Lombardi: Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

Posts Tagged ‘unemployment rate’

What Recovery?

By for Profit Confidential

The Biggest Boom in the U.S. EconomyAccording to Fed Chairwoman Janet Yellen, “More jobs have now been created in the recovery than were lost in the downturn… the unemployment rate, at 6.2% in July, has declined nearly 4 percentage points from its late 2009 peak.” (Source: “Labor Market Dynamics and Monetary Policy,” Federal Reserve, August 22, 2014.)

Great news, right? On the surface, yes. But when you look closer at the numbers, the jobs market paints a very different picture as to what is going on in this country.

Prior to the Great Recession, in January of 2007, there were 4.24 million Americans who were working part-time because they couldn’t find full-time work. In July of this year, the number of Americans working part-time (because they couldn’t find full-time work) was 76% higher at 7.51 million. (Source: Federal Reserve Bank of St. Louis web site, last accessed August 25, 2014.)

The boom in the jobs market has been in part-time work! How do you feed a family with part-time employment?

But the jobs market misery doesn’t end there…

In January of 2007, the average duration of unemployment in the U.S. economy was 16.3 weeks. In July of 2014, this number stood at 32.4 weeks. Once unemployed today, people are taking over seven months to find another job—double the time it took to find a job before the Great Recession. (Source: Ibid.)

And let’s not forget that the “official” government unemployment numbers exclude those people who have given up looking for work. If we look at the jobs market and include those people who have given up looking for work and those who have part-time jobs because … Read More

Taking It Too Far Again…

By for Profit Confidential

Why Interest Rates Will Rise Faster and Sooner Than Most ThinkWhat led to the 2008/2009 stock market and real estate crash and subsequent Great Recession can be attributed to one factor: the sharp rise in interest rates that preceded that period.

In May of 2004, the federal funds rate, the bellwether rate upon which all interest rates in the U.S. are based, was one percent. The Federal Reserve, sensing the economy was getting overheated, started raising interest rates quickly. Three years later, by May 2007, the federal funds rate was 5.3%.

Any way you look at it, the 430% rise in interest rates over a three-year period killed stocks, real estate, and the economy.

My studies show the Federal Reserve has historically taken things too far when setting its monetary policy. It raised interest rates far too quickly in the 2004–2007 period. And I believe it dropped rates far too fast since 2009 and has kept them low (if you call zero “low”) for far too long.

In the same way investors suffered in 2008–2009 as the Fed moved to quickly raise rates, I believe we will soon suffer as the Fed is forced to quickly raise interest rates once more while the economy overheats.

It’s all very simple. The U.S. unemployment rate is getting close to six percent. The real inflation rate is close to five percent per annum, and the stock market is way overheated. The Fed will have no choice but to cool what looks like an overheated economy. But the Fed won’t be able to do it with a quarter-point increase in interest rates here and there. It will need to raise rates by at least … Read More

The Six-Year Boom in Part-Time Work

By for Profit Confidential

The Six-Year Boom in Part-Time WorkOne week ago today, the Bureau of Labor Statistics reported 288,000 jobs were added to the U.S. jobs market in April. The unemployment rate fell to 6.3% from 6.7 % in March. (Source: Bureau of Labor Statistics, May 2, 2014.) Even the most optimistic of economists weren’t expecting a jobs creation number this big.

But it’s just the same old story…

When you look closer at the details of the jobs market, the employment picture actually looks terrible.

First and most important, the number of long-term unemployed in the U.S. economy remains very high. As of April, individuals who were out of work for more than six months made up 35% of all unemployed in the jobs market. The longer they are out of work, the harder it will become for them to find another job.

The number of part-time workers in the U.S. jobs market continues to increase. More part-time employees essentially means less personal earnings and, eventually, less consumption.

In April, there were 7.46 million Americans who were working part-time—up from 7.18 million in February and 7.41 million in March. These workers are working part-time because they can’t find full-time work.

Back in early 2008, the number of part-time workers in the U.S. economy was below five million. (Source: Federal Reserve Bank of St. Louis web site, last accessed May 2, 2014.) Yes, we’ve created close to 2.5 million part-time jobs since the Great Recession—that’s the majority of all jobs created since 2008.

Adding to the misery, low-wage employment in the U.S. jobs market continues to soar. In April, more than 30% of the jobs to be had … Read More

Proof the Incentive to Work Is Fading

By for Profit Confidential

U.S. Exports Plummet First Quarter 2014I keep hearing about the economy improving, but I keep asking, where? I ask because the facts continue to say otherwise.

The U.S. Bureau of Economic Analysis reports gross domestic product (GDP) came in at just 0.1% in the first quarter of 2014. To remind my readers, in the fourth quarter of 2013, U.S. GDP grew by 2.6%. (Source: U.S. Bureau of Economic Analysis, April 30, 2014.)

These GDP figures reaffirm what I have been saying for some time now: the U.S. economy is headed towards an economic slowdown, not growth.

All we need to do is look at our exports. Exports from the U.S. economy to the global economy collapsed in the first quarter of 2014, declining by 7.6%. That’s definitely not helping GDP.

The Baltic Dry Index (BDI), an indicator of how demand in the global economy looks, is in a sharp downtrend, as illustrated in the chart below.

Baltic Dry Index ChartChart courtesy of www.StockCharts.com

And consumer spending is facing headwinds. I can see this in the amount of inventory businesses are stockpiling. In the first quarter of this year, private business inventories rose by $87.4 billion after increasing by $111.7 billion in the fourth quarter of 2013. Businesses increasing inventories suggests customers are buying less, as each business’ inventory isn’t turning over; it’s stockpiling. GDP cannot grow without consumer spending.

Finally, last Friday, we heard the “good news” that the U.S. economy added 288,000 jobs in April—the biggest increase since January 2012. But the underemployment rate, which includes people who have given up looking for work and people who have part-time jobs but want full-time jobs, stands … Read More

Should You Be Buying More Gold Ahead of the ECB’s Printing Decision?

By for Profit Confidential

The European Central Bank Presents Another Reason to Be Bullish on GoldFrom our recent reader survey, I see our readers are not that concerned about what happens in the eurozone. But there’s a phenomenon occurring there that I believe every investor who is interested in gold bullion should be aware of.

Let me explain…

It’s a known fact that when central banks print more of their paper money, it’s usually bullish for the yellow metal. We saw this after 2009, when the Federal Reserve started to print more paper money; gold bullion prices skyrocketed.

In the eurozone, there continues to be major economic problems in the region. Italy, the third-biggest economic hub in the eurozone, has reported its unemployment rate hit 13% in February—the highest unemployment rate ever recorded in the country. (Source: Reuters, April 1, 2014.)

To help countries like Italy, Greece, Spain, and Portugal with their economic woes, the European Central Bank (ECB) has lowered its benchmark interest rate—but that hasn’t spurred bank lending as bad debts on the books of major eurozone banks keep piling up. Even once-strong eurozone countries like France are under economic scrutiny.

Now, as no surprise, the ECB has started talk about following the same route the Federal Reserve has taken—printing paper money.

At a conference last week, one of the ECB’s Executive Board members, Yves Mersch, said the ECB is ready to turn on its printing presses. The president of the ECB, Mario Draghi, has also said quantitative easing in the region may be needed if inflation in the eurozone continues to remain subdued. (Source: Reuters, April 7, 2014.)

Hence, to the printing presses of the Federal Reserve, the Central Bank … Read More

Why I Believe the S&P 500 Could Easily Reach 2,000 in the Upcoming Months

By for Profit Confidential

S&P 500 at 2,000 and Buying Opportunity on the WayIt’s amazing how the stock market can easily reverse course from bad to good and vice versa. When the threat of Russia invading Crimea picked up, the stock market retrenched; but it didn’t last long, as the subsequent withdrawal of Russian troops led to a stock market in the following days that drove the S&P 500 to yet another record-high and the NASDAQ to its highest point in 14 years. Now whispers of 5,000 are being heard. (Read “Where to Find the Best Buying Opportunity in This Stock Market Going Forward.”)

As I said in a previous column, the retrenchment in the stock market presented a buying opportunity; although, it’s too bad the selling didn’t last longer.

The Chicago Board Options Exchange (CBOE) Volatility Index (VIX) continues to hover in the mid-teens, where it was throughout the majority of 2013 when the stock market boomed. The current relatively low reading in the VIX suggests the stock market will likely head higher, which means investors should stay put and add on weakness.

A look at the S&P 500 shows a likely break at 1,900 this week if the bulls can hold on, and it will just be a matter of time before we see the index take a run at 2,000, which I surmise could happen sometime in the second half of the year; however, it could occur in the next couple months, if the bulls decide to drive the buying and if the economic renewal continues worldwide. A move to 2,000 would represent only a 6.38% advance from the prevailing level at around 1,880 as of last Friday. … Read More

Reaching the Point of Maximum Optimism

By for Profit Confidential

Bear Market Twists News to Lure in More InvestorsThis past Friday, the Bureau of Labor Statistics reported 175,000 jobs were added to the U.S. economy in the month of February. (Source: Bureau of Labor Statistics, March 7, 2014.)

The way the media reported it…

“Friday’s jobs market report caught the market by surprise,” was what most media outlets were telling us via their untrained reporters. The expectation was an increase of 149,000 jobs in February (after a dismal December and January jobs market report) and so the usual happened—stocks went up and gold went down on a jobs market report that was only slightly better than what was expected.

The consensus, from what I read, is that the jobs market in the U.S. economy is getting better. Of course, I think of this as hogwash. And as I’ll tell you in a moment, this is the kind of misinformation that is characteristic of what happens in a bear market in stocks, not a bull market.

Within February’s jobs market report, we find:

The long-term unemployed (those who have been out of work for six months or more) accounted for 37% of all the unemployed in the U.S. economy. The longer a person is unemployed—likely because that person has not been re-trained for the jobs market—the less likely it is that person will eventually find work.

Today, once a person becomes unemployed in the U.S. economy, that person remains unemployed for an average of 37 weeks! This number remains staggeringly high. Before the financial crisis, this number was below 15 weeks. (Source: Federal Reserve Bank of St. Louis web site, last accessed March 7, 2014.)

When you have a … Read More

If You Think Our Stock Market Is Overpriced, Wait Until You See This

By for Profit Confidential

Why We Are Reaching a Stock Market TopThe stock market in France has been on a tear! Below, I present a chart of the French CAC 40 Index, the main stock market index in France.

Looking at the chart, we see the French stock market is trading at a five-year high. With such a strong stock market, one would expect France, the second-largest economy in the eurozone, to be doing well. But it’s the exact opposite!

As its stock market rallies, France’s economic slowdown is gaining steam. In January, the unemployment rate in France was unchanged; it has remained close to 11% for a year now. (Source: Eurostat, February 28, 2014.) Consumer spending in the French economy declined 2.1% in January after declining 0.1% in December. (Source: National Institute of Statistics and Economic Studies, February 28, 2014.) Other key indicators of the French economy are also pointing to an economic slowdown for the country.

CAC French CAC 40 Index (EOD) Chart

Chart courtesy of www.StockCharts.com

And France isn’t the only place in the eurozone still experiencing a severe economic slowdown. In January, the unemployment rate in Italy, the third-biggest nation in the eurozone, hit a record-high of 12.9%, compared to 11.8% a year ago.

I have not mentioned Greece, Spain, and Portugal because they have been discussed in these pages many times before; as my readers are well aware, they are in a state of outright depression.

Just like how investors have bought into the U.S. stock market again in hopes of U.S. economic growth, the same thing has happened in the eurozone. Investors have put money into France’s stock market in hopes of that economy recovering—but it hasn’t. We are dealing with a … Read More

Why Are So Many Homebuyers Backing Out of Their Contracts?

By for Profit Confidential

Homebuilders Post Steepest Decline in Confidence Ever RecordedJust as the majority of Americans think the U.S. jobs market is improving, there’s a notion in the air that the U.S. housing market has rebounded and is healthy again. I don’t believe this to be true.

Just like the government’s official unemployment number is manipulated because it excludes people who have given up looking for work, when we took a closer look at the stats we hear about home prices, new home sales, and existing home sales, we didn’t like what we found in them.

Home prices increased to unprecedented levels in 2005. At social events back then, everyone talked about how much their home or vacation property had gone up in value and how they were getting deeper into the housing market. Few talked about the reckless lending activities of the banks that were the cause for the rise in home prices.

We now hear new homes are being sold at a new record pace. Buyers are apparently rushing to buy houses again, and the housing market is hot once more. Sadly, underlining the strong sales of homes, the number of cancelled sales orders compared to overall sales (commonly referred to as the cancellation rate) is going through the roof.

In 2013, D.R. Horton, Inc. (NYSE/DHI) had more cancelled orders than it did in 2012—7,751 cancelled contracts to buy homes compared to 6,657 in 2012. The cancellation rate for this homebuilder in 2013 was 24%. (Source: D.R Horton, Inc. web site, last accessed February 18, 2014.)

Other homebuilders are having the very same problem. KB Home (NYSE/KBH) reports its cancellation rate in 2013 reached 32%—that means one out … Read More

Ten Million People Left Out of Employment Statistics?

By for Profit Confidential

Three Reasons Why This Will Be a Bad Year for StocksAs I have been pointing out to my readers, the “official” unemployment numbers issued by the government are misleading because they do not include people who have given up looking for work and those people with part-time jobs who want full-time work.

In January, there were 3.6 million individuals in the U.S. economy who were long-term unemployed—out of work for more than six months. (Source: Bureau of Labor Statistics, February 7, 2014.)

Those who are working part-time in the U.S. economy because they can’t find full-time work stood at 7.3 million people in January.

Add these two numbers into the equation and the real unemployment rate, often called the underemployment rate, is over 12%. Meanwhile, the official unemployment rate from the Bureau of Labor Statistics sits at 6.6%—that’s the number you will hear politicians most often quote.

But if there’s a group of policymakers that looks past the “official” unemployment numbers, it’s the Federal Reserve.

At her speech before the Committee on Financial Services, U.S. House of Representatives in Washington, D.C. last week, Fed Chief Janet Yellen said, “Those out of a job for more than six months continue to make up an unusually large fraction of the unemployed, and the number of people who are working part time but would prefer a full-time job remains very high. These observations underscore the importance of considering more than the unemployment rate when evaluating the condition of the U.S. labor market.” (Source: “Semiannual Monetary Policy Report to the Congress,” Federal Reserve, February 11, 2014.)

Like all economists, Yellen knows that when an individual has a part-time job then their income isn’t as … Read More

How Last Week’s $28.3B Withdrawal from Equity Funds Could Benefit Investors

By for Profit Confidential

Billion Withdrawal from Equities Could Benefit Your PortfolioThe stock market may have staged a decent rally last Thursday, but it’s not enough to convince me that the worst is over. In reality, I think there are more downside moves and opportunities to buy on the stock market ahead.

The Dow, S&P 500, and NASDAQ are down by about four to five percent, so it’s really not a stock market correction at all—but simply an adjustment. A correction is generally seen to be a loss of 10% or more.

Even so, investors are scrambling to exit positions. Based on research by Citi Research, there was a record $28.3-billion weekly withdrawal from U.S. equity funds for the week ended February 5. (Source: Eisen, B., “Equity funds have record week of withdrawals: Citi,” MarketWatch, February 7, 2014.) Of that $28.3 billion, about $14.8 billion was funneled into bond funds. The research also indicated $6.4 billion was taken out of emerging markets funds in the stock market.

Then there’s Dr. Marc Faber, also known as “Dr. Doom” on Wall Street, who feels there’s more selling to come. He also singles out the technology sector as being bubble-like, especially with the overvaluation of the social media space. (Source: Lewitinn, L., “Dr. Doom: Tech stocks even more overvalued now than in 2000,” Yahoo! Finance, February 7, 2014.) (For my analysis on the social media space, read “Two More Internet Stocks to Watch.”)

To some degree, I do agree with Dr. Doom, but I don’t believe there’s a bubble in the technology stock market like there was during the meltdown in 2000. My feeling is that just some areas of the … Read More

Why Have So Many Americans Stopped Looking for Work?

By for Profit Confidential

If the Job Numbers Are Getting WorseOn Friday, we learned that the U.S. economy added a lower-than-expected 113,000 jobs in January and the “official” unemployment rate had dropped to 6.6% from 6.7% in December. (Source: Bureau of Labor Statistics, February 7, 2014.)

How can we create so few jobs and have the unemployment rate improve? It’s because the way the government calculates the unemployment rate is skewed. (It gets me outright mad to listen to politicians tell us the jobs market is getting better, when in fact, it’s not.)

The most obvious problem with the government’s way of calculating the unemployment rate is that it excludes people who have given up looking for work and those who have part-time jobs but want full-time jobs. If we were to include those two groups, the underemployment rate (as it is referred to) sits at 12.7%—and it’s been above 12% for a very, very long time. (This is something you didn’t hear President Obama talk about in his State of the Union speech two weeks ago.)

Now if we look a little deeper, we discover a much bigger problem in America. People who have the ability to work are leaving the jobs market!

What I’m talking about is the catastrophic decline in labor force participation in the U.S. economy.

Take a look at the chart below. It illustrates the labor force participate rate.

Civillian labor force Participation Rate Chart

You will note that from about 2002, which is the same year gold prices started moving up, the percentage of the U.S. population in the labor force started to collapse.

Labor force participation is simply the number of people who are employed plus those people looking … Read More

Strategies for Defending Your Portfolio in a Down Market

By for Profit Confidential

What Investors Can Learn from the Super BowlIf you watched the boring Super Bowl game on the weekend, you’d have realized that a strong and superior defense can go a long way against a sound offense. But the battle in the trenches was easily won by the defense, and it’s an analogy I use in my trading strategy.

January ended on a sour note, being the first down month since August 2013. With the losses, we are now witnessing an uprising of the bears suggesting 2014 will be a negative year for the stock market. This reasoning is based on the Stock Traders’ Almanac that suggests there is a 46% chance of losses this year. I’m not convinced the stock market is heading lower, but the current stalling and inability of the stock market to move higher is a red flag. Despite an extremely oversold technical condition, I have yet to see any signs of strong buying support emerge—and in my view, this is worrisome and likely means more losses.

The irony in January was that the S&P 500 and Dow Jones Industrial Average actually lost more ground than the higher-risk NASDAQ and Russell 2000, which only lost 1.76% and 2.89%, respectively.

The key will be to watch how the S&P 500 reacts at its key support levels around 1,750 to 1,775. We already saw a bounce off this level, and now the index is staging a retest. As I have said in a recent commentary, failure to hold could see the index fall to 1,700, based on my technical analysis.

The stock market is failing to see any major positive catalyst. Earnings season has been average … Read More

Pathetic December Job Numbers Proof 2014 to Be Challenging Year

By for Profit Confidential

100114_PC_lombardiWhat happened?

The Bureau of Labor Statistics (BLS) reported this morning that only 74,000 jobs were added to the U.S. economy in December. Most economists were expecting 200,000 jobs to be created in December—way off reality. The December increase in U.S. payrolls was the slowest pace in almost three years.

But it gets worse…

The underemployment rate, which I consider the “real” measure of the jobs market in the U.S. economy, was unchanged in December at 13.1%. The underemployment rate includes those people who have given up looking for work and those people who have part-time jobs but want full-time jobs.

The table below shows the official unemployment rate versus the underemployment rate for 2013.

U.S. Official Unemployment Rate vs. Underemployment
Rate, January-December 2013

Month Revised Official Unemployment Rate (U3) Underemployment Rate (U6)
January 7.90% 14.40%
February 7.70% 14.30%
March 7.50% 13.80%
April 7.50% 13.90%
May 7.50% 13.80%
June 7.50% 14.30%
July 7.30% 14.00%
August 7.20% 13.60%
September 7.20% 13.60%
October 7.20% 13.70%
November 7.00% 13.10%
December 6.70% 13.10%
 
% Change Jan.-Dec. -15.19% -9.03%

Data source: Federal Reserve Bank of St. Louis web site,
last accessed January 10, 2014.

What the above chart shows is that despite what we heard about the U.S. economy improving in 2013 and despite the Federal Reserve creating over $1.0 trillion in new money in 2013 to help the economy, the “real” unemployment rate declined by less than 10% in 2013, from 14.4% at the beginning of the year to 13.1% by the end of the year. The number of unemployed people in the U.S. stands at a still-staggering 10.4 million.

Of the 74,000 new … Read More

Stock Market’s Dependence on Easy Money Weakening?

By for Profit Confidential

Why a Storm May Be Brewing in the Stock MarketThere’s a significant cold spell out there in the Mid-East and Northeastern parts of the country. At the same time, the stock market has cooled down a little, beginning the year on a cautious note.

I recently discussed my views for the stock market going forward and while it’s early on, the ability to move higher will largely depend on the economic renewal and its impact on what the Federal Reserve does. New Fed Chair Janet Yellen will be the focal point as Ben Bernanke departs.

Yellen will receive her first piece of key economic data this Friday when the non-farm jobs report for December is due. A decline in the unemployment rate to below seven percent and the creation of 200,000-plus jobs will clearly drive the Fed to seriously continue to taper. What happens to the stock market this year will be dictated by the rate of jobs growth and the number of unemployed.

We also need to see corporate America deliver stronger revenue growth to drive earnings. In the past few years, aggressive cost cuts have driven earnings, which is not sustainable.

If the tapering continues, bond yields will continue to rise to levels that will be difficult for stock market investors to ignore. Look for an initial break at the three-percent level for the 10-year bond to gauge its impact on the stock market.

Should yields rise, I would look at the higher dividend paying stocks, especially those in the small-cap sector that offer great opportunities for dividends and capital appreciation.

The reality is that, given that the stock market was able to rise as much as … Read More

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