People across America are losing their jobs, and I do not see any signs that it will let up in 2009. At least not for the first few quarters, until Pr...
People across America are losing their jobs,
and I do not see any signs that it will let up in 2009. At least not for the first few quarters, until President-elect Barack Obama can somehow get his massive economic stimulus strategy approved and in motion. But like any major undertaking, this will take time and, in the meantime, we could see more jobs lost, albeit at a slower rate than in 2008.
Earlier in the week, a survey by ADP Employer Services showed the loss of 693,000 private jobs in December, adding to 476,000 jobs lost in November. Then, on Friday morning, as if things could not get worse, the December non-farm jobs report showed the loss of another 524,000 jobs in December, bringing the total of jobs lost in 2008 to a whopping 2.6 million! A positive in some people's mind is that the job losses were better than the 550,000 forecasted; but the bottom line is that the numbers were bad. There is simply no reason for optimism when there were only 26,000 fewer jobs lost! Take a closer look. The unemployment rate jumped to 7.2% and, in our view, this is a critical problem area that President-elect Barack Obama must deal with. Consumers are not going to be confidant knowing they could be next on the chopping block. We could see savings rise as people hoard money for emergencies, and this would only further erode the economy.
Let's take a closer look at the potential economic impact of 2.6 million jobs lost. According to the U.S. Census Bureau, the median income for men in 2007 was $45,113 and for women it was $35,102. Taking the average of men and women, the median income was $40,107. Keep in mind that this is a rough estimate and by no means should be considered an in-depth analysis.
The 2.6 million lost jobs roughly translates to $104.28 billion in lost wages. This is significant, as it could mean a major decline in consumer spending, which is not good for the struggling U.S. economy at a time when consumers need to spend.
Add in the fact that there is also a rise in savings from Americans after decades of free spending. People are saving because they are concerned about losing their jobs and, unless this sentiment changes, we could see more added pressure on the spending end.
In Canada, the concept of savings has gone to another level. The government has initiated what they call "tax free savings account" where you can put away up to $5,000 each year and not be taxed on the earnings or when you take the funds out. Sounds great, but why the heck would you encourage savings at a time when the Canadian economy is struggling and needing consumers to spend? It just sounds counter-productive to start such a savings program.
Going back to the U.S., unless there is a quick reversal in the jobs market, I believe that the economy and markets will continue to struggle well into 2009. And don't forget the potential negative impact of reduced spending on prices and the surfacing of a bearish deflationary setting.
Profit Confidential
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