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

Unemployment Rate

The unemployment rate represents the percentage of the total workforce, between the working ages of 15-64, who are unemployed, but who are actively seeking work, in a specified period (monthly or yearly usually). It is calculated by dividing the number of unemployed individuals by those currently working, in a specified period. This is a closely watched measure for governments around the world, because it is a key gauge of how economies are performing.

A very low unemployment rate signals a strong economy and is used as a barometer for wage inflation and capacity utilization. A very high unemployment rate is a sign of a weak economy, including slacking capacity and falling wages.

What Job Growth? Labor Participation Hits 30-Year Low

By for Profit Confidential

Job GrowthFinally, some good news for the U.S. economy?

Last week, the U.S. Bureau of Labor Statistics reported 248,000 jobs were created in the U.S. economy in September, pushing the unemployment rate down to 5.9% from 6.1% the previous month. (Source: Bureau of Labor Statistics, October 3, 2014.)

The September jobs market report showed good job creation in sectors like professional and business services, information, mining, construction, and financial. Combined, these six sectors saw job growth of 130,000 jobs, just over half of all jobs created in the month. This is a fresh and welcome change over the past few years where we saw massive growth in low-wage-paying sectors like retail and food services.

While the news from this month’s jobs market sounds good on the surface, the reality is that there’s a severe problem with the employment situation in this country.

Long-term readers of Profit Confidential know I focus on the underemployment rate because it includes people in the jobs market who have given up looking for work and those with part-time jobs who can’t get full-time jobs. Look at that number (what I call the real unemployment rate) and you’ll see it still sits stubbornly around 12%…like it has for the past five years.

And the only boom I can find in the jobs market today is in part-time work! There are now 7.1 million Americans who are working part-time in the U.S. economy.

But the most troubling problem with the jobs market has to do with people who are leaving the jobs market.

In September, the labor force participation rate stood at 62.7%. This means that only 62.7% … Read More

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 stubbornly above … Read More

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