Friday, November 20, 2009

Job Growth Missing In Action

Jobless claims staying over 500,000 may cause more worry about economic recovery turning into a double-dip recession. While the crowd has been conditioned to expect extreme outcomes due to recent events, we should be careful not to be overly pessimistic or optimistic says James Picerno. See the following article from The Capital Spectator.

The danger is not the past, but the future.

Today’s update on weekly jobless claims may be the warning sign. New filings for jobless benefits were unchanged last week, hovering at 505,000, matching the previous week’s tally. Although this number is down sharply from it’s recessionary peak of 674,000, set back in late-March, 500k reflects distress in the labor market. In other words, job growth is largely MIA.

It’s too soon to tell if the drop in claims is stalling. But there’s a case to be made that the big, easy reductions are behind us. As we discussed many times this year, there was always a strong case that a snapback on multiple economic and financial levels was in the offing for 2009. Unless the system was truly headed for a collapse, the natural order of the business cycle was righting itself after such a sharp deviation from equilibrium. In short, much of the events in 2009, particularly since the spring, aren’t a huge surprise to students of economic history. But the world is likely to become increasingly nuanced and complicated, and not necessarily for the better.

We’ve commented often in 2009 that the main threat was a stalled rebound in the job market. The risk was less about a double dip recession and another cataclysm and more of meager growth in the all-important labor market. Today’s data point in jobless claims isn’t proof that our forecast is turning into reality, but neither does the latest number do anything to dispel our worry of what may be looming.

The crowd’s been taught to expect that extreme outcomes are the new norm, courtesy of the drama of the past year or so. But we think the hazards will come quietly, softly, sneaking up on us like burglars in the night. Rising inflation, weak job growth, a tepid recovery, and the increasing pain that comes with servicing the debt boom of the past generation all conspire to make the foreseeable future challenging.

None of these problems will change very much over any given period. Nor will the associated fallout appear materially worse from month to month or even quarter to quarter. That raises the possibility that the dangers will be ignored or underestimated, which in turn suggests that the crowd may adopt a degree of optimism that’s unwarranted.

But the chickens are coming home to roost, one seemingly inconspicuous and unthreatening data point at a time. Still, there's a danger in becoming too pessimistic as well. The excess will be worked off and progress will come. But it won't be quick or easy this time. And for some with limited patience, it'll be far too slow. Regardless, the future can't be rushed. That's always true, of course, although in the months and quarters ahead this truism will resonate on a deeper level than we've witnessed in many a moon.

This post has been republished from James Picerno's blog, The Capital Spectator.

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