Monday, October 26, 2009

An economic forecast, more of the same

Oil prices rose above $82 a barrel briefly, the Canadian dollar is near parity with the US dollar, the Euro rose to $1.4976, the British pound rose to $1.6447 from $1.6370, the U-3 unemployment inches past 9.8%, the U-6 unemployment number* at an astounding 17%, the federal deficit is $1.4 trillion and climbing – moreover, 49 of the 50 states have lost jobs after spending $787 billion on a stimulus package.

So what gives?

According to various Obama administration officials, the President himself and media sycophants – it’s Bush’s fault – still, period. Getting past the last administration’s fiscal irresponsibility is no easy task, but it is becoming burdensome to hear the same excuse without plausible explanation.

At the heart of the economic downturn is not so much as to what transpired in past administrations but what the present one has done and will do. Talk of a second stimulus is being seriously considered, to the chagrin of Wall Street and the engines of the economy at-large.

So what’s next?

In short, key economic indicators are pointing to more of the same or worse. The “D” word isn’t so likely but a “W” shaped recovery is; that is, a recovery that spikes back up then turns downward again. While just last year, economists were debating “U” or “V” shaped recoveries (meaning a slow or quick recovery, respectively), there is now evidence pointing to “W” or “L” shaped models.

So what can be expected?

In the past, recessions were ended by the auto and construction industries – but presently, both industries are two of the worst in the nation. With Detroit’s woes and foreclosures continuing to rise, they won’t be able to beat back the slowdown.

Real estate at-large has also been a saving grace in past economic downturns, but with so many commercial properties empty and more becoming idle, it is likely the next part of the economy to collapse.

What’s more is the job market is tail-chasing in a vicious cycle: the lack of jobs means a lack of spending and without consumers buying, businesses don’t hire. Another factor facing small and medium sized businesses is narrower access to loans, quashing any business trying to expand and restraining general economic growth.

Lastly, another portion of America that has traditionally chipped-in toward recovery was higher-income households and top earners that continued to spend despite downturns. But in the current climate, those top earners lost money in their own homes, mutual funds, investment accounts and the like. On the other side, lower income households are cutting back as credit and loans become harder to obtain.

With all of these key indicators, the recession is bound to last unless the administration is willing to give businesses what they need – more freedom and less government regulation. If the administration continues down it’s current path, near or at 10% unemployment will also continue and any recovery is too postponed, much like what is happening right now.

-- The Editors, Killswitch Politick

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*U-6 unemployment figure is published by the Labor Department's Bureau of Labor Statistics and is comprised of not only the more familiar U-3 unemployment figure, but also includes the unemployed who have temporarily quit searching, the underemployed, and the "marginally attached" workers who have other reasons for not pursuing a job right now.

Saturday, October 17, 2009

The Dow and unemployment, each toward ten

For a brief moment in over a year, the Dow Jones Industrial Index momentarily hit 10,000. While a large amount of the economy is still declining – unemployment is now at 9.8% and is expected to continue to rise – though the Dow has risen roughly 50% since March, the dollar continues to weaken.

As layoffs continue around the country, the recession doesn’t seem to be giving way to the massive stimulus package passed earlier this year. According to in the first half of last month, September’s layoffs counted over 12,600 displaced employees:

Sept. 16: ConAgra lays off 300 at a North Carolina facility where a June explosion cut production capacity.

Sept. 14: Eli Lilly & Company (LLY) fires 5,500 as it braces against patent expiration on four of its five top-selling drugs.

Sept. 11: Monsanto ( MON) doubles previous layoff plans from 900 to 1,800 jobs--8% of the company's total workforce.

Sept. 11: Dell ( DELL) closes customer service call center in Idaho, eliminating 500 jobs.

Sept. 10: Deere & Company (DE) lays off 367 production workers in Illinois as part the company continues ongoing layoffs.

Sept. 9: H.J. Heinz's (HNZ) frozen food arm fires 65 workers in Idaho.

Sept. 8: Valero Energy (VLO) closes a portion of a refinery in Delaware--cuts 150 employees and 100 contractors.

Sept. 2: Danaher (DHR) acquires two medical companies for $1.1 billion and pink-slips 3,300 workers.

Sept. 1: American Airlines (AMR) fires 921 flight attendants.

But the brief threshold-cross also prompted an ongoing debate among market professionals. Many carp the Dow average as a flawed surrogate for the market, though they concede its hold on public sentiment. Yet analysts also argued stridently over whether Monday’s highlight is substantiation that the market is headed up – or whether it conceals a wider weakening that has affected all but the biggest stocks.

-- Killswitch Politick

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