The State of Unemployment and the Economy

This past week we found that the published unemployment rate rose to 9.8%, while continuous unemployment benefit claims rose 53,000. Especially hard hit were the goods producing areas, manufacturing and the battered construction industry. Overall, there was a jump in unemployment of 276,000 for the month – a significant and substantial number.

How did the market react to this on Friday? It actually ended up for the day. What does this tell you? It is obvious that the Fed is propping up the markets no matter what happens. By pouring money into the economy and purchasing treasuries, and I believe securities - although not publicized, we have a highly manipulated environment. In reality the Dow should be at least 1,000 points lower at this point in time. Bernanke’s risk is to create wealth by increasing share prices, hoping that this will psychologically make people feel better and spend more money on consumer goods. Also, he hopes that employers, feeling good about their company’s stock rising, will hire more people. Well obviously that is not case if the unemployment rate rose to 9.8; probably the real rate is more like 1 ½ to 2 times higher than the reported rate.

Also, as I have said before, the printing presses of the Fed are destroying the dollar. This week it dropped to a three-week low versus the yen and fell against all of its other most-traded counterparts, except the Mexican peso and Canadian dollar. Could inflation be far behind as the Fed pumps more money into the economy?

Another important event to mention was the expiration of unemployment benefits for nearly 2 million people on November 30. It seems likely that the political parties will work out an agreement, as of this writing, to temporarily extend the benefits. But what about the chronically unemployed who have been out of work for two years or more, since the crisis began? The over 50 category, commercial construction and teachers come to mind, as groups who will have a tough time getting jobs in the future. After all, there will be a time when the unemployment benefits will cease and with little hope for jobs, it will become a nightmare for some people.

C. Cohn
Cohn-Reilly Report

___________Comments

Melisa Connelly said...
yes, there does seem to be a disconnect where the market is concerned. The market is ranging on, while jobs are still not coming. The Bush taxes were extended and so were the unemployment benefits -that's good I guess. Enthusiastic holiday shopping showed that consumers were feeling more confident, therefore the feds did manage to manipulate public perception of economic stability to a small degree.

Charlie said...
Although some hiring has occurred in different sectors,unemployment is still high - we may never get back to the pre-crisis numbers; companies are operating under a different model, taking a lean/mean approach. Resource productivity is up because staff is putting in more hours than ever to compensate for lack of personnel. I think there is definitely a disconnect here. We ended the year with the Dow overbought at levels not seen since the summer of 2008; up almost 80% since the March 2009 low. Will we have a correction early this year, as technical analysis indicates, or will the Fed override that and continue to prop up the markets? We should know very soon.

January 2, 2011 1:34 PM