemble normal sleeveless tank tops or long-sleeved T-shirts — only shrunk down two or three sizes in a special blend of Spandex, nylon and polyester. Control underwear will be launched later this year.

“It makes waists look trimmer, improves posture and helps men get into the latest slimmer-fitting suits,” said Gavin Jones, head of the Australian company Equmen, which launched its male shapewear line in Selfridges on Thursday. “Men are under a lot of pressure right now to perform financially, socially and romantically. Why shouldn’t we have the same products that women have had for years to make us feel better?”

Really?

It’s called eating less and working out.  Look into it.

UPDATE: 03/09/09 

Yeah, no Futurama “Into the Wild Green Yonder” review this envieng.  I got caught up in another project I was working on.  I’ve added it to my list to do for tomorrow! Now I’m off to play some Bioshock.

Anyone who even casually follows the financial market is well aware that today a horrific day in the Stock market.  While the Economy (and stock market) experienced a large amount of pain over the last 6 months, today appeared to be even more painful for a number of reasons.

• General Motors finally admits “there is substantial doubt” about their survival

Despite massive restructuring efforts, despite the loans provided by the government, and despite everything the company has said previously, General Motors finally admitted what the rest of the world already knew – the end of the road is close for General Motors.

Deloitte & Touche, the GM’s auditors, made the following statement: 

The corporation’s recurring losses from operations, stockholders’ deficit, and inability to generate sufficient cash flow to meet its obligations and sustain its operations raise substantial doubt about its ability to continue as a going concern.

Having experience in the world of audit, this is the professional way of saying “Bankruptcy is going to happen”.  

The major question that is on the minds of most is how this bankruptcy take place?  Will the government act as the funding institution, propping up General Motors during the restructuring process, or will GM face a massive liquidation event pushing the into the pages of oblivion?

President Obama previously stated that he will not allow the American auto industry to fail, and Congress has already provided funding to GM and Chrysler, so what wouldn’t the Government act as the financier for a GM bankruptcy?  

Maybe government officials would fear the backlash from the general public.  

The world will not end when General Motors goes bankrupt, but it will be painful.  Other companies will suffer the same fate as a result and the stock market will whipsaw with uncertainty but we will all survive.  Politicians, however, may not survive the next round of elections if huge amounts of public funding are dedicated to propping up a company that has no hope of survival.

• The list of 19 banks undergoing a “stress test” was released:

 

Name	Total Assets (Billions)
1. JPMorgan Chase	2,175
2. Citigroup	1,947
3. Bank of America (1)	1,822
4. Wells Fargo	1,310
5. Goldman Sachs	885
6. Morgan Stanley	659
7. MetLife	502
8. PNC Financial Services	291
9. U.S. Bancorp	267
10. Bank of New York Mellon	238
11. GMAC	189
12. SunTrust	189
13. State Street	177
14. Capital One Financial Corp.	166
15. BB&T	152
16. Regions Financial Corp.	146
17. American Express	126
18. Fifth Third Bancorp	120
19. KeyCorp	105

 
What does this say to you?  The majority risk really falls within 6 institutions.  Unfortunately, institutions 2 and 3 are suffering the most on this list.

• 12% of U.S. Mortgage holders are either behind in their mortgage payments or in forclosure

This one is HUGE.  A record number of mortgage holders, 5.4 million, are delinquent in with their monthly payments.  

The Mortgage Bankers Association said Thursday the percentage of loans at least a month overdue or in foreclosure was up from 10% in the July-September quarter and up from about 8% a year earlier.

The scary part of this information, aside from the drastic rise, is the location(s) of the delinquent mortgages – Louisiana, New York, Georgia, Texas and Mississippi.  The mortgage crisis is spreading beyond the borders of California, Florida, Arizona and Nevada.  What was once a localized but highly publicized event is truly becoming a nationwide crisis.  

• Citibank hits an all time low… of 97 cents

I never thought the day would come where Citibank, once the largest bank in the world, dropped below the one dollar mark today.  While this not “economic” news it is important none the less as the price is a psychological indicator – the stock market believes that Citibank will not survive the financial meltdown.

And what does tomorrow bring?

Pundits and market watchers expect Friday to be an extremely volatile day – at 7:30 AM the new Unemployment rate will be announced. Economists predict unemployment to come in at 7.9%.  Lower and the market may celebrate.  Higher and the day may see a sell off at the open.

No one knows what awaits for us tomorrow, but it sure will be fun to watch…

UPDATE: 03/05/09 - Treasury Secretary Geithner’s choice for deputy withdraws

The person Treasury Secretary Timothy Geithner wanted as his chief deputy withdrew from consideration Thursday, dealing a setback to the understaffed agency as it struggles to address the worst financial crisis in decades.

Annette Nazareth, a former senior staffer and commissioner with the Securities and Exchange Commission, made “a personal decision” to withdraw from the process, according to a person familiar with her decision.

The decision followed more than a month of intense scrutiny of her taxes and multiple interviews. No tax problems or other issues arose during Nazareth’s vetting, said the person, who requested anonymity because Geithner’s choice of Nazareth was never announced officially.

So, did Congress find something in her past or did she simply get fed up of the inquisition?

Within the last 6 weeks the nation was told that consumer confidence has dropped to an all-time low, foreclosure rates jumped 81% in 2008, unemployment now stands at 7.6%, the auto industry faces the worst market in decades, and the national deficit will be the largest ever – 1.5 trillion – what else is there that could be said that we don’t already know?

How about a bit of potential hope?

This morning, the Fed Chairman Ben Bernanke said the following:

In their economic projections for the January FOMC meeting, monetary policy makers substantially marked down their forecasts for real GDP this year relative to the forecasts they had prepared in October. The central tendency of their most recent projections for real GDP implies a decline of 1/2 percent to 1-1/4 percent over the four quarters of 2009. These projections reflect an expected significant contraction in the first half of this year combined with an anticipated gradual resumption of growth in the second half.

Federal Reserve policymakers continued to expect moderate expansion next year, with a central tendency of 2-1/2 percent to 3-1/4 percent growth in real GDP and a decline in the unemployment rate by the end of 2010 to a central tendency of 8 percent to 8-1/4 percent.

If actions taken by the Administration, the Congress, and the Federal Reserve are successful in restoring some measure of financial stability–and only if that is the case, in my view–there is a reasonable prospect that the current recession will end in 2009 and that 2010 will be a year of recovery.

With the inconsistent message coming out of the last two administrations regarding the economic climate, I’m unsure how to take Bernanke’s comments. Is he implying that, in the best of all possible worlds, if everything good that can happen does, the economy will start to grown once again at the end of this year?

The world we live in today has very, very pessimistic economic data in every category – none of which points to a near term recovery - so what information is Bernanke (and the Fed) looking at to draw this conclusion? Bernanke does not appear to be a person who would make a statement in order to calm the stock markets, so this just makes me wonder what else is going on that we are unaware of.

One thing I fear about the current economy, and the attempts to move a recovery forward is President Obama’s pledge to cut the federal deficit by roughly half over the next four years.

No detailed approach has yet to be presented to the public, but what little information that is known points to a significant cut in defense spending (ending/scaling back the war in Iraq) and raising taxes on the nations richest.

What bothers me about the heavier taxation is the potential effect on the recovering economy. During the Great Depression, Hoover raised taxes as an attempt to balance the budget. This decision only lengthened, if not strengthened, the economic downturn. While one would not expect the top marginal rate to rise to great depression levels, it still is a dangerous line to walk – less disposable income leads to less economic activity.

Another bit of promise was provided by Bernanke today when he plainly stated:

“We don’t need majority ownership to work with the banks,” Bernanke said today. “We have very strong supervisory oversight. We can work with them now to do whatever is necessary.”

Translation: There is no need to nationalize banks.

That is what the administration is saying right now, but as this entire situation has taught economists everywhere this is an ever-changing situation. What is workable today my not be so tomorrow.

With the President speaking this evening, and Treasure Secretary Tim Geithner presenting more information on the banking plan tomorrow, the next few days will be very interesting to watch.

2/24 - 8:17PM UPDATE

Calculated Risk has an interesting question/point on this very subject.

If the banks are seriously insolvent, this sounds like the zombie bank approach and rewards existing shareholders at the expense of taxpayers. If the banks are not seriously insolvent, this is a reasonable approach. But how does Bernanke know the solution before the data is available from the stress tests?

So how can Bernanke say that no nationalization will take place if the data to determine so has not yet been established?  Makes one wonder just a bit more, doesn’t it?  I want to know what Bernanke knows that he is not saying…and if he is not syaing it, why is he withholding the information?  It’s clearly positive if he can determine that no nationalization is needed.