Monday, May 7th, 2012
By Michael Lombardi, MBA for Profit Confidential
The unemployment rate in the eurozone reached a 15-year high in March at 10.9%, up from the previous record set just a month earlier at 10.8% (source: The Guardian, May 2, 2012). This is the highest unemployment rate since the inception of the eurozone.
March 2012 marks the 11th month in a row that the unemployment rate has increased among the 17 nations that make up the eurozone.
The European Central Bank (ECB) kept interest rates at one percent at its last meeting saying that its policies need to change so that growth is given as much emphasis as austerity. (It would have been nice if the ECB would have thought of that a year ago, before hundreds of thousands of more people joined the unemployment lines.)
I spoke about the quickly deteriorating conditions in Spain recently in these pages. It is worse than most could have imagined. Spain holds the highest unemployment rate in the eurozone. As of March 2012, almost one in four people is unemployed: 24.1%. Spain also has the second-highest youth unemployment at 51.2%.
One in two young people under the age of 25 is unemployed in Spain…an absolutely mind-numbing statistic.
In Greece, the latest unemployment figures available are for January. Its unemployment rate stands at 21.7%.
I’m going to list the youth unemployment rates for March 2012 for the eurozone (except for Greece, whose latest statistics are for January), so my readers understand that some of these countries are placing their youth in a severely dangerous position of being a lost generation. Or will this be the center of the social unrest and the reason why the eurozone will unravel?
|Country||Youth Unemployment Rate|
Going back to the regular unemployment rates…the unemployment rate in Portugal is 15.3%, while the unemployment rate in Ireland is 14.5%.
Some analysts have been saying Germany would be able to decouple from the rest of the eurozone and experience strong economic growth. I don’t but this. In fact, I believe Germany’s economy is contracting while its manufacturing numbers continue to deteriorate.
Germany cannot decouple from the rest of the eurozone as much as the U.S. can decouple from the global economic slowdown. The big question on my readers’ minds: How bad will unemployment eventually be here in the U.S. as world economic growth falters?
The pressures in the eurozone are mounting. Something will have to give soon, as the situation is clearly unsustainable. This weekend, France took a big step to the left and ushered in a socialist government led by new French President Francois Hollande. The new President campaigned on a variety of promises, including an easing of austerity measures.
A reduction in austerity measures…so where will the money come from? Better crank up those money printing presses again.
Moving to our own problems…
American April 2012 unemployment numbers released Friday disappointed. Economists were looking for 160,000 in new jobs growth, but only 115,000 in new jobs growth was created (source: Bureau of Labor Statistics). However, mysteriously, the unemployment rate fell from 8.2% to 8.1% (more on that in moment).
Looking closer at the unemployment numbers; temporary help, general merchandise stores and food and drink places contributed the most to jobs growth by adding 62,000 jobs. This means that these low-paying jobs represented 54% of the new jobs growth created.
With this persistent theme of low-paying jobs growth being created in the U.S. economy, it is no surprise the jobs growth report showed average hourly earnings were flat in April 2012, when compared to March. Year-over-year, average hourly earnings have increased by a measly 1.8%, but when one adjusts for inflation, the average American’s real disposable income is declining!
Since 70% of gross domestic product (GDP) is consumer spending, I don’t see how consumer spending can increase in 2012 with pathetic jobs growth and no meaningful increases in average hourly earnings.
U6, as reported by the Bureau of Labor Statistics, is a broader measure of the unemployment rate, because it takes into account discouraged people who are still looking for work, as well as those working part-time, who want full-time work. The U6 unemployment rate was flat in April 2012 when compared to March at 14.5%.
The good news (yes, there is some) is that the previous two months saw higher revisions to jobs growth, with 54,000 more jobs created than originally reported. Not to take away from that positive news…typically in an economic recovery we should consistently be hitting 200,000 news jobs a month. We are far from this number.
One more quick note on U.S. April job numbers…
The labor participation rate measures all people in the working population (from ages 16-64) who are actually employed. In January, the rate hit a 30-year low of 63.7% (that is, only 63.7% of the people who can work and want to work are actually working). In February, it improved somewhat to 63.9%, but in March it dipped to 63.8%; while, in April, it fell further to its lowest level since December 1981 at 63.6%.
So how does the “official” unemployment rate drop to 8.1%? Simply, the figure is misleading. Discouraged workers who stop looking for work and those unemployed after one year are no longer counted in the unemployment rate.
Accordingly, the number of persons not in the labor force continues to climb higher: 88,879 million people, with the seasonally adjusted number being 88,419 million. This is absolutely mind-boggling.
Where the Market Stands; Where it’s Headed:
After a difficult Friday for stocks, stock market futures point to a weak opening this morning, with the Dow Jones Industrial Average slated to open below the pivotal 13,000 range again.
I continue with the belief that the market is putting in a “huge” top here. The stock market rally that started in March of 2009 is near the end of its cycle.
What He Said:
“Despite all my ‘yelling’ and ‘screaming’ about gold, I believe only a few of my readers and a small fraction of the general public haven taken a position in gold. Why? Because gold’s not trendy…buying condominiums for investment is! If you are an investor, you need to seriously look at investing in gold stocks, because gold bullion prices will likely continue to rise.” Michael Lombardi in PROFIT CONFIDENTIAL, September, 21, 2005. Gold bullion was trading under $300.00 an ounce when Michael first started recommending gold-related investments.
|Total 2012 per share earnings for 30 stocks in the Dow Jones Industrial Average:||$900|
|Dow Jones Industrial Average Price/earnings multiple:||16.0|
|Dow Jones Industrial Average Dividend Yield:||2.5%|
|10-year U.S. Treasury Yield:||2.02%|
This doesn’t make it easy to understand for investors who bought gold stocks and have now seen them go down in price…
But while the prices of gold stocks have pulled back significantly this year, demand for physical gold bullion … Read More
The action in the stock market continues to amaze.
When stocks go up on bad news (like last week’s higher initial claims for jobless benefits and lower-than-expected housing starts), you know you don’t want to be short.
Cisco Systems, Inc. … Read More
In these pages, I recently discussed the amazing returns in the benchmark Nikkei 225 index in Japan and how the country is following America’s example, printing money to fuel the economy.
The fact is that Japan is finally beginning to … Read More
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