One Way to Tell the Direction of the Economy
Thursday, October 2nd, 2008
By George Leong, B.Comm. for Profit Confidential
A key variable in the success of the economy will be the labor market going forward. As business slows, companies will cut production and send workers home. This will translate into lost wages and a decline in consumer spending that will ultimately impact the economy negatively.
In the U.S., the labor market has been soft, as indicated by the monthly non-farm payroll data and rise in unemployment claims. In September, planned layoffs at U.S. companies are estimated to increase 7.2% in September on a sequential basis and to up a whopping 33% year-over-year, according to a report by employment consulting firm Challenger, Gray & Christmas Inc. This news is not good for the labor market, and it could translate into lower consumer confidence and economic growth.
But the labor issues are not limited to the U.S.; there is also labor weakness in the European Union (EU). The unemployment rate jumped to 7.5% in August in the 15-country EU, according to the EU statistics agency. Again, the impact on EU economic growth will be felt.
In the U.S., all eyes will be on the September employment report this Friday, which is expected to show a loss of another 90,000 jobs and the unemployment rate at 6.1%. The financial services sector is issuing pink slips at a rapid clip, and this will only pick up as more financial companies struggle with the credit issues and need to cut back expenses to survive.
My feeling is that the labor strife has not been considered seriously in light of the recent oil and financial worries, but needs to be addressed because of its potential impact on global economic growth. Keep an eye on the labor markets, as they will give you an idea of the direction of the economy.
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George is a Senior Editor at Lombardi Financial, and has been involved in analyzing the stock markets for two decades where he employs both fundamental and technical analysis. His overall market timing and trading knowledge is extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi’s popular financial newsletters, including The China Letter, Special Situations, and Obscene Profits, among others. His trading advice on stocks and options is also found on his daily trading site, Daily Profits. He has written technical and fundamental columns for numerous stock market news web sites, and he is the author of Quick Wealth Options Strategy and Mastering 7 Proven Options Strategies. Prior to starting with Lombardi Financial, George was employed as a financial analyst with Globe Information Services.
