Unemployment numbers Not Good!

The monthly ADP Report, which gives us a look at the private sector job market, showed private employers cut 254,000 jobs in September, worse than expectations of a 200,000 drop. This release doesn't always match up with the Labor Department's official Jobs Report, but this news doesn't bode well for this Friday's important number. As of this moment, econimists are expecting a loss of 180,000 jobs for the month of September - stay tuned, as tomorrow I'll outline my Jobs Report Strategy headed into Friday's Jobs Reprt.

It's amazing to see people talking about the "good news" in jobs. Maybe because the employment news over the past year has been so horrible...just plain bad news is being seen as good - but we can't fall prey to that kind of thinking. Let's unpack some of the data. The population is growing, therefore the workforce is growing. There are 150M people in the workforce, and that number grows by about 1% or 1.5M people per year - simply due to population growth. Just to keep pace with that, the US needs to create about 125K jobs per month. So realistically, a loss of 200,000 jobs actually means we are falling 325,000 jobs behind for just one month...which is enormous. Now consider that nearly 10% of the workforce is unemployed - that's 15 million people - a huge number of folks who are without jobs. And many people are not even counted in that data...if you haven't looked for work in four weeks, you are removed from the ranks of "officially unemployed" people - but you might be discouraged, ill, dealing with family issues and therefore not seeking work. Taking those people into consideration brings actualy Unemployment rates to about 11%. Then going on farther, and counting the folks who have had to settle for part time work, as no full time positions were available - this brings the real rate of unemplooyment to about 17%! This is a whopping 23M people who are, for all intents and purposes - unemployed. This is more than the population of Texas, or New York, or Florida...or actually any other state in the US other than California.

So how do we get back to the forty year average rate of 6%? And remember-for the past 15 years, which includes the 2001-2002 recession, the very worst rate of unemployment seen was about 6%. We'd have to see a drop in unemployment of 4%...which means 6M more people need jobs. If the target to reach this was over 5 years, the US would need to create 100,000 more jobs per month-ie: 6 million people divided by 60 months= 100,000 jobs per month. PLUS don't forget, we need at least 125,000 additional jobs just to keep pace with population growth. This means the US needs to add 225,000 jobs per month minimum, consistently over the course of five straight years, just to get back to what we've become accustomed to being a normal level of unemployment.

In the past 10 years-there was only one year when this level was achieved. It was 2006, during very good times, when we grew by 232,000 jobs per month on average over the course of the year. During the past 20 years, the average growth rate has been 91,000 jobs per month-and the very best 10 years were from 1991 - 2000, when we averaged 150,000 per month. So how do we get to 225,000 jobs on average per month for the next five years? Bottom line, we won't. Expect higher unemployment rates to persist. The market euphoria we see happening when a lousy jobs number comes out, is just plain dumb. And eventually, there will come a time when more intelligent thinking will take place-and a bad number will still be considered a bad number. So...the optimistic thinking that the economy is improving will likely temper over time, probaby keeping Stocks in check, in turn benefiting Bonds, and help keep mortgage rates below 7%...that is, until inflation comes around, as high unemployment and inflation together will create a very challenging environment! Remember Jimmy Carter?