The stock market took it on the chin for good reason Friday.
According to the U.S. Labor Department, non-farm payrolls increased by 431,000 in May. Good numbers, until you look closely at the report.
Of the 431,000 jobs created in May 2010, 390,000 of those jobs were in government, hires for temporary employees conducting census work. If we take out the government-added jobs, we are looking at net employment growth of about 40,000 in May — anemic at best.
Not good numbers at all and proof that economic recovery is slow, slow, and slow.
Interest rates at record lows combined with record government spending have done little to turn the economy around. From what I can see, since Obama came into power, both government and our national debt have gotten bigger.
Small business is the backbone of this economy, accounting for about 70% of all U.S. employment. While the current administration has been busy saving banks and big business, I fail to see where they have really helped small business.
Cut the taxes of small businesses, give them financial incentive to make hires, and we will see employment grow. This will never happen, because small business does not have the lobbying power big corporations do to entice Washington to take action.
The stock market, a leading indicator, sees corporate profits returning (which is a good thing), but then sees how pathetic our job growth has been. Does that mean these corporate profits are coming from cost cutting? Yes.
But the stock market wants long-term corporate growth. If jobs are not being created, consumers are not spending money and corporate cost cutting can only help profits short-term.
Hence, my dear readers can see why I have been saying that the stock market will eventually test its March 9, 2009, low.
Michael’s Personal Notes:
By the end of next year, the total debt of the U.S. government will surpass America’s annual Gross Domestic Product (GDP). You would have to go back to World War II, when Franklin D. Roosevelt was President, to find the last time our national debt surpassed the GDP.
The biggest fear I have:
Following World War II, the U.S. economy, similar to today, was in shambles. To get the economy growing, the government dropped interest rates to near zero and brought the national debt up to about 120% of GDP. For the 30 years following, interest rates moved up from a Federal Funds rate of almost zero in 1947 to 18% by late 1981.
I am convinced that we are headed for the same fate, with 25 to 30 years of rising interest rates ahead. The higher our national debt gets over our GDP, the greater return investors will seek for the bonds America so desperately needs to sell to finance itself.
Where the Market Stands:
My readers must be exhausted by now following this stock market. Down 100 or 200 points one day, up 100 or 200 points the next day.
The Dow Jones Industrial Average is down 4.8% so far this year and severely oversold.
What He Said:
“I see the coming recession being deep and difficult because U.S. consumers do not have the savings to spend their way out of the recession. The same thing happened in Japan. The Japan example proved that, when consumer confidence is shattered, even zero percent interest won’t spur consumer spending. The same thing could happen here.” Michael Lombardi in PROFIT CONFIDENTIAL, August 23, 2006. Michael started talking about and predicting the financial catastrophe we began experiencing in 2008 long before anyone else.