The Long Road to Recovery

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by David Galland: The
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Last week
the government released the latest unemployment data. Bloomberg,
always ready to roll up the sleeves to help its friends in government
(get reelected), was running a headline that “Companies in
U.S. Added 67,000 Jobs in August.”

While I haven’t
had time to go through the minutiae of the report, I find myself
scratching my head at Mr. Market’s rather positive reaction
to the report, given the bullet points:

  • Manufacturing
    payrolls declined by 27,000.
  • Employment
    at service-providers fell by 54,000.
  • Retailers
    cut 4,900 workers.
  • State and
    local governments gave walking papers to 10,000 people.
  • The federal
    government cut 111,000 jobs (mostly temporary census workers).
  • The number
    of “underemployed” – people who want full-time
    work, but have given up and are now working part-time, increased
    again, from 16.5% to 16.7%.

The fine folks
at Chart of the Day just published their take on the numbers. You
may see something cheerful in this snapshot, but if so, it eludes
me…

Interestingly,
a week ago ADP, a company that does real-time payroll processing
for about one in every six U.S. workers, and whose data – because
it is based on hard data and not surveying – has tended to
be accurate, released its report for August employment. Based on
ADP’s data, they had forecasted that the construction industry
had actually cut 33,000 jobs in August.

Their data
pointed to an overall decline in the work force of 105,000 jobs,
worse than the government’s numbers that showed overall unemployment
rose by 54,000 – moving the unemployment rate from 9.5% back
up to 9.6%.

At all times,
but especially ahead of an election as important as November’s,
you can count me skeptical in the extreme when it comes to government
data. Especially when it flies in the face of the clear trends in
motion. Even with the government’s stimulus funds still coursing
through the economy, in the second quarter U.S. gross domestic product
fell by more than half, to an annualized rate of just 1.6%. Without
the government’s supercharged spending, it’s been calculated
that actual GDP would have been halved again.

So, where are
all these new private-sector jobs coming from?

The construction
industry was reported to have hired 19,000 people – a good
number of whom, I suspect, are working on government-subsidized
projects. At least in this neighborhood – and everywhere else
I’ve traveled over the summer – there are almost no new
houses being built. But there are a lot of roads being paved, whether
they need it or not.

It also was
reported that 17,000 new temps were hired in August. Historically,
the number of temporary workers rises throughout the duration of
a recession. In fact, only when the number of temps decisively turns
down, in conjunction with full-time employment turning up, can we
begin to expect that the economy is on the road to recovery.

Health care
also added a fair number of jobs, over 20,000. The nation’s
hospitals and medical facilities are dangerously understaffed –
especially ahead of the pending nationalization of the industry
and the added demand that will trigger – so this is a bright
spot, of sorts.

And the mining
industry added 8,000 jobs, as you would expect it to. All to the
good, until the next round of legislation sends this and other “dirty”
businesses back into retreat. (A major overhaul of the U.S. mining
regulations was temporarily shelved because the Democrats were concerned
it would hamper Nevada senator Harry Reid’s reelection chances.
After the elections, expect it to resurface.)

However, even
if you take the government’s latest unemployment report at
face value and accept that the private sector added 67,000 jobs,
with overall employment falling again by “just” 54,000,
the country still hasn’t even begun the process of clawing
back the more than 8.4 million jobs lost since this crisis hit.

And, given
that the economy is being helped along through overt stimulus and
the Fed’s not-so-overt policy of maintaining abnormally low
interest rates, conditions for a recovery are about as favorable
as they’re going to get.

As Bud Conrad
explains in detail in the current edition of The Casey Report,
these low interest rates simply can’t continue. And when they
start to go up, along with taxes as the Bush tax cuts expire, the
faltering economy will be dealt another body blow. (Click
here to read Bud’s analysis
.)

I might quip
that the road to recovery will be long indeed, but that would be
inappropriate, because so far the road to recovery is nowhere in
sight.

The Casey
Report focuses on big-picture investing – analyzing emerging
mega-trends and their effects on the economy and markets… and
recommending the best ways to profit from those trends, whether
they’re positive or negative. To
learn more about the editors’ favorite investment of 2010,
click here.

David Galland
is the managing editor of Casey
Research
.

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