December 2, 2022

The Flip Side of Bad News – Still A 90% Employment Rate

Disappearing Money

Charles Biderman of TrimTabs gave an interesting interview to Barron’s this weekend.  TrimTabs tracks flows of money in an effort to predict the stock market’s primary trend.

According to TrimTabs, “the first sign of a turnaround will be corporate insiders buying their own stock again and boards announcing new stock buybacks and cash takeovers of other public companies.  Right now, such buybacks are off about 90% year over year.

CEO confidence is at its lowest level since the Conference Board begain measuring in 1976.

Not a very positive assessment for those looking to put funds to work in the market.

In addition, the often cited “huge amounts of cash sitting on the sidelines” (in money markets funds), is also not apt to be a reason for launching the stock market higher either.   According to Mr Biderman,

“of the almost $4 trillion sitting in money market funds, almost two-thirds is institutional money, much of it probably earmarked as reserves against shareholder redemptions or committed to retirement and other long term purposes.  The money coming out of equity mutual funds is greater than that going into bank CD’s, money markets or other savings.  The money is disappearing because people are using it to live on.”

Of course, there are other possibilities as to where the disappearing cash is going.  Consider the  mistrust of the banking system and near zero interest yields on savings.  Perhaps some of these folks who sold their stocks are putting the money under their mattresses.  Or they just might be spending some of it.

Despite talk of consumers spending less and saving more, I have not really seen much evidence of that from one perspective.   I went to three casual dining establishments over the weekend (TGIF’s, Bertucci’s and Ruby Tuesdays) and each place was packed with customers.  There was a 10 to 20 minute wait time at each place for a table.   Maybe Connecticut’s economy is not yet getting hit as hard as other states.  Maybe people have decided to spend some of the money from liquidated equity funds.  Or, maybe things aren’t quite as bad as they say.   After all, even if the unemployment rate is at 10%, that means that 90% are still working and still spending.

The Unemployment Rate – Is It 7.5% Or 18%?

Job losses continue to accelerate as thousands of workers lost their jobs today.

The latest numbers include:

CORNING INC     3,500
BOEING               5,500
STARBUCKS         6,700
AOL                       700
FORD CREDIT      1,200

Job losses for the day totaled 17,600.    Compared to 65,000 job cuts yesterday and considering that 143 million people are still employed in the US labor force, today’s job loss may seem minor.   None the less, at a rate of almost 18,000 layoffs per business day, the annualized total of job losses in 2009 would amount to 4.5 million jobs.   Total job losses last year came in at 2.1 million.

Companies that announce layoffs of up to 20% of the work force are not just fine tuning.   The size of the job cuts being announced imply that businesses see an unprecedented and major reduction in future sales and profits.

Despite the obvious increase in job losses, official government estimates may be drastically understating the true unemployment rate.  Consider the following:

The Birth/Death Model Defies Economic Reality

The birth/death adjustment made by the Bureau of Labor Statistics added over 900,000 new jobs last year when computing the unemployment rate.  The model attempts to estimate new job formation caused by the birth and death of businesses.  The model admittedly produces inaccurate numbers at economic turning points but we are far beyond that point.  Last year’s addition of jobs based on the model were ridiculous and had zero correlation with economic reality.  Accordingly, the official government statistics understated the unemployment rate last year due to the birth/death model distortions.

True Unemployment Rate May Be Twice The Government Numbers

The official unemployment rate may also be dramatically inaccurate based on the Bureau of Labor Statistics method of calculation.  Consider the chart below from Shadowstats.com

If the government was still calculating the unemployment rate using the same criteria and methods that had last been used during the Clinton administration, the “official” unemployment rate today would be closer to 18%.

Courtesy of Shadowstats.com

The SGS Alternate Unemployment Rate reflects current unemployment reporting methodology adjusted for SGS-estimated “discouraged workers” defined away during the Clinton Administration added to the existing BLS estimates of level U-6 unemployment.

The economy is always about jobs.  Regardless of the method of computation, the unemployment rate is growing dramatically.   As the affects of layoffs and deleveraging continue to ripple throughout the economy, expect to see an official unemployment rate of over 10% in 2009.

Job Losses – Symptom Of The Economy’s Downward Spiral

Major Job layoffs become a non stop story

Here’s a list of Monday’s horror show.

Sprint Nextel Cuts 8,000 jobs

Texas Instruments 3,400 jobs

Caterpillar 20,000 jobs

Corus 3,500 jobs

Philips Electronic 6,000 jobs

Home Depot 7,000 jobs

ING 7,000 jobs

Pfizer 8,300 jobs

GM 2,000 jobs

A total of 65,200 job losses in one day that will in turn result in further job losses as the jobless drastically cut back spending on all but essential items.

Points to consider about the ever increasing job losses:

1.  Only the large layoffs by national firms make the headlines.  Small businesses that employ over half of all private sector employees probably laid off a comparable number of people as demand and spending evaporate throughout the economy.

2.  Given the high unemployment rate, very few of the recently laid off will be finding new jobs.

3.  The stimulus plan is unlikely to re-employ the armies of workers now unemployed.  The government simply cannot manufacture enough make work jobs to replace those lost in the free enterprise productive sector of the economy.  The cost of every non productive job “created” will put a further burden on the private sector that creates the majority of jobs.

4.  The downward spiral of home prices and increased foreclosures will continue as many of the unemployed will be unable to make their mortgage payments.

5.  Car loans, credit cards, student loans and personal loan default rates will continue to rise based on the inability to pay.

6.  Asset values backing the defaulting debt will decline, causing further defaults.

7.  Destruction of confidence will cause major spending reductions even by those still employed and contribute to further job losses.

8.  Huge job losses and credit defaults will cause further massive losses for lenders of every type.  Lenders with exploding delinquency rates will drastically cut back their lending.   The current situation is unprecedented and the lending models based on income, credit, job stability etc. no longer work; every potential borrower will be viewed as a future default.

9.  The demands on the Treasury will be of such extremes, that economic triage will be necessary.  Rescuing the system will take precedence over millions of individual cases of economic ruin.

10.  Ultimately, it is always about jobs.

Despite all the optimism about the “stimulus” program, it will not work.  The amount of spending proposed is insignificant compared to the amount of asset and job destruction taking place.  The government will vastly increase its spending throughout 2009, but ultimately it will be time and price that bring the over leveraged system back into equilibrium.  A majority of Americans will see much of their wealth destroyed before we reach the end of this national tragedy.

Connecticut Discovers How To Eliminate Unemployment

The State of Connecticut has discovered a method of preventing job layoffs.

Blumenthal Wants Connecticut Regulators To Block AT&T Job Cuts – The Hartford Courant

AT&T said last month that it would pare its Connecticut workforce, which totals about 6,800, by 400 jobs and transfer another 60 jobs to Michigan. A day after the news broke, Attorney General Richard Blumenthal, flanked by union leaders, implored state regulators to block the cuts with the force of law while the state investigates the impact on customer service.

“This is not about AT&T. This is not about Blumenthal. This is about the kind of message Connecticut is sending to business — a state that has no positive job growth and [has] people who are falling over themselves to prove that they’re pro-consumer by showing they’re anti-business,” AT&T spokesman Dave Mancuso said.

State regulators have so far denied Blumenthal’s requests, without listing specific reasons.

Blumenthal’s call for a stay on layoffs has only intensified AT&T’s growing frustration with operating in Connecticut. During an economic conference in September, AT&T’s eastern regional manager urged government officials to scale back regulation and let the company do its job.  “We don’t need policy-makers stepping in and telling us how to do it or where to do it,” Chad Townes said at the conference.

Though parts of AT&T are regulated, the company is increasingly operating in a competitive marketplace that demands lower costs and lower prices.

“In order for them to be competitive with other carriers, this is what they have to do,” Kagan, the telecom analyst, said. “If they have to start worrying about how many jobs they have to leave in how many states … the company would be doomed.”

Layoff Bans Are Counter Productive

Under the guise of preserving customer service the Attorney Generals attempt to block job cuts will only further destroy Connecticut’s ability to draw new businesses to the State.  The Attorney General should know better and his actions seem more directed to pandering for votes rather than improving the business climate in Connecticut.

If prohibiting job layoffs is a great idea, why not extend the theory of a centrally planned economy even further?  Prohibit all layoffs by every business operating in Connecticut.  Extend this logic further and pass a law forcing AT&T and every other business in the State to hire new employees until the unemployment rate reaches zero?   Excuse me for saying so Mr. Blumenthal, but this tactic has failed in every socialist state on the planet.

Attempting to prohibit layoffs is total lunacy and it will not work.  My advice to the Attorney General – Instead of creating a hostile business environment,  Connecticut should be focusing on sensible issues that will foster economic and job growth.

If the Attorney General really wants to help Connecticut’s economy, here’s something sensible that he can work on.

Tax Foundation – Connecticut 3rd Highest Tax Burden in Nation

Tax Freedom Day is the day when Americans finally have earned enough money to pay off their total tax bill for the year. In 2008, Connecticut taxpayers had to work until May 8 (the latest in the nation) to pay their total tax bill, 15 days later than the national Tax Freedom Day (April 23).

Connecticut‘s State/Local Tax Burden Third-Highest in Nation
Connecticut, currently ranked 3rd highest, has risen 21 places over the last three decades and now holds a place among the nation’s highest-tax states.

Connecticut’s 2008 Business Tax Climate Ranks 38th
Connecticut ranks 38th in the Tax Foundation’s State Business Tax Climate Index. The Index compares the states in five areas of taxation that impact business: corporate taxes; individual income taxes; sales taxes; unemployment insurance taxes; and taxes on property.

Connecticut Levies Sales Tax above National Median; Gasoline and Cigarette Taxes among Nation’s Highest

Connecticut Residents Are Voting With Their Feet

The Connecticut State Data Center says figures from last year show the population growth in the state is very small.

The University of Connecticut-based center says Connecticut’s population grew by less than two-tenths of 1 percent last year.

There is a connection between high taxes, job losses and zero population growth.  Connecticut has become a very high cost state for both residents and employers.  If Connecticut really wants to increase jobs in the state,  attention should be focused on lowering taxes.  Foolish, politically motivated schemes such as prohibiting layoffs will only lead to further job losses.

Job Losses Continue – “Unprecedented Economic Conditions”

Job losses continue to dominate the headlines in 2009.

Logitech To Slash 15% Of Work Force

ZURICH (Reuters) — Logitech International SA, the world’s largest computer-mouse maker, said it plans to cut 15% of its workforce and withdrew its fiscal 2009 financial targets, citing deepening global recession.

“During the December quarter, the retail environment deteriorated significantly,” Chief Executive Gerald Quindlen said in a statement on Tuesday, adding that the company expects the economic environment to worsen in coming months.

Cigna To Cut 1,100 Jobs

LOS ANGELES (Reuters) — Health insurer Cigna Corp. said Monday it will cut 1,100 jobs, or about 4% of its workforce, and consolidate certain operations as it copes with the economic downturn.

“Given the unprecedented economic situation we and our customers are facing, these actions are essential to ensure we can meet their needs for high-value, cost-effective products and services,” Chairman and Chief Executive H. Edward Hanway said in a statement.

The Cigna news follows a similar announcement last month from No. 3 health insurer Aetna, which said it would cut 1,000 jobs, or about 3% of its workforce, by the end of 2008.

UnitedHealth Group Inc., the largest U.S. health insurer by market value, said in July it was cutting some 4,000 jobs, or about 5% of its workforce, over the course of a year.

Alcoa to Cut 15% of Work Force, Unload Assets

Alcoa Inc. announced the elimination of about 15,000 jobs, more plant closures, plans to sell assets and a 50% cut in capital expenditures to contend with the sustained recession.

“Many of these things are painful and many of these things are drastic,” Alcoa Chief Executive Klaus Kleinfeld said in an interview Tuesday. “We will continue to monitor the dynamic market situation to ensure that we adjust capacity to meet any future changes in demand and seize new opportunities.”

Alcoa lost much of its luster in the recent commodity boom, failing to match the profit rise of other mining and metals companies, including rivals Rio Tinto Aluminum and UC Rusal. Both of those companies have also announced major cuts, shutting operations and selling businesses such as operations in China.

About 15% of the company’s employees and contractors will lose their jobs. Alcoa also is freezing salaries and hiring.

One day’s results – 3 companies cut over 17,000 jobs resulting in hard times and unemployment for many families.  Job losses have been an ongoing event and promise only to get worse as the job losses ripple throughout the economy.

The common theme in many of the layoffs is the eye popping size of the job cuts and company statements that conditions deteriorated significantly.  The size of the cuts do not suggest a typical slowdown but rather a “falling off the cliff” economy.

The only possible positive view one can take here is that when the news is this bad, it has to get better.