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.
This morning, the Bureau of Labor Statistics (BLS) reported that the “official” unemployment rate in the U.S. economy decreased to 7.5% in April. (Source: Bureau of Labor Statistics, May 3, 2013.) While this may give politicians and the mainstream media another reason to brag about “economic growth” in the U.S. economy, this jobs market report actually proves the opposite is happening.
What I see as the most important statistic in the jobs market report—the underemployment rate—actually increased. In March, underemployment in the U.S. economy was 13.8%; we found out this morning that underemployment increased to 13.9% last month.
In April, the number of Americans in the jobs market working just part-time increased by 278,000 to 7.9 million. These individuals are not working part-time because they want to; they are doing this because they can’t find full-time work.
Of all the unemployed in the jobs market, 37.4% have been out of work for more than six months. This number hasn’t been decreasing as quickly as it should. The longer these individuals stay away from the jobs market, the more difficult it will be for them to get back to work.
The number of people participating in the U.S. jobs market is in decline as well. In January, the labor force participation rate in the U.S. economy was 63.6%; in April, it declined to 63.3%.
Dear reader, the reason the “official” unemployment rate declined in April was because this statistic does not include all the people looking for work (they’ve given up looking) and because there has been an influx in low-wage-paying work added to jobs market. In April alone, more … Read More
As of April 22, 67% of the companies in the key stock indices that reported their corporate earnings were able to beat earnings estimates, but only 44% of them were able to exceed the revenue expectations of Wall Street analysts. (Source: Reuters Alpha Now, April 22, 2013.)
Looking at all this, you have to ask: why are the key stock indices rising when the underlying reasons for their rise (corporate earnings and growth) are diminishing?
The key stock indices aren’t climbing because of fundamental reasons. The harsh reality is that the yields from other investments are too low, so investors are forced to take higher risks to earn a decent rate of return. Just look at the yields on bonds of stronger governments around the world—most are barely beating inflation.
Even the most conservative investors, central banks, are rushing toward the stock market. According to a survey done by Central Banking Publication and Royal Bank of Scotland Group PLC of 60 central banks, 23% of them said they either own equities or plan to purchase them in the future. (Source: Bloomberg Businessweek, April 25, 2013.)
The central bank of Israel bought stocks for the first time last year. Similarly, the central bank of Switzerland and the Czech National bank have increased their stock holdings to at least 10% of their reserves.
The Japanese central bank has done the same. The Bank of Japan, the central bank with the second most reserves, expects to boost its holdings of equity exchange-traded funds (ETFs) to 3.5 trillion yen (about US$35.2 billion) by 2014.
Dear reader, central banks around the world usually … Read More
The fourth-biggest hub in the eurozone, Spain, is facing a severe economic slowdown. According to Spain’s National Statistics Institute in Madrid, the unemployment rate in the country has surpassed the 27% mark, with more than six million people jobless—the highest number since 1976. (Source: Bloomberg Businessweek, April 25, 2013.)
Furthermore, the Bank of Spain reported that the Spanish economy contracted 0.5% in the first quarter of this year after witnessing a decline of 0.8% in the last quarter of 2012. The International Monetary Fund (IMF) expects this eurozone nation to contract 1.6% this year.
While Spain seems to be at the forefront of headlines about the eurozone, other nations like Portugal are witnessing a severe economic slowdown as well. The country has been experiencing a recession for three years, with its unemployment rate at a record high of 17%. (Source: Wall Street Journal, April 23, 2013.)
The situation in the eurozone is very critical; but if you look at the key stock indices, they do not portray this.
Even though Ford Motor Company (NYSE/F) was able to earn a profit in North America in the first quarter of 2013, its losses in Europe are piling up. The company posted a loss of $462 million in the first quarter in Europe, an increase of more than 210% compared to the same quarter of last year. (Source: Wright, R., “Ford reveals deeper European losses,” Financial Times, April 24, 2013.)
Ford is just one example of how U.S.-based multinational companies can face severe losses in the eurozone as the economic slowdown continues to take its toll on Europe. Even … Read More
Once again, I say the rise and support of the stock market is clearly driven by the Federal Reserve’s loose monetary policy. This has been the story behind the upward move in the current bull market. It’s true the domestic and global economies have improved since the Great Recession in 2008, but in my view, it’s nowhere near the level to which we should see the market rise.
The problem that lies ahead is not only the inflated market and a sense of vulnerability as investors let their guard down, but the demand for goods and services could result in higher prices due to the excess in demand over supply. (The rich sure like the easy money. [Read “Higher Taxes: Who Cares? Not the Rich.”]) The end result could be inflation surfacing down the road, and we all know that means higher interest rates.
So while Federal Reserve Chairman Ben Bernanke continues to buy $85.0 billion in bonds each month to drive down longer-term interest rates, enough is enough.
Witness that we are seeing more market watchers and Fed members coming out and expressing the need for the Federal Reserve to at least begin scaling back its bond purchases. The problem is that the Federal Reserve has already said it will not move on interest rates until the country’s unemployment rate falls to 6.5%, and this will not happen for a few years.
In an interview with CNBC, James Bullard, … Read More
The corporate earnings season for the first quarter of 2013 may not be as positive as optimistic stock advisors believe it will be. The reality is that companies in the U.S. economy are struggling to maintain corporate earnings growth, so they’re resorting to employee cost-cutting measures.
Consider the six largest banks in the U.S. economy; they announced a reduction in their collective labor force of about 21,000 in the first three months of 2013—the highest amount since the third quarter of 2011. (Source: Bloomberg, April 9, 2013.) Why? Because if it’s difficult to increase revenues, just cut expenses to maintain profits.
JPMorgan Chase & Co. (NYSE/JPM), a component of the S&P 500, posted record corporate earnings for the past three years but has planned to cut 17,000 employees by the end of 2014.
American Express Company (NYSE/AXP) is planning to cut 5,400 jobs this year, reducing its workforce by 8.5%.
Other measures companies are taking to maintain corporate earnings growth include major stock buyback programs. In the fourth quarter of 2012, S&P 500 companies purchased $93.5 billion worth of their own shares. For the whole of 2012, S&P 500 companies purchased $385 billion worth of shares. Of all the companies on the S&P 500, 70% were involved in buying back their shares in 2012. (Source: FactSet, April 3, 2013.)
As I have continually said in these pages, at the end of the day, corporate earnings fuel real stock market rallies. Right now, key stock indices are running ahead of themselves, and I’m looking at this as a warning sign.
In the third quarter of 2012, S&P 500 companies reported negative … Read More
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