The August payroll report was released this morning and offered fodder for both the bear and the bull camp. While the actual labor force increased by 73,000 in August, the unemployment rate actually increased more than expected to 9.7%. It’s quite amazing how the statistical models can become so twisted that it’s really difficult to understand exactly what they represent.
On top of the data released for August, we also saw revisions to the June and July numbers. Both months were adjusted to show more jobs lost than previously reported. This seems to be a pattern and it’s hard not to wonder if it is intentional or not. Report a number that is somewhat better than expected, and then revise it lower later when fewer people are paying attention. I’m not a big conspiracy theorist, but the trend certainly does raise some questions.
As we exit the traditional end of the summer, it now appears that there have been 6.9 million jobs lost during the current recession. That’s a staggering number and certainly does not bode well for the consumer as a group. Today’s less than positive report continues to call into question the “recovering” economy which has fueled the astounding gains seen in equities over the last five months. Since the majority of the US economy is made up of consumer spending, we still have some significant headway to make before the “all clear” can be sounded.
The silver lining in the data today is that stimulus measures will likely continue to be in place with the government attempting to prop up the economy. I say “silver lining” a bit tongue in cheek because these stimulus measures have their own issues which will likely lead to much bigger problems down the road. Precious metals are rising sharply as it becomes clear that the government will not back off it’s aggressive policy of pumping liquidity into the system.
Editorials have already begun circling this morning with economists assuming that the government will not be able or willing to raise interest rates for some time to come because of the need to fuel an economic recovery. Low rates mean higher treasury prices and certainly has the potential to make the dollar less attractive to foreign purchasers. I fear that keeping rates too low for too long may not only result in inflation, but could lead to significant changes in which currencies are considered as the “reserve currency of choice.”
A reserve currency shift would likely take years if not decades to evolve. But that doesn’t mean prices can’t begin to move today. I would recommend steering away from dollar sensitive investments and deposit accounts. For savings accounts it may be worthwhile to pursue a CD that is denominated in other currencies which are from countries with rich natural resource deposits. Exposure to commodities and precious metals will likely prove to be a wise portfolio move, and a flexible and risk averse strategy will be important in months to come.
source: WSJ Online
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September 4th, 2009 at 12:22 pm
Am I reading it right that the net birth/death model was +118,000?
Glad to hear small business is doing so well. Over 1,000,000 jobs “created” since January.
September 4th, 2009 at 12:37 pm
You’re right – the birth/death model was higher by 118k. This figure is highly suspect and is just another reason to be skeptical of some of the statistics we are seeing. Investors who trade based on the “headline numbers” are missing much of the detail which can be of paramount importance.
As far as small businesses are concerned, there are two ways of looking at this. Small businesses are the lifeblood of a growing economy so it’s important to see improvement in this area. But at the same time, many who were laid off at established firms have in fact started their own small businesses and may be living at a much lower level of income than previously seen. This leads to the “underemployed” argument which may be much more negative than the headline “unemployed” number.
Thanks for the comment!