by: Michael Shedlock posted on: May 02, 2008 | about stocks: DIA / QQQQ / SPY    

Yahoo Finance is reporting Jobless claims surge.

The Labor Department reported Thursday that claims for unemployment benefits rose by 35,000 to 380,000. Private economists had expected claims would rise by a smaller 18,000.

The report on jobless claims came a day ahead of a report on unemployment for April. Economists expect that report will show that the unemployment rate edged up to 5.2 percent in April, from 5.1 percent in March. The economy is expected to lose 70,000 jobs, the fourth straight month of job losses.

This is in contrast to a recent weekly report that was better than expected. I suggested then, and will continue to suggest that way better than expected numbers are more likely than not to be outliers.

This surge is in line with moving averages that are headed north, along with rising unemployment. If the 70,000 lob loss predicted for tomorrow is accurate, then will be 300,000 jobs this year that will be lost, and that is just through April.

Furthermore those numbers are skewed to the positive side by a BLS that is way behind the curve with their economic modeling. I expect weak jobs data for the rest of 2008 and I made that claim in December of 2007. Because of BLS distortions with their Birth/Death model, the numbers are likely far worse than stated. Inquiring minds may wish to take a look at Unemployment Soars, Jobs Collapse, but a new set of numbers to analyze will be out tomorrow.

The key point here is that an economy losing jobs at this pace is not going to recover quickly. It takes 150,000+- just to keep up with the birth rate. Eventually the number of jobs needed to keep up with the birth rate will turn down as boomers head into retirement. But even then, many boomers will not be able to afford retirement and will need to work part time to supplement income.

Structural Demographics Poor

Structural demographic effects imply that prospects in the full-time labor market will be poor for those over age 50-55 and workers under age 30. Teen and college-age employment could suffer a great deal from (1) a dramatic slowdown in discretionary spending and (2) part-time Boomer reentrants into the low-paying service sector; workers who will be competing with younger workers.

Ironically, older part-time workers remaining in or reentering the labor force will be cheaper to hire in many cases than younger workers. The reason is Boomers 65 and older will be covered by Medicare (as long as it lasts) and will not require as many benefits as will younger workers, especially those with families. In effect, Boomers will be competing with their children and grandchildren for jobs that in many cases do not pay living wages.

Consider what such a decline in US GDP growth and its multiplier effect could mean for Asian growth, global trade, demand for commodities, and growth elsewhere in the world (BRIC).

The world equities markets have barely begun to discount the increasingly likely severe deceleration in US and world GDP growth ahead, including the secular Boomer drawdown of accumulated wealth of the past 25 yrs.

Credit-Market Crisis Closer to an End?

Paulson says Credit-Market Crisis Closer to an End.

Treasury Secretary Henry Paulson said the credit crisis probably is more than half over and retained his forecast for the U.S. economy to keep growing.

"We are closer to the end of this problem than we are to the beginning," Paulson said in a Bloomberg Television interview today in Washington. Even with "headwinds and despite some of the things that we're going through, this economy is still growing, albeit modestly," he said.

Federal Deposit Insurance Committee Chairman Sheila Bair today said Congress should authorize the Treasury to make home loans to help pay down as much as 20 percent of the principal on mortgages.

Paulson said he will "look carefully" at the FDIC plan, while emphasizing his confidence in the Hope Now Alliance of lenders spearheading a private effort to modify home loans.

Questions For Paulson

If we are closer to the end of this credit mess then why bother taking a close look at the ridiculous taxpayer sponsored bailout Sheila Bair is proposing?

And why do you make yourself look like a complete fool by reiterating statements like "I'm a strong dollar man, we have a strong dollar policy"?

Can you please tell us once and for all exactly what the strong dollar policy is other than your yapping incessantly about it?

Structural Problems

The structural problems created by a 25 year credit binge simply are not going to be cured by a two quarter recession that Paulson and other economic cheerleaders will not even admit has started. Peter Bernstein a financial manager, consultant and financial historian agrees. Inquiring minds may wish to take a look at a Wall Street Journal Interview with Peter Bernstein.

Very few are considering demographics, a change in attitudes by consumers towards spending, a change in attitudes of banks to lend, and the ability of capital impaired banks to lend even if they want to.

I find it amusing that cheerleaders are willing to see the end of a recession while not even admitting we are in one.

Consumer Spending Cutbacks

Professor Kevin Depew was talking about attitudes again today in Thursday's Edition of Five Things. I recommend reading the entire article but would like to specifically mention point number 2.

Process Vs. Event: Consumer Spending Cutbacks

One thing to keep in mind is that what we believe is a long-term shift in consumer spending habits is part of an ongoing process, not an event. As a result, the behavior shifts will be incremental, carried out over time as opposed to appearing as a single data point in corporate earnings report.

Some of the better-managed companies out there have been anticipating this shift and reducing the impact of consumer discretionary to their earnings. Take, for example, CVS (CVS).

During the company's call today, David B. Rickard, Chief Financial Officer, noted how the front-store business at CVS, the retail item business, now makes up only 15% of revenues and even of that only 20% is considered discretionary. Even so, the company said it has yet to see any truly meaningful impact in slowing discretionary sales.

"I can report that we recently looked at the discretionary versus non-discretionary categories to evaluate whether there was any change in trend," Rickard said. "Our data shows no evidence of a consumer slowdown based on this analysis." However, Rickard added: "My interpretation is that consumers are making tough choices on big ticket purchases but they aren't yet focused on Snickers bars."

That will come as good news for Warren Buffett and Berkshire Hathaway. Mars manufactures the Snickers bar.

The key point is the process. A structural shift in consumption to savings or at least reduced consumption, is in store for boomers. Meanwhile job prospects are looking pretty grim for some time to come across the entire economic spectrum. Walk-aways are increasing and so are credit card defaults. Peak oil suggests gasoline prices will be at least somewhat sticky.

I think it's more likely we are in the 2nd inning than the 7th or even the 5th. And certainly judging from Fed's and Treasury proposals (see Proposed Fascist Powers For The Fed), there is more going on behind the scenes than is exhibited by Paulson's public cheerleading.

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Michael Shedlock

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