Last week, when the jobs numbers report was released, a new wave of optimism spurred the U.S. economy. I saw it in the editorials of the major newspapers; I heard it on the popular financial news stations. The unemployment rate in the U.S. economy dropped from 7.9% in October to 7.7% in November. (Source: Bureau of Labor Statistics, December 7, 2012.)
As the mainstream media and the novice reporters that work in it enjoy the fall of the “official” U.S. unemployment rate and the creation of 146,000 jobs in November, the underlying issues in the jobs market haven’t changed much. In fact, I believe they have become worse in some cases. What I often harp on in these pages is that the meager job creation so far in the U.S. jobs market has been in sectors where people earn lower wages.
More than 36% of the 146,000 jobs created in November were in the low-paying retail industry—in places such as clothing and accessories stores, general merchandise stores, and electronic appliances store. But it wasn’t just in November that we saw heavy job creation in the retail sector—retail jobs in the U.S. economy increased by 140,000 in the last three months, which is almost 34% of all the jobs created in the period from September through to November 2012.
Is this a big deal, Michael? Yes, it is, my dear reader.
In the U.S., one out of every seven waiters and waitresses and one out of every six bartenders have a bachelor’s degree. (Source: CBS, November 5, 2012). Job creation in the U.S. jobs market is not equal—if it were, we wouldn’t have so many individuals working in fields where a bachelor’s degree is not necessarily required.
Are there any real prospects of job creation ahead in the U.S. jobs market? Can people who have gone to school and incurred debt to secure a real education eventually find jobs that fit their education level? My answer is a flat out no!
Companies in key stock indices, like the S&P 500, are facing difficult times, as evidenced by a drop in third-quarter 2012 earnings growth—the first time that has happened in 11 quarters. Demand for the products and services of these companies is softening as the global economy deteriorates. Hence, I believe there is more scrutiny for the U.S. jobs market ahead—forget job creation.
Take a company like Citigroup, Inc. (NYSE/C), for example. It is planning to cut twice as many jobs as the company first announced back in January of this year—from a previous estimated cut of 5,000 jobs to 11,000 job cuts now. The bank expects to shut down branches and cut spending in emerging markets. (Source: Bloomberg, December 6, 2012.) As U.S. corporate earnings fall further, expect more job cuts.
The jobs market is structurally tormented, and while the decline in the “official” unemployment rate is a reason for politicians to say “we’ve created jobs,” the reality of the matter is that the U.S. jobs market is bleak and could get worse in 2013. I beg to ask the question: why are there record amounts of Americans living off food stamps, and why do we have a significant amount of people falling below the poverty line if the unemployment picture is improving?
The Federal Reserve has increased the money supply by trillions of dollars in hopes of improving the U.S. jobs market; they’ll have to print trillions more to really get the economy going—and by then, inflation will be the biggest problem facing America; forget unemployment.
Consumer spending is crucial for any economic recovery. When consumers spend, companies make more money, and from there, we get economic growth—more sales result in more jobs, higher wages, and, eventually, better living conditions for Americans.
In the current, so-called economic recovery, rising consumer spending is missing—this has to change before we can see any real growth in the U.S. economy. With that said, I have to ask: how can consumer spending pick up when consumers are struggling financially?
Retail sales, a measure for consumer spending in the U.S. economy, decreased 0.3% in October 2012 compared to the prior month. (Source: U.S. Census Bureau, November 14, 2012.) It could increase for November, and it probably will, because Christmas is around the corner.
The days following Black Friday showed consumer retail sales jumped several percentage points from last year. And while some analysts say this means consumer spending is increasing, to me, increasing sales over the Black Friday weekend mean consumers are hunting for deals, as they watch their holiday spending budgets.
Consumers are losing trust in the U.S. economy. Proof: the Consumer Sentiment Index, tracked by Thomson Reuters/University of Michigan, dropped to 74.5 in the beginning of December—the lowest level since August. In November, the index was at 82.7. (Source: Reuters, December 7, 2012.) The Consumer Sentiment Index tracks consumers’ mood when it comes to spending.
Add to the falling consumer sentiment the fact that the value of their money is declining, and we have a big problem. Since late July of this year, the U.S. dollar has declined in value against a basket of other major world currencies by more than 4.5%. Forget the official government statistics, like the Consumer Price Index (CPI). Consumers are stuck with paying more for their basic needs while their real disposable income is declining.
If consumer spending is to be an indication of a possible economic recovery, economic growth in the U.S. economy is looking grim.
We all know consumer spending affects American corporate earnings, which eventually catch up with public company stock prices. If consumers pull back on spending more than usual after this Christmas, which I believe they will, businesses that are not efficiently run will be stuck with excess inventories, see their sales decline, and, ultimately, their earnings will become the victim. I believe 2013 will be a trying year for many companies in respect to corporate earnings growth.
Where the Market Stands; Where It’s Headed:
I want my readers to remember a date for a long, long time. That date is December 12, 2012, also known as 12/12/12. It will take mankind 89 years to see a time when the day, month and year have the same numbers. On January 1, 2101, the numeric date will be 01/01/01.
Now, I’m not superstitious (okay, maybe a little). But I have to tell you that something very important, a turning point, occurred on 12/12/12. On that date, only two days ago, the Federal Reserve announced what many believe was “QE4,” a fourth round of quantitative easing. Starting in January, the Fed will start to buy an additional $45.0 billion a month in U.S. Treasuries. This is on top of the $40.0 billion a month it is buying in mortgage-backed securities.
And what did the market do when the Fed announced billions more in quantitative easing? The stock market went down. In each of the previous cases, the stock market rallied on each announcement of QE1, QE2, and QE3, albeit at a declining pace.
With the stock market declining on QE4, the market is giving a signal…a signal that money printing is no longer working; that its risks have reached the point where they outweigh its benefits. Indeed, 12/12/12 was a turning point for the economy and the stock market.
What He Said:
“Consumer confidence does not change overnight. In the U.S., 70% of GDP is based on consumer spending. And in my life, all the recessions I have seen or studied have only come to an end when consumers started spending. With consumer sentiment getting worse, and with the U.S. personal savings rate at near record lows, it may take two or three years for consumers to start spending again.” Michael Lombardi in Profit Confidential, February 25, 2008. By the end of 2008, the rest of the world was realizing the recession would be much longer and deeper than most had realized.