Skip to main content

The big "if"

Last week markets received some pretty ugly news related to employment, or the lack thereof. ADP came out with their estimate of nearly 700,000 jobs lost in December. The Bureaus of Labor Statistics released their non-farm payrolls report which included job losses of 524,000 and an unemployment rate hitting 7.2%.

Big numbers but what do they mean? And how do they compare to unemployment in previous downturns? I'd like to share with readers the following two charts from Citi's "Comments on Credit" that provide some interesting comparisons.

Citi has looked at job losses over time starting at the cyclical peak of the stock market prior to each recession. They have plotted this data for the current recession and compared it to the same data for several earlier recessions. The have further differentiated between "mild" recessions and "deep" recessions.

Job losses --

This first chart shows job losses. Our current recession is the blue line. Note that it is showing more job losses than the previous "deep" recessions. On the other hand, it seems right on schedule in terms of hitting an extreme level about 13 months after the peak.

Change in Employment during recessions
An optimist might look at this chart and determine that we should be on schedule to see job gains soon, much as we experienced in previous "deep" recessions. Unfortunately, most observers are expecting job losses to continue through the rest of this year, causing the blue line to drive deeper to the downside. Employment is only anticipated to begin to recover much later in 2009 or in 2010.

Unemployment --

This next chart shows how the unemployment rate changed from its starting level at the peak of the stock market over the course recession. Again, our current recession is the blue line.

Unemployment in recessions
In comparison to the line designating a "deep" recession, we see that unemployment had already starting slowly increasing a full year prior to our most recent stock market peak and has been accelerating for the last six months. Extrapolating from what we see in this chart, if our current recession is only as bad as previous "deep" recessions, we could expect to see unemployment top out just shy of 9%. That is in the ballpark of what many observers are predicting: peak unemployment of 9% to 10% during this cycle.

The big "if" --

It is unlikely that a new bull market can start until investors see that the unemployment rate is stabilizing and beginning to decline and that monthly job losses are moderating. If this current recession can be considered to be similar to past "deep" recessions, we may only have a few more months of extreme pain. The big "if" is whether this recession will be worse than other "deep" recessions.

Unfortunately, the consensus seems to be that this recession, by most measures, will be deeper than the previous "deep" recessions. The global nature of the downturn, the collapse in housing and manufacturing, the devastation in the financial sector and, as described here, the growing problem with unemployment, all point to a recession that promises to be worse than what Citi considered as "deep" in their analysis.

So the big "if" is looking more like the big "long shot" at this point. Better keep your fingers crossed.

Comments

Popular posts from this blog

Unlock Stock Market Profits - Key #1

This is the first in an ongoing series of articles where I discuss what I feel are keys to successful investing. It is based on a post that provides a summary of the ten keys that individual investors should use to identify profitable stock trades. (Click here to read the original post)

There are two basic steps to investing. First, you need to find stocks that seem to have some potential. Then you have to determine whether these stocks are actually good investments. There are many stocks that at first glance look interesting, but further research reveals that there are too many negatives to warrant taking a position.

This first post in the series starts at the beginning: getting good investment ideas.

Key #1: If something special is happening to a stock, it will be reflected in some kind of unusual activity in the markets.

As individual investors, we will never be the first to know; however, unusual activity can be an early sign that allows us to follow the Wall Street professionals and …

Unlock Stock Market Profits - Key #4

This is the fourth article in a series of posts describing 10 tools to help you identify and evaluate good investing ideas. It is based on a post that provides a summary of the ten keys that individual investors should use to identify profitable stock trades. (Click here to read the original post)

With this fourth post, we will continue another step along the path of finding stocks that seem to have some potential. The first post in the series discussed how to use unusual activity to identify investing ideas. The second post described how to use stock screeners. The third post described how to use lists of new highs and new lows. This post will focus on identifying social or business trends in order to find investing ideas.

Information on new trends might turn up anywhere. In conversation with friends or business associates, in newspapers or magazines, on TV or though your work. The key is to be aware of trends and how they start, stop or change. We'll start by describing what to lo…

Interactive Ads - Google one-ups Yahoo again

Google's (GOOG) press release describing the expansion of a beta program for what are being called Gadget Ads has again shown that Google is unparalleled at melding technology and advertising to benefit its bottom line. Gadget Ads are mini-web pages or "widgets" that can be embedded within publisher pages.

I have written in the past on Yahoo's (YHOO) Smart Ads and how, by more precisely targeting site users and adjusting ad content accordingly, they provide a much desired evolution of the banner or display ad format.

Though Smart Ads and Gadget Ads are not really the same, I think it is fair to say that Google has seen the challenge of Smart Ads and has chosen to leapfrog Yahoo by rolling out its own update to the display ad format.

The evolution of the Gadget Ad --

One of the trends on the Internet over the last year or so involves software developers creating "widgets" which can be hosted within web pages and blogs. Widgets can be pretty much anything that ca…