Don't Look To The Unemployment Numbers For Signs of Recovery

Everyday, there seems to be bad news about the economy. However, much of the bad that you hear will continue to be bad; even after we are on the road to recovery. In the grand scope of things, our politicians look at jobs as the singular measure of how our economy is doing. To them, lost jobs can be used as a lever to gain votes by making it seem that they are doing something to get those jobs back. But, the jobs number is the least important number to look at if you are looking to see if the economy is actually turning around. That's because jobs will continue to be lost; despite a recovery. The reason for this is that businesses let people go on a reactionary basis. Further, the process of cutting jobs at the corporation level takes months to complete.

Jobs is a lagging indicator in the world of economics. As a senior manager for a major corporation who was involved with 3 major job cuts, of thousands of jobs at a time, over a 12 year period, I am well aware of the lengthy process that is involved. I actually lost my job of 26 years in the last of those cuts; but, fortunately, I was able live somewhat conservatively prior to that event and able to take early retirement.

It literally takes months for a corporation to cut it's administrative and sales staff once that company has decided on a top-level number to cut. Companies don't maintain a hit list of employees to cut; so, there's a lot of horsetrading that goes on in the beginning between competing department heads. Also, the company letting the people go must decide on what compensation those employees will get. These packages take time to develop because they will have to take into consideration seniority, hiring contracts, and the appropriate type and level of severance packages that each person will receive; which, in some cases, can include early retirement. There are a lot of legal, union, and equal opportunity issues (age, sex, and race) that must also be taken into consideration when people are going to lose their jobs.

Once a company has achieved it's job cut goals, it is not likely to rehire quickly; even if things start to look brighter. Often, they will use contract labor and temporary help for long periods of time after starting on the road to recovery and after the cuts are over with. It isn't until things are back on a solid footing that those contract jobs are converted back to permanent positions. And, only if the economic justification is there to do so. Any new staff increases aren't approved unless they can be justified by workload or by some financial justification.

Friday's job numbers where horrible. Almost 600,000 people lost their jobs in a single month and 7.6 percent of America is now without employment. Don't expect this number to get better anytime soon. I think that a nearly 10 percent unemployment (maybe even higher) is to be expected by year's end as the currently-announced corporate jobs cuts are finally realized. But, we could be in a recovery by the third quarter of this year; even as unemployment numbers continue to rise.

There might be some bright spots out there that may already be indicating the early signs of recovery.

First, oil and gasoline prices have stopped falling as demand and supply may have reached a point of equilibrium. Also, other commodities have stopped falling. Additionally, last month saw a 6% rise in existing home sales; despite an expected decline in activity. That was a surprise and it might be an indication that the first bailout money is actually working to reestablish some credit in our banking system.

A still disheartening number is the consumer credit activity. It continues to fall (See Full Story). However, if you want to know if the economy is truly recovering, this is the monthly number to watch. In the Clinton-era recession of 1990+, this number recovered during the Bush Administration in December of 1991; even after the economy-killing effects of 9/11. It can actually precede the recovery by as much as a year-and-a-half to two years. It is the best indication as to whether or not consumer activity has finally stabilized and reached some equilibrium within a falling economy. After that, any rise in consumer credit can be considered to be an expanding economy that would cause companies to sell more product and, finally, start hiring again.