America's Unemployment Nightmare

The timing couldn’t have been more ironic: Just before this Labor Day weekend began, the U.S. Labor Department delivered news that the great American job machine has broken down.

It’s equally ironic that Wall Street threw a short-term party because the news was only bad, not downright atrocious. Yet beyond the short-term action, is there reason to be optimistic? Reason to believe the double-dip recession is a thing of the past? Absolutely not! Just consider …

• The economy shed another 54,000 jobs in August after losing a similar number in July and 175,000 in June. If you strip out the impact of the Census, you see that private industry created a paltry 67,000 jobs last month. That’s far, far too low to bring down unemployment.
• Speaking of unemployment, it rose to 9.6 percent in August from 9.5 percent in July, a three-month high. And if you include all unemployed and UNDERemployed workers, you get a whopping 16.7 percent of American workers who are discouraged, only able to find part-time work because full-time work isn’t available, and who have just given up looking entirely!
• Then look at who’s hiring and who’s not! Education and health care continues to see reasonable growth, with 45,000 jobs added. But hiring health care workers to take care of an aging population isn’t going to drive your economy long term. 

Economically sensitive sectors are showing virtually no growth, with only 13,000 jobs added in leisure and hospitality and 19,000 in construction. Manufacturing shed 27,000 workers … trade and transport lost 9,000 jobs … and financial firms cut workers for the fourth month in a row. In fact, the “diffusion” index which tracks how many industries are adding jobs versus how many are cutting jobs sank to 53 from 56.7.

And let’s step back and look at the big picture for a minute. We’ve added just 650,000 jobs in the first seven months of 2010. We lost 8.4 million jobs in the recession that started in December 2007. It would take several YEARS to get back to even at this pace. And with Phase II of the double-dip recession now in the cards, it’ll take far longer.

Look, I wish I could get more optimistic this Labor Day weekend. I wish that housing weren’t on the ropes again … that the job market was generating hundreds of thousands of jobs a month … that factories were humming … and that goods were flying off store shelves. But it’s just not the case.

So I wouldn’t be embracing risk in the wake of this report. Instead, I’d take advantage of Wall Street’s short-sightedness to clean house. This could be your last, best chance to sell loser stocks at better prices. And it could be a golden opportunity to get prepared for the next leg down in the economy and the stock markets.

You can do so by raising cash … buying inverse Exchange Traded Funds (ETFs) … and purchasing other specialized investments that rise in value when stocks fall. I believe you’ll be glad you did!

Until next time,

Mike Larson