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Unemployment, the Labor Market, and the Economy

Forex-Master — Fri, 21 Oct 2011 06:49:03 +0000

I appreciate the opportunity to be at Columbia this evening to discuss the American economy and, in particular, the employment situation.1 Mindful of the trend of public discourse toward hyperbole, I hesitated in deciding whether to characterize that situation as a crisis. But it is hard to justify…
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Published: Fri, 21 Oct 2011 08:49

Consumers Trade Down – US-FOREX.US

Forex-Publisher — Thu, 13 Aug 2009 20:46:05 +0000

Cash-strapped consumers are looking to get the most bang for their buck, forcing retailers to adapt to new spending habits, says Claire Gruppo, co-founder and managing director of investment bank and M&A firm Gruppo, Levey.”People aren’t comfortable paying for brands or an experience if they don’t feel it’s worth it,” Gruppo said, “and the trend we’re seeing across most brands is consumers seem to be trading down for ticket prices.” Americans have become more careful with their money, but the key to their behavior isn’t price, but value. For example, instead of buying a 20 t-shirt at Ann Taylor
, consumers will purchase it for 5 at Wal-Mart
or Kohl’s
. They’re still buying a t-shirt, but not at 20.The environment is very difficult. Instead of rising 0.7% as expected, on Thursday, the U.S. Commerce Department reported retail sales fell by 0.1% in July, and would have dropped by 0.6% if it were not the government’s “clash for clunker” program. Department store stales sunk 1.6%, while broader general merchandise stores, which includes mega-retailers like Target
, saw sales decrease 0.8%. The data reinforces the thesis held by many on Wall Street that business, rather than consumers, will lead the economic recovery.To navigate this trend, some retailers have become more careful in managing their inventory, by reducing product lines and offering fewer items within a line. The strategy is simple: offer the consumers what they’ll actually purchase. This way businesses are better able to streamline inventory and not tie upa lot of capital in items that aren’t going to move. The trick is to reduce inventories without shoppers thinking that they have fewer choices.”Good retailers are thinking not so much about discounting as much as adding items of lines of merchandise at different price points that they’re not going to have to sell at 50% off retail,” Gruppo said. “They’re starting different offerings at lower price points.”Gruppo highlighted Macy’s
recent performance as an example of this approach. “They beat expectations and raised their forecast for the year,” Gruppo said. “The brand has always been known for good value at department stores, and it’s the first piece of good news from something other than a big-box discounter.”
Gruppo expects retailers to operate in this fashion until consumer spending begins to turn around. “Until unemployment and lack of credit ease more than what we’ve seen this will be what the retail landscape will look like,” Gruppo said. The businesses that will have an edge through the end of the year will be the ones that offer lower prices but with strong value, Gruppo added.

July Job Cuts Expected To Wane – US-FOREX.US

Forex-Publisher — Thu, 06 Aug 2009 18:46:12 +0000

Wall Street may be encouraged by the waning level of job losses on Friday, but it will mean little to Americans stuck in unemployment lines and struggling to make ends meet.On Friday, the U.S. Labor Department is expected to announce that the national unemployment rate rose to 9.7% in July, as 300,000 Americans lost their jobs. Though large, the reading would be below June’s drop of 467,000. Dean Maki, chief U.S. economist at Barclays Capital, expects nonfarm payrolls to fall by 275,000 in July, which would mark the weakest contraction since August of 2008. Maki’s view is held by fellow economist Abiel Reinhart of JPMorgan Chase, who also expects payrolls to fall by 275,000.No matter what the figure ultimately is, it will be seen only as another jobless increase by the general public. Not only is unemployment at its highest level since the early 1980s, but also Americans have been out of work for the longest amount of time since 1948, when the government began keeping track. The average length of unemployment in June was 24.5 weeks, while 29% of the unemployed had been out of a job for 27 weeks or more. In a recent interview, Christian Weller, a senior fellow at the Center for American Progress and associate professor of public policy at the University of Massachusetts, Boston, argued that the current labor market is not comparable to that of the early 1980s because of the length of time it has taken to find a new jobs. Furthermore, the unemployment rate itself does not account for those working part-time jobs who would rather have full-time work.Prolonged unemployment has become a pressing problem for Americans, and policymakers, as an increasing number of individuals and families exhaust their jobless benefits, leaving them without the means to pay their mortgages, credit card bills, and food, not to mention the normal discretionary items that spur economic growth. Stagnated unemployment is also expected stymie the current recovery effort, as the U.S. economy loses the power of its vaunted consumer. Consumer weakness was exhibited in July weak retail sales. Forced to focus on the necessities, venders reported results slightly below expectations, pressuring shares of Wal-Mart Stores
, Costco Wholesale
, and Target
. The SPDR S&P Retail
exchange-traded fund on the other hand actually rose 0.8% in midday trading.
The only measure of solace Americans can take is that the intensity of payroll cuts have shown signs of waning. On Thursday the Labor Department reported individuals applying for jobless benefits for the first time fell to 550,000 for the week ending Aug. 1, down from an upwardly revised figure of 588,000 in the previous week. Furthermore, initial jobless claims declined an average of 57,000 from June to July, though partly owing to seasonal distortions. Friday’s employment report follows one delivered Wednesday by ADP Employer Services, which found the U.S. private sector terminated 371,000 positions in July. The finding was well below June’s revised 463,000 reading, but slightly ahead of the 345,000 fall analysts had expected. The data were developed with Macroeconomic Advisers.To be sure, problems remain. Global outplacement consultancy Challenger, Gray & Christmas, said planned layoffs at U.S. firms increased in July for the first time in six months to 97,373, and more than 30% from June when it had hit a 15-month low. Meanwhile, of people continuing to claim benefits rose last week by 69,000 to 6.3 million, after dropping for three straight weeks.

Americans Exhausting Jobless Benefits – US-FOREX.US

Forex-Publisher — Wed, 29 Jul 2009 22:46:00 +0000

The unemployment rate masks the deterioration in the quality of the labor market, as more Americans are exhausting their unemployment benefits, potentially leading more defaults, foreclosures and bankruptcies.Americans have been wading in unemployment lines for the longest amount time since 1948, when the government started keeping track. The average length of unemployment in June was 24.5 weeks, while 29% of the unemployed were out of a job for 27 weeks or more. “You can’t say it’s comparable to the 1980s because once you’re out of a job it takes longer to find a new one,” said Christian Weller, Senior Fellow at the Center for American Progress and an Associate Professor of Public Policy at the University of Massachusetts-Boston. The threat of benefit exhaustion has become more acute for Americans than in the past, Weller argued, because over the past 20 to 25 years the United States has shifted responsibility of protecting families from emergencies on to the individuals. “This means that private savings and private wealth have taken on a larger role, but private wealth has been hurt badly during the crisis and the savings rate has fallen.” In fact, total wealth relative to after-tax income if at the same point it was in the early 1990s, before the boom in the housing and stock market, Weller said.So far, credit card companies have suffered along with consumers. American Express
earnings fell 48% for the second quarter. Capital One Financial
reported a loss for a second quarter and found itself earing the attention of put buyers and short-sellers in the days that followed. JPMorgan Chase
and Bank of America
also have consumer credit exposure, while Citigroup
tries to trim its credit card holdings.The National Employment Law Project, an advocacy group, said federally funded extended benefits, which last 20 to 53 weeks depending on the state’s unemployment rate, are covering 2.8 million workers. Yet, in the five months since the stimulus act was passed, 2.7 million more jobs have been lost, and leaving a record 4.4 million out of work for more than six months. The national unemployment rate reached 9.5% in June, and states generally offer 26 weeks in unemployment benefits. NELP also projects that 540,000 people will use up their unemployment benefits by the end of September. It estimates 1.5 million will have run out by year’s end.Unemployment is defined as those out of a job but seeking work, though individuals with only part-time employment looking for full-time positions are excluded. There haven’t been any meaningful moves in the participation levels in the United States, indicating people are staying in the game. That’s not to say they aren’t getting desperate. Challenger, Gray & Christmas, a consulting firm, found more unemployed Americans are willing to leave their homes and relocate to wherever positions are available.
Peter Morici, a professor at the Smith School of Business, University of Maryland School says that the economy isn’t expected to begin creating jobs until the fourth quarter of 2009, and the first quarter of 2010, yet even then it will probably only increase by 1%, the same as the growth rate of the adult population. “It’s basically going to be at the replacement rate,” Morici says, “and won’t be able to work down the unemployment level.”The country is facing a very tepid recovery, Morici predicts, and once the unemployment rate peaks it’s going to be difficult to bring down. He noted that the economy can still grow, as it did in Europe during the 1970s and 1980s, though with similar set of problems, such as an overvalued currency. As with Europe, Morici argued that the United States has also inhibited job creation with policies like taxing small businesses on health care, and so-called “cap and trade”. Morici said that if the government were to create added benefits, it should do it in a way that doesn’t disincentive people from getting work. The implications of benefit exhaustion reach beyond families and into the broader economy, Weller warned, as massive long-term unemployment fuels defaults, foreclosures and bankruptcies. Inadequate unemployment benefits also influence employed workers. Daniel Penrod, senior industry analyst for the California Credit Union League, said that those with jobs will cut spending out of concern that they’ll be more vulnerable if they end up on the unemployment rolls.”Making sure you have an adequate safety system in places means that a recession, even a sever one, doesn’t translate into the threat of another great depression,” Weller said. “In other words, when you increase unemployment insurance, you create insurance for the economy as well.”

Amex And Cap One Are Healing – US-FOREX.US

Forex-Publisher — Wed, 22 Jul 2009 22:45:56 +0000

Rising unemployment spells trouble for credit card companies. Laid off from their jobs, some borrowers fall behind on their loan payments and companies such as American Express and Capital One Financial eventually consider a portion of their loans uncollectible and write them off. With the jobless rate at 9.7%, loan losses and late payments are expected to drag on earnings for American Express and Capital One when they report their second-quarter results on Thursday. Estimates of loan losses, expressed as an annual net charge-off rate, has followed the rising unemployment rate for months . But investors and research analysts are beginning to wonder if credit card losses have reached their peak. Shares in American Express and Capital One recently jumped after they reported that June loan data looked better than expected. American Express said uncollectible loans dropped to 9.9% at an annual rate in June from 10% in May. Delinquent loans-those 30 days or more past due-dropped to 4.4% from 4.7%. Following the news, analysts at both JPMorgan Chase and Jefferies raised their ratings on American Express. Analysts polled by Thomson Reuters estimate that American Express will report net income of 162 million for the second quarter, or 26 cents a share. That’s a drop from the company’s profit of 56 cents a share in the same quarter last year. Unlike other credit card companies, American Express usually gets 60% to 70% of its revenues from its billing network, taking a fee from a store every time a customer swipes an AmEx card. Because it’s less reliant on lending than, say, Capital One, setting aside more money to cover loan losses doesn’t hurt earnings as much.
American Express is also expected to benefit from a head start at cutting expenses, through layoffs and slashing its marketing budget, and tightening its standards. In a note to clients, Jefferies analysts said the company began reigning in risky customers in the middle of last year; one incentive offered 350 credits to customers to pay down their loan balances.
Capital One is expected to lose 228.9 million, a loss of 73 cents a share, compared with an adjusted 1.21 profit last year. The company recently reported that its uncollectible loans rose at a slower pace in June and that delinquent loans fell. Analysts at JPMorgan credit the announcement for pushing Capital One’s shares higher but caution that the changing rates are likely a result of borrowers cashing tax return checks. In a research note, the analysts said they believe rates for late payments and uncollectible loans will soon resume their climb. They expect Capital One to return to profitability in the second quarter of next year.

Gannetts Reckoning – US-FOREX.US

Forex-Publisher — Tue, 14 Jul 2009 22:46:21 +0000

Weak, weak, weak, that’s the outlook for media and advertising company Gannett, says JPMorgan Chase analyst Alexia Quadrani. She has a neutral rating on the stock as Gannett report earnings Wednesday.Though noting that Gannett Co.
is “one of the cheapest stocks in our universe,” Quadrani writes, “we see no positive near-term catalysts for GCI stock.” Quadrani also notes that Gannett has debt coming due and an underfunded pension plan and that it doesn’t look as if the global advertising markets that Gannett relies upon have even bottomed yet.Gannett’s golden digital property is CareerBuilder, a job search engine that loses some of its utility when companies are firing rather than hiring in most industries. As unemployment is expected to continue to climb well into next year and perhaps into 2011, Gannett can’t count on its Internet division to help it pull through.Gannett recently closed down some media properties such as the Detroit Free Press and forced employees to take unpaid furloughs, but, notes Quadrani, “ad revenues are still declining at a rapid pace, resulting in continued pressure on margins.”Quadrani notes that Gannett is the first newspaper company to report earnings. But most of Gannett’s peers have quite different businesses. The New York Times Co.
owns more prestigious papers including The New York Times and The Boston Globe, while News Corporation
has The Wall Street Journal but is also more of a cable and entertainment company than it is a newspaper conglomerate.With the outlook for Gannett’s stock bleak, attention will turn to the company’s debts. Its current liabilities are 1.5 billion against assets of 1.6 billion. Total debt, including long-term debt, is 4.3 billion.

Graingers Industrial Proxy – US-FOREX.US

Forex-Publisher — Tue, 14 Jul 2009 22:46:18 +0000

If the recovery story that we’ve been hearing from strategists at banks like Barclays and JPMorgan Chase are correct then the Wednesday earnings report from W.W. Grainger should produce some evidence of it. Grainger sells facility maintenance parts and services to businesses in America and around the world. The recovery thesis holds that repairs have been put off during the recession and that inventories are low and in need of replacement. Grainger should benefit from that.The company has also been trying to cut costs throughout the recession and the fruits of those efficiencies should be revealed when it reports.If industrial productivity in the U.S. picks up as some forecasters believe it must, Grainger’s sales should pick up too since it sells the equipment and services that keep factories and retail outlets operating. It competes with WESCO International and Applied Industrial Technologies
. Other competitors like Johnson Controls
and Lear
have been hurt by the crippling slowdown in the auto sector.Analysts polled by Reuters expect earnings of 1.14 a share for the quarter down from 1.25 a share for the quarter ending in March. The most bullish analyst sees 1.289 for the quarter ending in June. Analysts expect 4.86 a share for the year and steady growth in 2010 and 2011 as the economy recovers.On Tuesday analyst Hamzah Mazari of Credit Suisse sent out a short note to clients telling them to by Grainger in advance of earnings because consensus numbers “are too low and… you could see an upside surprise based on price and cost takeout ahead of expectations.” Credit Suisse is neutral on the stock at its current price for 82.50, which is 14 times trailing earnings and 3 times book value. The Credit Suisse note is a short-term trading recommendation.

Cintas Squeezes Into Its Uniform – US-FOREX.US

Forex-Publisher — Tue, 14 Jul 2009 22:46:14 +0000

Cintas makes uniforms and other work clothing for big employers and has been trying, through the downturn, to shrink itself down to a smaller size. It’s rough going for Cintas, though, as its revenues generally track unemployment, which has been rising and will continue to rise, and, during the downturn, the Teamsters and other unions have been trying to organize Cintas workers, which might be an easier sell now as the company has been laying people off.The uniform rental segment accounts for about 74% of Cintas
‘ sales, and it’s been dropping slightly, down about 4% from last year to 675 million according to Elliot L. Schlang of Soleil Securities.Soleil has a hold rating on Cintas, though it expects the company to benefit slightly from reductions in headcount and lower fuel costs. The direct sale of uniforms fell 23% in the company’s fiscal third quarter that ended in February, as the lodging and gaming sectors, where uniforms are prevalent, laid off workers. Upcoming earnings reports from hotel chains like Marriott International
could be relevant here. Its major public competitor, G&K Services, has also seen revenue decline during the recession.The mean profit outlook for the quarter is 37 cents a share, down from 47 cents the quarter before. Analysts expect modestly higher quarterly profits heading into 2010. The company’s fiscal year ended in May. Soleil securities expects earnings of 1.95 a share-substantially higher than the consensus 1.82, but that’s still down from 2.15 a share the prior year.

The View From Main Street – US-FOREX.US

Forex-Publisher — Thu, 09 Jul 2009 22:46:21 +0000

After reaching the edge of the abyss six months ago, Wall Street has been slowly recovering, thanks in large part to massive help from the federal government. But Main Street continues to face serious challenges, says the Center for American Progress. That bodes badly for the consumers who will ultimately drive corporate earnings.Family wealth in the United States dropped by 16 billion by the end of March of 2009, from its peak in June 2007, marking the fastest rate of decline in any 21-month period since the Federal Reserve began tracking that data in 1952. All the while the housing market still hasn’t managed to recover, mortgage troubles increase, and Americans are finding it more difficult to pay their loans. A major driver behind the heightened credit problems among Americans is the troubled labor market, and the recession has been even more difficult for minorities. Though the unemployment rate nationally reached 9.5% in June, the jobless rate among Caucasian-Americans was only 8.7%, though it rose to 14.7% among African-Americans, and 12.2% among Hispanics.Education levels also accounted for a significant discrepancy, as the unemployment rate of those with a college degree was only 4.7%, while it was more than double that for those with a high school degree, and remained at a high of 15.5% for those who haven’t finished high school.Meanwhile, Americans have been stuck on the unemployment rolls for the most amount of time since the government began tracking this data in 1948. The average length of unemployment in June was 24.5 weeks, while 29% of the unemployed were out of a job for 27 weeks or more.Meredith Whitney of the Meredith Whitney Advisory Group has been warning that, “Consumers continue to face challenges in the form of reduced liquidity, higher unemployment and lower home prices as shown in June data.”
Whitney warned that reduced credit lines, which have been depleting at an accelerating pace, make it increasingly difficult for Americans to get back on track. The pernicious unemployment described by CAP and the likelihood of a jobless recovery has businesses reap the rewards of increased productivity from the workers still on their payrolls will only make things worse over the next year or two.With the consumer sidelined, says CAP, the government will have to cocnentrate on longer term investment strategies designed to create new industries.Public investments in “energy independence”, which presumably refers to greater use of alternative and renewable sources, has been a factor in investment decision-making for some time, though to mixed results. Investors have seen huge swings in solar firms like First Solar
and SunPower
, as well as wind energy shops like Siemens
. Mixed signals from Washington have kept the much of the renewable industry overseas, where countries such as Spain, Italy and Germany provide a more stable business environment for renewables. The push for public health care has also given Wall Street a fright, keeping investors up at night sweating over how to navigate President Obama’s health care policy. Since the beginning of the year, Humana
has dropped 16.3%, while UnitedHealth Group
has slid 6.2%, meanwhile the S&P 500 index has fallen 2.3%.

Initial Claims Worse Than You Think – US-FOREX.US

Forex-Publisher — Thu, 09 Jul 2009 16:47:43 +0000

Initial jobless claims in the United States fell to their lowest level since January, but don’t get excited. Seasonal distortions related to the auto industry skewed the reading, making things look better than they actually are.On Thursday the Labor Department reported first-time claims for unemployment benefits last week fell by 52,000 to 565,000, well below the 605,000 figure Wall Street had expected. The problem is seasonal factors had anticipated a big jump in claims due to the annual downtime at auto factories. “Because many of these autoworkers have already been filing for unemployment benefits over the prior several weeks, the seasonal factors were looking for a big jump in new filings that mostly didn’t materialize,” Michael Feroli, a senior economist at JPMorgan Chase. In early May, Chrysler declared bankruptcy, leading it to suspend operations at all its plants, while General Motors
had already shut-down 13 plans in late June. Chrysler was quickly purchased by Italian automaker Fiat
, while Ford Motor
managed to avoid bankruptcy. The problems experienced with the automakers have extended to auto parts suppliers. Lear
and Visteon
have both filed for bankruptcy protection, while others, like American Axle & Manufacturing Holdings
, have struggled to survive.Understanding seasonal factors helps explain why the non-seasonally adjusted figure increased by about 17,000 to 577,506 initial claims, and why continuing jobless claims unexpectedly jumped to a record high. The Labor Department noted the distortion, but with the data in hand it’s impossible to measure exactly how much of the drop is due to the auto industry, Feroli said.Last month the government reported the unemployment rate rose to 9.5%, while Joe LaVorgna, chief U.S. economist at Deutsche Bank, expects the jobless-roll to reach 10.0% by the end of the year, and eventually rise to 10.5% in 2010.