The Bureau of Labor Statistics announced this morning that U.S. payrolls shrank by 533,000 jobs in November. This marks the worst decline in employment since December 1974. Consequently, the unemployment rate rose to 6.7 percent. Since the start of the recession in December 2007, 2.7 million jobs have been lost.
And the carnage will not end with November. Yesterday, AT&T, the largest U.S. phone company, announced it will cut 12,000 jobs, striving to trim expenses as the U.S. economy falters. Citigroup said last month it plans to eliminate 52,000 jobs. And the auto industry certainly has additional job cuts coming. The job losses have spread through every sector of the economy, underscoring the fact the recession is pervasive as the credit crunch has permeated all industries. In fact, while for the first 8 months of the year job losses were mainly in construction and manufacturing, approximately two-thirds of the job losses during the past 3 months have been in the service-providing sector of the economy.
Comparing the current employment situation to that of the more severe recessions of the early 1970s and 1980s, one can see that we may have many more months of job losses ahead of us:
The rapid pace of job losses threatens to forestall any attempt at an economic recovery. There is now a real probability of a feedback loop where lowered consumer spending causes more job losses, which in turn further reduces spending. The government is going to need to throw everything it can at reviving the economy, even though such extraordinary spending plans may, and most likely will, be inflationary in the future and certainly will drag the dollar back down to the lows it saw last Spring.
With the evidence that we have now, it should be clear that buying and holding stocks now is unwise. Current stock valuations will not necessarily return anything on one’s investment, even 5 or 10 years in the future. Also, there is extreme risk that the S&P 500 will drop to 700 or below, especially once fourth-quarter 2008 earnings are reported in January and February, and guidance for 2009 is lowered.
I will have more this weekend on why the stock market is still not “cheap.” Also, I will examine the dollar and its future in light of the government’s struggle to put a bottom in on the economy.
In the meantime, have a cup of eggnog (a good single-malt scotch might help too) and enjoy the holiday season. Anyone who would like to put a thought toward money this weekend might want to consider Treasury Inflation Protected Securities (TIPS). The next auction for these is in January. Our current bout of disinflation has lowered the prices of TIPS, and should we experience a rapid increase in inflation, these assets should pay off nicely. One word of caution on TIPS though—they should generally be used only in tax-deferred accounts like IRAs because you will owe taxes on any principal increase in the immediate tax year even though you will not receive the principal until a future tax year.
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Gregg D. Killoren
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533,000 Jobs Lost in November, Most in 34 Years
The Bureau of Labor Statistics announced this morning that U.S. payrolls shrank by 533,000 jobs in November. This marks the worst decline in employment since December 1974. Consequently, the unemployment rate rose to 6.7 percent. Since the start of the recession in December 2007, 2.7 million jobs have been lost.
And the carnage will not end with November. Yesterday, AT&T, the largest U.S. phone company, announced it will cut 12,000 jobs, striving to trim expenses as the U.S. economy falters. Citigroup said last month it plans to eliminate 52,000 jobs. And the auto industry certainly has additional job cuts coming. The job losses have spread through every sector of the economy, underscoring the fact the recession is pervasive as the credit crunch has permeated all industries. In fact, while for the first 8 months of the year job losses were mainly in construction and manufacturing, approximately two-thirds of the job losses during the past 3 months have been in the service-providing sector of the economy.
Comparing the current employment situation to that of the more severe recessions of the early 1970s and 1980s, one can see that we may have many more months of job losses ahead of us:
The rapid pace of job losses threatens to forestall any attempt at an economic recovery. There is now a real probability of a feedback loop where lowered consumer spending causes more job losses, which in turn further reduces spending. The government is going to need to throw everything it can at reviving the economy, even though such extraordinary spending plans may, and most likely will, be inflationary in the future and certainly will drag the dollar back down to the lows it saw last Spring.
With the evidence that we have now, it should be clear that buying and holding stocks now is unwise. Current stock valuations will not necessarily return anything on one’s investment, even 5 or 10 years in the future. Also, there is extreme risk that the S&P 500 will drop to 700 or below, especially once fourth-quarter 2008 earnings are reported in January and February, and guidance for 2009 is lowered.
I will have more this weekend on why the stock market is still not “cheap.” Also, I will examine the dollar and its future in light of the government’s struggle to put a bottom in on the economy.
In the meantime, have a cup of eggnog (a good single-malt scotch might help too) and enjoy the holiday season. Anyone who would like to put a thought toward money this weekend might want to consider Treasury Inflation Protected Securities (TIPS). The next auction for these is in January. Our current bout of disinflation has lowered the prices of TIPS, and should we experience a rapid increase in inflation, these assets should pay off nicely. One word of caution on TIPS though—they should generally be used only in tax-deferred accounts like IRAs because you will owe taxes on any principal increase in the immediate tax year even though you will not receive the principal until a future tax year.
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