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TMFEditorsDesk (< 20)

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July 02, 2009 – Comments (10) | RELATED TICKERS: GM

Who says we live in an efficient market? We knew June job losses were higher than expected yesterday.  Today, the headlines read doom and gloom (oil's down, stock futures, too!) b/c we've hit 9.5% unemployment, up from 9.4% last month.  Um, yeah, the unemployment rate generally goes up if jobs are lost.

Besides being able to round unemployment up to 10% now, I read in the Wall Street Journal (here, if you have a subscription) that we've got the car companies calling a bottom after a less bad month.  The best quote was from a GM official saying the company "feels pretty strongly that the bottom was hit earlier in the year." Can't get much lower than bankruptcy, right guys?

-Anand  

10 Comments – Post Your Own

#1) On July 02, 2009 at 9:02 AM, SkepticalOx (99.13) wrote:

Well, there doesn't have to be a perfect correlation. People could've braced for the worse months ago and panic saved. And besides, employment is a lagging indicator.

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#2) On July 02, 2009 at 9:57 AM, TMFSinchiruna (98.05) wrote:

Nucor's Daniel Dimicco, who recently met with experts in the automotive and construction sectors for an outlook on domestic steel demand, certainly disagrees with GM's take. The country's top steelmaker expects no meaningful improvement for the automotive sector until at least 2012, and I'll take Dimicco's guidance over GM's anyday.

 

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#3) On July 02, 2009 at 10:01 AM, Entrepreneur58 (95.30) wrote:

People have about ten trillion dollars sitting right now in short term cash-like instruments.  You can buy a lot of cars with ten trillion dollars.

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#4) On July 02, 2009 at 10:05 AM, TMFEditorsDesk (< 20) wrote:

Agreeing, SkepticalOx...just an interesting juxtaposition. It may very well be an auto bottom, but I'm wary of any company calling a bottom...haven't the homebuilders been calling a bottom since the peak? :)

Thanks for the additional view, Chris (Sinchiruna).  The debate rages on!

-Anand 

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#5) On July 02, 2009 at 10:19 AM, TMFSinchiruna (98.05) wrote:

P.S. Dimicco also asserts a real unemployment rate of 16%, underscoring some of the structural deficiencies in the methods used to calculate official unemployment estimates. From the chart below, it seems Dimicco is more interested in the broader U-6 unemployment datum. 

 

 

What if John Williams is correct with his calculations that correct for inadequacies in the official estimation methodology? What if the rate were closer to 20%? A 1-digit number certainly provides greater comfort, but is it realistic?

 

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#6) On July 02, 2009 at 10:43 AM, outoffocus (24.60) wrote:

People have about ten trillion dollars sitting right now in short term cash-like instruments.  You can buy a lot of cars with ten trillion dollars.

I'm pretty sure 90% of that $10 trillion is concentrated in 10% of the peoples hands.  I'm sure that 10% is not going to go out and buy $9 trillion worth of cars.

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#7) On July 02, 2009 at 11:47 AM, russiangambit (99.09) wrote:

> I'm pretty sure 90% of that $10 trillion is concentrated in 10% of the peoples hands.  I'm sure that 10% is not going to go out and buy $9 trillion worth of cars.

Make that 1%, I sure don't have billions, trillions sitting around waiting to be invested or spent, that is for sure. And taxman includes me into the top 5%.

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#8) On July 02, 2009 at 1:26 PM, mistermiranga (< 20) wrote:

Cash-like instruments are likely to be the best bet right now. Yes, inflation can strike quickly but I think that the facts seem to be lining up in the deflationary camp. If your cash keeps buying you more why risk it on a falling knife?

And remember, the stress test model was 10.2% as the worst case scenario.

  

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#9) On July 02, 2009 at 4:16 PM, TMFKopp (96.53) wrote:

Dimicco also asserts a real unemployment rate of 16%, underscoring some of the structural deficiencies in the methods used to calculate official unemployment estimates.

That's all well and good and maybe you can poke holes in the official unemployment numbers. You could certainly scare people by asserting that the unemployment rate is 16% rather than 9.5%.

But really what matters is the delta. The chart above shows that no matter which measure of unemployment you're looking at we've seen the same magnitude of movement over the covered range.

16% unemployment seems horrible when you compare it to the official number of around 6% back in 2004, but if you're asserting that we're at 16% now versus 10% in 2004 it's not quite the same.

Choose whatever numbers you want, but we have to make sure we're comparing apples to apples...

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#10) On July 03, 2009 at 8:55 AM, TMFSinchiruna (98.05) wrote:

TMFKopp

Delta could indeed demand the focus of economists and stats-tracking investors, but for the average American its the raw number of unemployed persons that is more keenly felt. That's a huge spread between 9.5% and 16%, and I don't relay the number to scare people, but rather to remind people to approach official BLS estimates with a justifiable measure of skepticism.

Nucor's Dimicco is a remarkable CEO, in my opinion, for managing to incur no layoffs at Nucor despite a 50%+ production decline. He treats his people like people rather than statistics. No one can label him a doom-and-gloomer in the wake of his recent remarks, either, since only last December he considered that perhaps only 1/2 of the drop in steel orders was attributable to actual demand erosion.

People keep swallowing official inflation numbers, unemployment estimates, and countless metrics from government sources even though woeful inadequacies in statistical methodologies have been fully documented.

The change in the unemployment rate isn't what my buddy who was just laid of yesterday from his job at an assisted living facility for the developmentally disabled is concerned with, and it's not what a family member facing another imminent round of cuts is thinking about. To those who are losing their jobs or in fear of losing their jobs, the actual number of unemployed does matter because it dictates the level of competition they will face when scrambling for another employment opportunity.

Finally, in assessing the Grand Canyon of disconnect between the deteriorating state of the U.S. economy and this ongoing equity rally built on green shoots and good 'ole American optimism, it matters a great deal whether one trusts the 9.5% statistic or an alternate number of 16% or more.

 

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