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The Truth Behind the U.S. Labor Department Employment Report
Tags: U.S. Labor Department employment report, us department of labor and industry, us department of labor consumer price index, us department of labor grants, us department of labor history, us department of labor laws, us department of labor payroll form, us department of labor salary, us department of labor unemployment, us department of labor unemployment [...]
Why the U.S. Economy Will Be Weaker Than Expected in 2012
[Editor's Note: This special report on the U.S. economy is the first installment of Money Morning's annual "Outlook" series, which forecasts the prospects for stocks, commodities, and other top profit opportunities in the New Year. Make sure to watch for upcoming installments in the days ahead.]
Anyone who hoped the U.S. economy would get back on track in 2011 was sorely disappointed.
The European sovereign debt crisis and the abysmal failure of policymakers to take effective action undermined any chance we had at a strong recovery.
And what's even worse is that we're in for more of the same in 2012. Indeed, the U.S. economy in 2012 will be even more sluggish than originally thought – and for the same reasons 2011 was a disappointment.
The Organization for Economic Cooperation and Development (OECD) estimates U.S. growth will slow to 2% next year, down from a 3.1% estimate in May. It forecasts growth will pickup to 2.5% in 2013.
Of course, these forecasts are contingent upon Congress finding a way to stimulate the economy and tighten fiscal policy – not an easy balance to achieve. Without such action, U.S. economic growth next year could be as slim as 0.3%, and only hit 1.3% in 2013.
Unfortunately, after a year of failing to reach a debt reduction agreement, there's little chance the government will rise to the occasion next year – especially when most representatives are focused more on reelection than they are resolution.
Furthermore, it's also doubtful that Europe's debt crisis will be contained enough to not severely disrupt the region's biggest nations and cause a credit crunch that ripples through the global economy.
That means another year of major risks.
"Uncertainty remains the watchword for the U.S. economy," said Money Morning Global Investing Strategist Martin Hutchinson. "The risks are still pretty high because no one's sure what the Europe outcome will be."
The likely outcome – U.S. economic growth will fall even lower.
Europe: The Biggest Unknown
The OECD earlier this week reported that Europe's weak monetary union is the main threat to the world economy. The group's 34 member nations, including the United States, will grow 1.9% this year 1.6% next, down from the May predictions of 2.3% and 2.8%.
"Contrary to what was expected earlier this year, the global economy is not out of the woods," Chief Economist Pier Carlo Padoan wrote in the OECD Economic Outlook.
This Economist is Forecasting a Recession – And He's Never Been Wrong
The U.S. economy is "tipping into a new recession" and there's nothing President Barack Obama or the U.S. Federal Reserve can do to prevent it, according to Lakshman Achuthan, co-founder of the Economic Cycle Research Institute (ECRI).
Now, if you're wondering why you should believe this prediction ahead of others then there's something you should know: According to The Economist, Achuthan's predictions on the direction of economy – either toward recession or recovery – have never been wrong.
"We don't make false alarms," Achuthan said, noting that ECRI did not forecast a recession last year when other prognosticators were.
A new recession could topple the stock markets into another deep funk like the one caused by the 2008-2009 downturn when the markets plummeted more than 50%.
The ECRI uses dozens of leading indexes to make its forecasts, and as of last week, Achuthan said those indicators were all pointing to a recession.
"We're seeing the weakness spread widely," Achuthan told MarketWatch. "There's a contagion…that's not going to be snuffed out. The nature of a recession is not a statistic. It's a vicious feedback loop. Sales fall, production falls, income falls and that depresses sales. We're in that and it's going to run its course."
Worse still, he doesn't think any governmental policy changes can prevent it.
"It is not reversible," Achuthan told Bloomberg Radio. "There is virtually nothing that can be done to avert what is going to happen."
June's Abysmal Jobs Report is Just the Beginning
The June jobs report was abysmal – bud sadly it's just the beginning.
After just a few months of modest, stimulus-induced improvement the jobs market is again sliding backwards into a "new normal" characterized by even higher rates of unemployment.
"Unfortunately, I expect chronic high unemployment to be with us for years, and to borrow a phrase from Bill Gross of PIMCO, that's the real ‘new normal,'" said Money Morning Chief Investment Strategist Keith Fitz-Gerald.
The dismal job growth boosted the unemployment rate to 9.2% in June from 9.1% the month prior. The labor force declined by 270,000, and the total amount of people out of work, including those who have stopped looking, is up to 16.2%, from 15.8% the month before.
"It is about as bad as anyone could imagine," Nigel Gault, chief U.S. economist for IHS Global Insight, told MarketWatch. "On face value it does suggest we are grinding to a halt," he said.
Indeed, the meager 18,000 jobs added in June actually led some analysts to question the report's accuracy.
"At first, when I heard it, I thought maybe they had announced the wrong numbers, they were so bad," Robert Brusca of Fact and Opinion Economics told CNN.
What the Future Holds for U.S. Stocks in Light of the Fed’s Failings
Major U.S. stocks were under pressure during most of the past week as new worries about Eurozone sovereign debt and a disastrous press conference by U.S. Federal Reserve Chairman Ben Bernanke corroded confidence.
This time, it was not just Greece that was pushing sellers' hot button, but also Italy, as the Mediterranean nation's banks are believed to have excessive exposure to troubled loans in the region. But at the center of the troubles was Bernanke, who looked helpless as an Econ 101 student in a master's class when asked by the media to explain why the economy was not improving as fast as expected.
On the plus side of the ledger this was a stronger-than-forecast increase in U.S. durable goods orders, some very upbeat inflation comments from China, and an improvement in German business confidence.
So where are we now?
Well, my premise at the start of the year was that you would not have to get too fancy to beat the broad market indexes, which are weighed down by troubles at the banks. The idea was you would not even have to get as fancy as picking the right world regions or sectors, like last year. Instead, you could put a large part of your portfolio in something as prosaic as the growth half of the S&P 400 Midcap Index – the iShares Midcap Growth Fund ETF(NYSE: IJK) fund – and let it ride.
That worked for my through mid-May, then it stopped out for a fat gain. Now it looks good to go again, as long as bulls man up and make a stand right here, right now.
Popular Investment Decisions Designed to Avoid Financial Crisis Effects
[Editor's Note: Last week we asked readers to tell us if they were confident in their financial game plans. Check out the answers below, along with next week's Question of the Week, "With a Weak U.S. Housing Market, Is Home Ownership Still a Good Investment?"]
Almost all U.S. households make strategic investment decisions to best protect their hard-earned money.
Yet, as anyone who makes a financial game plan knows, even the most detailed, thorough outlines can fail when real life intervenes.
Just ask the thousands of Americans suffering while tornadoes and flooding continue hammering the U.S. South and Midwest regions, leaving whole towns of people homeless and jobless.
The rising Mississippi River has swept through an area that Missouri Gov. Jay Nixon described as "literally the most productive part of our continent," meaning farmers have watched their only sources of income wash away in floodwaters.
Are You Confident in Your Financial Game Plan?
Almost all U.S. households create a financial game plan to ensure that ends meet during inevitable struggles with money.
Yet, as anyone who makes a game plan knows, even the most detailed, thorough outlines can fail when real life circumstances intervene.
Just ask the thousands of Americans suffering while tornadoes and flooding continue hammering the U.S. South and Midwest regions, leaving whole towns of people homeless and jobless.
Are You Worried About the Future of the U.S. Job Market?
The U.S. job market has improved since the unemployment rate's 10.1% high in 2009, but the sluggish pace of economic recovery has kept many workers jobless and discouraged.
The U.S. Department of Labor reported earlier this month that the country's unemployment rate in April rose to 9.0% from 8.8%. Employment in more than a dozen sectors hit four-year lows in April, and another 10 have gained little since hitting lows in the beginning of this year.
But it's not just a slow economic recovery that is leaving people unemployed. The U.S. job market is changing, as companies find ways to function with fewer workers and some shift operations overseas.
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