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Mark's Market Blog

7-9-11: Unemployment

By Mark Lawrence

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After a seriously startling week of gains, on Friday the market turned down a bit on news that unemployment is continuing to increase. Europe also continues to deteriorate - bond interest rates are now over 10% for both Ireland and Portugal, meaning they cannot get funded in the future by selling bonds, there simply must be another bailout when they run out of cash. But no one is interested in Europe this week. China's debts are starting to look like Greece, hitting 150% of GDP by some estimates. Unlike Greece, China has their own currency and can print their way out of any banking crisis. . . paying for that behavior with increasing inflation, unemployment, and public unrest.


S&P 500 January 10 2011 to July 8 2011

Markets have shot up far beyond almost anyone's expectations. They say bull markets climb a wall of worry - I would say this one is climbing a cliff of incipient doom. We live in an economy where 20 million or more workers have been seemingly permanently abandoned, where private industry is adding only 10,000 to 20,000 jobs per month - perhaps a sixth of what is required to keep up with population growth - and state and local governments are shedding jobs at the rate of 250,000 per year or more. Meanwhile, Europe's financial crisis has been swept back under the rug, where it's squirming and shouting for attention. More and more Greece, Portugal and Ireland are all looking like economic write-offs, meaning a default looks inevitable; and Spain, Italy and Belgium are hot on their heals. I find this market's behavior so counter-intuitive that I will neither waste your time making a forecast for you to read, nor my time making the forecast.

China appears now to be backed into an economic corner where they can force banks to recognize the bad debts associated with these huge unoccupied cities, airports, malls, resulting in a financial crisis that will bring their economy to a halt; or they can print money and bail everyone out (they've already said they will do this) causing inflation and unemployment. When food goes up in the US we're all annoyed, but we spend about 5% of our income on food so we get over it. When food goes up in China, where people spend 25% to 40% of their income on food, people go hungry. Hungry people don't vote, they riot.

Labor shortages have been prominent all over China especially in major coastal manufacturing cities. There is a 555,000 shortfall in major cities in the region that include Guangzhou, Shenzhen, and Dongguan. In the Guangdong Province officials estimate a 1 million shortfall. In the city of Tianjin, minimum salaries are scheduled to rise 16% to index for inflation and labor shortages. Tianjin already raised wages by 12% in April last year. Shenzhen increased minimum wages 20% to 1,320 yuan ($210) in April this year and now has the highest minimum wage in China. The city continues to have labor shortages. Shanghai raised minimum wages by 14%. Guangzhou increased the minimum wage by 18.2%, and the coal-rich province of Shanxi raised minimum wages by 15.5%, a year after an 18% increase. Is there inflation in China? Wages are going up by more than 15% per year, so there's a hint. As their banking crisis unfolds in the next 18 months or so, this will only get worse.

Friday the government's job report for June came out. Total employment fell by 445,000. As you can see in the unemployment graph below, job growth has completely stalled out. Currently we would project being back to full employment in the year 2742. I'll be dead, making my job available to someone some woman. My sons are frankly and openly worried about if there will be any jobs for them when they graduate. Two are working towards starting a business, with the clear idea that their only potential employer might be themselves. The US is still the world's largest manufacturer, or perhaps tied with China. However, China does it with millions of workers turning screws. We do it with industrial robots and computer controlled cutting machines. As China's inflation problem increases, manufacturing is returning to the US, but with increased mechanization, not with much in the way of increased jobs.


Unemployment, this recession compared to other post WWII recessions

Full-time employment is down by 0.5% in the last year, while part-time is up 3%. We are growing a just-in-time labor force, where you get a phone call Sunday evening to tell you your hours for the coming week. Those who are unemployed continue to be completely unable to find jobs. It seems every month the average duration of unemployment increases by a month. We have 20 million unemployed and no one wants them.


Duration of Unemployment, post WWII

Back in January 2009, Christina Romer and Jared Bernstein of the Obama administration produced a report estimating future unemployment rates with and without a stimulus plan. Their estimates, which were widely circulated, projected that unemployment would approach 9% without a stimulus, but would never exceed 8% with the plan. The estimates, along with real unemployment rates, are posted below.


Obama's Unemployment Plan for 2008 to 2014

As you can clearly see, unemployment has exceeded their wildest projections, even in the face of their $800 billion "jobs" stimulus program. Said analyst Larry Lindsey, "Even if you buy the White House’s argument that the $800 billion package created 3 million jobs, that works out to $266,000 per job. Taxing or borrowing $266,000 from the private sector to create a single job is simply not a cost effective way of putting America back to work. The long-term debt burden of that $266,000 swamps any benefit that the single job created might provide."

Early in his administration, Obama said "Never waste a good crisis." Well, it's become apparent that he's completely wasted this one. He could have echoed John Kennedy's goal, to put a man on the moon "before this decade is out." Obama could have said, "We're going to put Americans to work building clean and safe Thorium nuclear reactors, improving our electrical grid, and working on battery technology. We're going to cut our oil imports in half before this decade is out." He could have offered serious banking reform, trying to make sure that 2008's banking crisis would not repeat in our lifetimes. He could have worked with congress on serious medical cost reform, trying to guarantee that health care would not bankrupt our economy by 2025. He could have addressed immigration, changing our policy from free housing and medical care and eventual citizenship to anyone who crosses a river or a desert to citizenship for those who can improve our country. Instead we got more money for Acorn and more unions. While I have enormous respect for Obama's ability to raise campaign money and give a rabble rousing speech, I feel on safe ground pronouncing his administration a failure. Conservatives hate him for presiding over record setting deficits and unemployment and the continued decline of family values; liberals hate him for failing to promote equality, education, jobs; for shoveling money at Wall Street; and for failing to tax the rich. Previous to becoming President, Obama had not even been a night manager at a Taco Bell, and his lack of management experience is now shining brightly for all to see.

A University of Michigan study of 6.5 million car crashes found that an inordinate number of auto accidents happen when both drivers are women. Since men drive more miles than women, they expected to find male-to-male crashes would account for 36.2% of accidents, female-to-female would make up 15.8% and male-to-female would make up 48% of crashes. Instead, they found female-to- female accidents made up 20.5% of all crashes, much higher than the 15.8% expected. Male-to-male crashes were lower than expected, at 31.9% compared to 36.2%, and male-to-female crashes were pretty much on target at 47.6%. In more and more cities, the highest auto insurance rates go to teenage girls, then teenage boys, then women, then men. Was that female bashing? Oh well, even though we men get a jab in now and then, women are still winning the round and the fight on points.

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