Job Losses & Dropping Prices Underline Need for Global Solution

by George Leong, B. Comm.

President Obama is in London at the G20 meetings on the condition of the global economic crisis. These meetings will be significant, as there must continue to be a global concerted effort to stabilize the economies and generate economic recovery. The U.S. understands this, but there is resistance from some of the other G20 members, who are weary of adding more debt to an already rising deficit amongst European Union countries. As I have said in previous commentary, what happens in the U.S. will not be enough to jumpstart the economies. The world’s top financial powers must work together to fix the problems.

Here at home, the economic situation remains grave. There was a terrible but expected private jobs report from ADP Employer Services that pointed to the loss of a staggering 742,000 jobs cut in March, far greater than February and the estimate of 697,000 jobs. The report clearly demonstrates the continued distress in the jobs market and its negative impact on consumer spending and the economy.

On Friday, watch for the March non-farm payrolls data, with estimates calling for the loss of 657,000 jobs and the unemployment rate to jump to 8.5%. As we move forward in the months ahead, we will need to see progress from President Obama’s economic stimulus and job creation plan; otherwise, there is a real threat that the recession could extend longer. The President is aiming to create or retain up to three million jobs. Based on what we are seeing, this will not likely begin until later this year or 2010. The reality is that jobs continue to be axed. Add in a crisis in the auto and auto-related sectors, and you have the potential of tens or hundreds of thousands of more jobs at risk.

Consumer confidence was slightly higher in March, but remains near record lows, which does not bode well for spending and the economy. Home prices also continue to fall and this will hurt material wealth and spending. The recent increase in existing home sales was positive, but it had more to do with foreclosure buying than optimism.

Jobs losses along with declining home values and stock market declines will continue to drive fear.

Investor sentiment remains neutral. The failure to set a positive trend indicates the concern in the market and the question of sustained gains. I continue to feel that markets are at a crux. The key will be how stocks behave over the rest of the day and in the near term. I remain cautious on the investment climate and do not feel that the degree of the recent rally was totally justified given the economic circumstances.

There is a sense that stocks could move lower towards the recent lows. Some of you who have made some good profits over the last month may want to realize some profits or make sure you have stops in place.