The market risk is high. We have the debt crisis and growth situation in Europe. On the domestic scene, the Federal Reserve and government are trying to figure out how to jumpstart the economy and deal with U.S. deficit, the housing mess, and the lack of jobs.
There are over 15 million Americans looking for work and the number is likely much higher, as millions have given up looking. The problem is that there are less than three million available jobs. And companies continue to cut jobs to save money. Unfortunately, Bank of America Corporation (NYSE/BAC) is looking at cutting about 40,000 jobs. Not great timing.
Last week, Fed Chairman Ben Bernanke said he would do anything to grow the economy and add jobs. One problem—he failed to say how! I assume Bernanke will use the two-day September Federal Open Market Committee (FOMC) meeting to do just that. At least, I hope so.
It became clear that the Fed is quite nervous about the condition of the economy and where it is heading. The Fed admitted that the economy is growing at a slower pace than hoped for. Hey no surprise here. We realized it, and so did the Fed, but they held it back as long as possible.
The Fed’s Beige Book pointed to modest growth, but also to weakening. The Fed said that the current slowing is similar to a “recession.”
This may increase the chance for additional stimulus at the September FOMC meeting.
How about the unemployment rate at over nine percent? The Fed feels that jobs will be an ongoing issue going forward with the Unemployment Insurance (UI) rate holding at around nine percent for the short to medium term. Job creation continues to be stagnant, and has worsened according to the Fed.
We saw a dismal non-farm jobs reading, with the creation of only 17,000 private jobs in August, well below the estimate of 110,000. The headline non-farm payrolls reading was below 1,000, which is horrible and well below the estimate of 70,000 and the downward revised 85,000 in July. The results were much worse than I expected and point to a distressed jobs market.
The federal government will need to do something fast; otherwise, the impact of less jobs will affect spending and gross domestic product (GDP). The reading is further evidence of the problems plaguing America. In his speech on Thursday, President Obama introduced a $447-billion plan to drive job creation. While there is no guarantee that the plan will work to drive longer-term job creation, it’s a start; but it will be a difficult path to economic recovery.
The national debt is already over $14.7 trillion and will continue to grow with the recent $2.1-trillion increase to $16.4 million. And can you imagine when interest rates rise?
The problem, as I have been saying, is that the U.S. economy is not faring well and is below expectations of what President Obama had hoped for after shelling out nearly a trillion dollars in infrastructure spending along with QE2.
I sense that things could get worse before they get better.