July 27, 2024

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

January 29, 2009 by 1 Comment

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.

Filed Under: Economy, Jobs, Layoffs Tagged With: , , ,

Job Losses – Symptom Of The Economy’s Downward Spiral

January 27, 2009 by 1 Comment

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.

Filed Under: Economy, Jobs, Stimulus Plan Tagged With:

Job Losses Continue – “Unprecedented Economic Conditions”

January 7, 2009 by Leave a Comment

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.

Filed Under: Economy, Jobs Tagged With: , , ,