Tuesday, July 20, 2010

Prove Me Wrong

Who wants to be proven wrong? I do. In the July 6th post “Jobless Report” is suggested that weak employment numbers suggested the potential for a second, perhaps deep leg down in the stock market. My rationale is that another economic setback would be more difficult for the consumer to withstand given that this time around the customary cushions - credit, savings - have been depleted.

Since that post economists of some renown have come forward with arguments against a second leg down. All sorts of data is provided on why the U.S. consumer is in a strong position - increasing net income, rising spending patterns among both consumers and corporations, rising exports, rising productivity.

Yet most of the data is short-term in nature, considering only the last couple of months or in comparison to the year-ago period when very little was normal. Productivity is rising because manufacturers are extracting as much as possible from a reduced labor force. Recent increases in spending could be merely a matter of replenishing inventories after running them down to the lowest possible level in order to reduce risk or in the case of the consumer, simply because there was no money available. An increase in inventories may not necessarily mean growth - just catch up.

Despite the heartening picture presented by some, I remain extremely cautious. Employment data released today, bears out the good sense. Today the Department of Labor released data that show declines in unemployment but only because some people are no longer looking for work.

Despite having plenty of cash in the corporate pockets as noted in the July 9th post “Awash in Cash,” the private sector is simply not creating jobs. Without jobs there is no economic recovery. It would be heartening to think that those who have dropped out of the job hunt have decided to start their own businesses or have gone into contracted situations. I would like very much to be proven wrong!

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