Tuesday, October 13, 2009

A Hollow Recovery amid Job Losses

This is coming out a bit late (OK, very late), and will mark a change in my efforts to regularly forecast the economic climate. Future articles will be shorter and address only one or another item.

Optimistic chatter from Washington and Wall Street is counter balanced by the reality that job losses, and especially manufacturing job losses, are killing the American Dream. This seems to be a continuation of the last few months. There is a (well thought out) theory afloat that the recovery will be in phases, but not really recovery - Change.

There is more about job losses here. And here: look specifically at "US manufacturing statistics" and then realise that this was written in 2005 - before the collapse.

Some time ago (July), when some of the brain-dead-heads in Washington (and some in NYC) were talking about the recession being over, the smarter people on Wall Street were saying it is too early. It still is.

Among the economic indicators I watch Baltic shipping index (third graph) is beginning to show the "W" shape that I mentioned in last month's update.

Two things that few people are talking about are dragging the economy, and preventing any real recovery. One is the addiction to foreign oil. While we are still importing 70% of our oil, and still not investing much in the way of new supplies or even new refineries, China is buying up future oil production, which will again push oil prices sky high. (About $20 - $40 a year increases) As Pickens says: "China has a plan," Pickens said. "We don’t."

The other drag on the economy is the previously mentioned manufacturing job losses. While the brain-dead-heads in Washington keep measuring the service sector, as if consumption will make us rich, we keep exporting our manufacturing jobs overseas. The pundits on Wall Street keep talking about a "jobless recovery," which means if the economy recovers at all, it will again be a hollow economy. I specifically remember, some years ago, one Caterpillar May (stock owner) telling me how good it is for the US to have free trade with China, since that would lead to them buying equipment from US. Now, after we pumped billions into the Chinese economy (some of which they loaned us this past year to stabilise our financial sector) they have built their own manufacturing facilities and are building machines they used to buy from US.

More about the jobless recovery here. And a quick quote from it:

(Oct. 9 (Bloomberg) -- Job openings in the U.S. fell in August to the lowest level in at least nine years, signaling the economy hasn’t improved enough to prompt companies to take on more staff.)

Although I can't find the reference right now, the real jobless rate, including people who have given up on finding a job, and those who don't qualify for unemployment is close to 17%.

Also, late breaking: China is going to be building Hummers
(Just a note that this does not affect the production of the US Army HMMWV)

There is a comical picture of our economic dilemma showing that we are counting on the unemployed to bail us out.

So, if things are so bad, why are the market numbers looking pretty good? Well, two things are in play, inflating the numbers. One is the constant pumping of extra money into the economy, mainly by way of low interest rates. The "Fed" has indicated that the current interest rate, which is indistinguishable from zero, and has been for almost a year. (Also found here)

But all this extra grease on the wheels of the economy has had a downside. The dollar has been declining for some months now, pushing up prices of commodities (like oil and gold) balancing the deflation in the economy. Of course, with material costs rising and finished goods remaining the same, the workers are obviously absorbing the loss. (also here)

As an ironic twist, some employers are pretending to have a hard time finding qualified workers. I say pretending, because they obviously are complaining that qualified applicants are taking the better paying jobs (or better work environment), and the complainers are the ones that can't get the workers.

Gold, trend lines are still rocketing upwards, and gold will be over priced for some time, unless one takes the demise of the dollar very seriously. But I don't think it will collapse entirely, since Obama's handlers in the far east (remember, the debtor is servant to the lender) want to keep it afloat.

So, What Now?

Because, as I mentioned above, the "Fed" is planning to keep interest rates low for at least another year, I will no longer be doing this article monthly, as I have been. Even thought the "markets" will seem to recover (good if you have mutual funds) the real economy will not recover for many many more months, if it recovers at all.

What to do in the mean time?

Keep working - if you have a job. Don't be afraid to take on any work that comes your way if you don't. Times will be hard for many years, and the line of work you want may never come your way again. Learn new skills. Everybody should have at least two (unrelated) job skills.

If you have money (if you can afford cable TV), buy tools for survival, in case the worst happens. And make sure you know how to use them. If you are no good with tools, you might have to barter - and find someone who has the skill.

Do not let your love grow cold. Now, to be clear, when the Bible talks about love, it is an action verb. To be specific, Love equals charity, in fact, if you look at an Old English dictionary, you will see they are synonyms. Love is a call to action.

And one last thought: hunker down. It is going to be a long and bumpy ride.

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