U.S. economic growth is at a stalemate, and the biggest hurdle in its way is the jobs market. While politicians have been arguing the U.S. jobs market is improving, the average “official” unemployment rate for 2012 was above eight percent, and it still hovers around that same level today.
According to the Job Openings and Labor Turnover Summary (JOLTS) by the Bureau of Labor Statistics (BLS), on the last business day of December 2012, there were 3.6 million job openings in the U.S. economy. (Source: Bureau of Labor Statistics, February 12, 2013.) There are 12.2 million people chasing those jobs. Hence, we ended last year with a job-seekers ratio (unemployment workers in the jobs market to job openings) of 3.4:1.
Looking at the historical job-seekers ratio, it shows the agony of the jobs market. In December of 2000, this ratio was 1.1:1. It has improved from its highs of 6.7:1 in July of 2009, but we shouldn’t forget that jobs growth in the retail and service sectors (low-wage jobs) have been making the jobs market look good.
It’s also troubling that 38.1% of all those who are unemployed in the U.S. economy have been without work for 27 weeks or more. (Source: Bureau of Labor Statistics, February 1, 2013.) It’s obvious that there are many troubled spots in the U.S. jobs market. And if they are not fixed soon, they will drive the U.S. economy back into recession.
On top of this, as I have stated in these pages, companies in the key stock indices are expected to see negative earnings growth in the first quarter of 2013. (See “Flash: First Quarter of 2013 Corporate Earnings Growth Turns Negative.”) I believe the January jobs market update, to be issued this Friday, will surprise on the downside. Many U.S. companies have already started to cut their labor forces, and more cuts will be made throughout the year once corporate earnings growth declines further.
It’s a vicious circle. Corporations cut payrolls to boost profits as corporate earnings growth deteriorates. The jobs market gets worse. Then consumer spending, which makes up two-thirds of the U.S. gross domestic product (GDP), contracts. Stock prices go back down; and the next thing you know, we’re back in a recession—not a pleasant thought, but it’s reality.
Troubles in the eurozone could be here to stay.
The unemployment rate for the eurozone increased to 11.9% in January 2013—up from 11.8% in December of 2012. (Source: Eurostat, March 1, 2013.) Almost 19 million people are jobless in the eurozone.
The European Commissioner for employment and social affairs, Laszlo Andor, summed up the situation very clearly. He said, “Such unacceptably high levels of unemployment are a tragedy for Europe and they signal how serious of a crisis some eurozone countries are in.” (Source: Financial Times, March 1, 2013.)
Manufacturing in the eurozone is suffering, showing a continuous economic slowdown. The Purchasing Managers’ Index (PMI) showed a reading of 47.9 in February 2013—unchanged from January and deteriorating for the 19th consecutive month. (Source: Markit, March 1, 2013.) Any PMI reading below 50 represents contraction in the manufacturing sector.
Looking forward, as the economic slowdown deepens in the eurozone, I am focusing on stronger nations, such as Germany and France. They held their act together in the previous economic slowdown. But they are starting to deteriorate now, as the crisis in the region worsens.
France, the second-biggest economic hub in the eurozone, had a 10.6% unemployment rate in January.
In Germany, consumer demand seems to be declining. New car registration in the biggest economy in the eurozone dropped 8.6% in January from a year earlier. (Source: Wall Street Journal, February 19, 2013.) France, Italy, and Spain also witnessed declines in new car registrations of 15%, 18%, and 9.6%, respectively.
Unfortunately, as the eurozone’s economy continues to head in the wrong direction, the consequences will be felt here in the U.S., and they will hurt America’s prospects for economic growth.
Dear reader, don’t forget that 40% of the S&P 500 companies do business in the eurozone. The continuous economic slowdown in the region will put a significant dent in their profitability. While the stock market may be reacting opposite to this, when the panic strikes, investors usually rush out of the markets very quickly. Investor beware!
Where the Market Stands; Where it’s Headed:
I continue to believe the stock market is putting in a top. I see the risk outweighing the rewards of investing in stocks at this point. Bullishness and optimism about the stock market is getting close to 2007 levels—and we all know what happened after that.
What He Said:
“I personally expect the next couple of years to be terrible for U.S. housing sales, foreclosures and the construction market. These events will dampen the U.S economic picture significantly in the months ahead, leading to the recession I am predicting for the U.S. economy later this year.” Michael Lombardi, PROFIT CONFIDENTIAL August 23, 2007. Michael was one of the first to predict a U.S. recession, long before Wall Street analysts and economists even thought it a possibility.