As Bad as it Gets?

By "The Greek" - Economy & Markets:

Visit the front pages of Wall Street Greek and Market Moving News to see our current coverage of economic reports and financial markets.

Banks across the country on life support, America's manufacturing backbone teetering on the edge of bankruptcy, and Friday 533,000 net jobs reported lost in November. The job losses marked the greatest monthly decline since 1974! The recession reportedly started last December, making this likely to be the longest since The Great Depression. With things seemingly bleak already, it leaves one to wonder, is this as bad as it gets? The stock market indicated it might just be, as it took the tough blow and turned in a rally to close up 3.0% on the Dow. Still, we're only in the sixth round of a ten round fight, so hang in there.

(Article interests: AMEX: DIA, AMEX: SPY, Nasdaq: QQQQ, NYSE: NYX, AMEX: DOG, AMEX: SDS, AMEX: QLD, AMEX: XLF, AMEX: IWM, AMEX: TWM, AMEX: IWD, AMEX: SDK)

The Tough Blow

Today's employment situation report noted further deterioration in unemployment, as the jobless rate expanded to 6.7%, from 6.5% in October (6.1% in September). Revisions to both October (-320K) and September (-403K) nonfarm payrolls, exposed many economists' forecasts for peak unemployment naively short in the mid-seven percentage point area. The pace of job cutting is alarming, and whole sectors of the economy have only just begun shedding jobs. As those groups join the hard-luck ranks, we could approach 9-10% unemployment. And God forbid Congress fails the auto industry, or we'll get there mighty quick.

The consensus expectation for November, according to Bloomberg, was for a net of 300,000 lost jobs. The holiday season started looking bleaker earlier this week though, when ADP noted private sector losses at 250K and Goldman Sachs (NYSE: GS) revised its forecast for the November Labor Department tally to 400K. Challenger, Gray & Christmas also noted November's planned layoffs up 61%, to 181,671. That figure was greatly impacted by Citigroup's (NYSE: C) announced 51K layoffs. Despite all the warning signs, today's report knocked the socks off every forecast.

Unemployment Spreading

According to Challenger and the Labor Department, job losses were "large and widespread." John Challenger said that while high profile losses continued in the financial and auto sectors, slowing consumer spending was beginning to drive consolidation in other businesses as well. This means that retailers, hanging on for dear life, will shed significant jobs and consolidate stores post the holidays.

Besides retail, Silicon Valley has really been late in swallowing its medicine, maybe because of the lagged drop-off seen in international economies. In any event, technology has started to swallow the pill. Last night, Advanced Micro Devices (NYSE: AMD) warned its revenues were running short of expected. AMD has fired 2,100 employees this year, 500 of them last month. Earlier this week, Research in Motion (Nasdaq: RIMM) missed its forecast, and warned of altered consumer habits. But, this hit is broad reaching, so both consumer and business investment spending alike are seeing impact. Yet, the tech sector has been slow to adjust with regard to capacity and workforce consolidation. We assure you, layoffs will only increase in this stubborn group.

Energy, yes energy, is taking a hit from commodity price collapse. It shouldn't be long before we see exploration and production activity slacken, day rates decline and layoffs begin here too.

As a result of this spreading, I think we're going to get to 8.4% unemployment easily, and the rest depends on a few variables. We shed 1.7 percentage points and 2.7 million jobs since last December. However, employment is a lagging indicator. Therefore, it will be back-end loaded or heavy. In other words, it won't take as long to lose the next 2 percentage points. If the world's governments are able to settle the seas and restore financial supports (lending) and keep emerging market development firing, then the low end is achievable. However, there's a war pending in a highly critical part of the world. This is how I get from 8.4% to 10% unemployment. But this is a subject for another article I've already promised you.

More Detail from the Labor Dept

A sense of hopelessness may be setting in for a large number of the unemployed. Folks who say they do not expect to be rehired by their firms rose by 298K last month and by 2.0 million over twelve months. Soon, even part-time work will dissipate as natural economic consequence. The number of part-time workers currently employed less than they would like has increased as the economy has slackened. Part-timers who wish they worked more hours is up 2.8 million over twelve months. What happens when the firms that employ them need to trim? The first place companies look to cut jobs is within the ranks of temps and part-timers. Also, many of these people are working in the seasonal retail trade. These jobs are going to start working off. While consumption may not be supported much by these folks, crime is controlled, rent is kept up, and necessities are purchased. Also, taxes are paid, something that is plainly important to states these days.

Speaking of states, cutbacks are already in progress. While Obama is saying yes to every governor and his brother with an open hand, there will come a time when he'll have to actually allocate money and make a budget work. Good luck with that... Unfortunately, municipal workers are already getting cut, and the good government jobs are going away for many blue collar neighborhoods.

A big part of Obama's plan for job building is getting exposed as unfeasible. Alternative energy has lost much of its economic viability with the sharp drop off of oil and energy prices. And, in this environment, where are you going to come up with enough government funds to spur companies into a sure investment failure. Obama is going to have to find a way to make this go nonetheless, because it's a long term necessity anyway.

How's a war with Iran sound now? You could put people to work in Detroit and Louisiana making hummers, tanks, windmills and solar panels. Wars have a way of helping a nation through economic hardship. Not only do they offer jobs, but they unite the mindset of the masses toward a common enemy other than the government they suffer under. If America is not the sadist, perhaps Russia or China has a hard enough heart for it. It's something to beware anyway.

Counting the Dead

Manufacturing lost 85,000 jobs in November. December looks about the same, give or take 3 million auto workers. Construction lost 82,000, as all the industry's illegal workers are long gone, leaving only documented workers left to be fired. If you don't believe me, ask the crowd at Home Depot (NYSE: HD) or Lowe's (NYSE: LOW) where they use to work. As commercial real estate gets worse, this trade group has no place to hide.

Here's your evidence that the pain is spreading. Retail trade lost 91,000 jobs in November, after seasonal adjustment. The blood letting is likely to continue too, because 24K of those jobs were at auto dealerships. The rest of retail is still hanging in there. Though working in retail now is like being on death row, and your execution is set for January 1st.

Leisure and hospitality lost 76,000. Even the wealthy are cutting back, and companies are getting nervous. Ask me, someone who hits up Madison Avenue for advertising dollars. We've noted many times here the trouble at Saks (NYSE: SKS) and Tiffany (NYSE: TIF).

Boeing (NYSE: BA) announced today that it would further delay its 787. Rumblings are starting to be felt in the airline industry again. Here these companies are, all restructured after prior bankruptcies, and now they face the worst recession in a century. Talk about tough luck.

Professional and business services lost 101K jobs. Even lawyers are walking the streets now? No way! Lawsuits are likely to mount as a rising national income source. But at the same time, insurance salesmen must be feeling the heat. There's a big group of people employed on the fringe here in many service fields. Tax preparers still have a few months before they need to worry anyway.

Now the good news... Health care employment grew by 34,000. My industry contacts tell me the money won't be so appealing once Obama gets his health plan rolling. Health care for all has got to cost somebody something folks, but I'm not complaining. I, for one, will be able to get a check up and a teeth cleaning now. As long as we don't impact research and development, I see this as a good thing for the community.

Job losses are mounting, and where they are not yet, they will be. This is not as bad as the economy gets folks, but at least the stock market seems to have priced most of it in. Two things it hasn't priced in yet though lay ominously before us, bankruptcy in the auto sector and war with Iran. No matter how bad things seem, they can always get worse.



Please see our disclosures at the Wall Street Greek website and author bio pages found there.