Last week we had discussed how the data emanating out of US was not so encouraging. On Friday, another piece of evidence in the form of September Jobs report emerged to justify the concern.
September payrolls shrunk by 2,63,000 from August. Street was expecting that only 1,75,000 jobs would be lost. The unemployment rate edged up to 9.8%, from 9.7% in August. In August, payrolls fell by a revised 201,000,
September marked the 21st consecutive month of job losses. Since the recession began in December 2007, 7.2 million jobs have been lost and the unemployment rate has doubled. The unemployment rate is now at a 26 year high.
If you dig deeper, you will find the report more repulsive. An alternative gauge of unemployment, which includes discouraged workers and those with part-time employment, rose from 16.8% to 17% , the highest in the 15-year history of the data. Total hours worked in the economy fell by 0.5%. The average workweek dropped back to an all-time low of 33 hours.
The Bureau of Labor Statistics, that collects this payroll data, assumes birth and death of companies according to the business cycle it assumes the economy is in at that point of time and accordingly adds or subtracts the number of jobs. In one of the past columns earlier this year, we had pointed out that at a time when businesses should be closing the BLS is assuming creation of new jobs.
It now transpires that the government would likely lower total employment by about 824,000, or 0.6%, in its annual benchmark revision in January. This revision is about three times the normal revision of 0.2%, marking a failure for the much-maligned birth-death model. The large error came during the early part of 2009, when large numbers of businesses were failing that could not be captured by the usual statistical procedures. This would raise the number of jobs lost to about 8 million in this recession.
In 2001 recession, 2.7 million jobs were lost. It took 48 months or 4 years to recover these job losses. In the current recession 8 million jobs have been lost. Recovery time is highly uncertain and questionable. These jobs may not be recovered before 2017.
Another worry is that the auto sales, that jumped with the ‘cash for clunkers’ programme may fall to the previous levels with the end of the programme.
The most notable effect from the cash for clunkers program was to distort the path of consumer spending in the third quarter. As a result of the surge in vehicle sales in August, real consumption is likely to have grown at a 2% annual rate in the third quarter, which would be the biggest gain in 2 ½ years.
Half of that growth was due to the rise in motor vehicle sales. Now that the program is over, vehicle sales will remain low through autumn.
The bottom line is that it remains to be seen how the US and the rest of the world economy progresses without the stimulus catalyst.
Things do not appear to be hunk dory with our shrewd northern neighbour as well. China has brought in fresh curbs in new manufacturing capacities. New aluminium projects have been for three years. Cement plants that have not started production till 30th September will not be allowed to come up. Curbs have also been brought about in steel, glass, polysilicon used in solar panels and wind power equipment as well.
What do these steps indicate? These measures signal that China's economic stimulus policy is on the decline and its side effects are becoming increasingly evident. This puts a fresh question mark on sustainability of China's economic recovery. I think the Chinese were too busy sending provocative army patrols across our borders or creating VISA issues for the Kashmiri Indian passport holders and not really paying attention to their economy.
These curbs could also be a pre-cursor for the coming bank credit squeeze as well. It would normally result into better prices for the sectors as production gets curtailed. But of the dragon is going to sneeze, these price rises may be short lived.
With the G6 wanting a strong Dollar, our exporters of products and services will do well in this environment. And if the FIIs do decide to book some profits, Dollar may rule strong.
That brings us to our own markets. From the low of 7697 seen in October 2008 to 17195 last week, we have had 132% rise. Taken from the 8047 low in March, 2009, we are 113% higher. Add to the scenario the upcoming changes in the tax structure, where long term capital gains tax will no more be exempt and you have rational scenario of booking profits. |
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