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Strategies & Market Trends : Currencies and the Global Capital Markets
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To: Ahda who wrote (3075)5/6/2001 10:53:10 PM
From: Robert Douglas   of 3536
 
The Mercury news also had an article about the US experiencing the highest unemployment a decade.

They probably meant highest jobless claims in a decade. The unemployment rate has been higher for much of the last decade.

I am still flabbergasted by the number of economists I see on TV dismissing the employment numbers as insignificant because they are a "lagging indicator."

The initial unemployment claims are, in fact, a leading indicator. The unemployment rate is also a leading indicator at peaks although a lagging indicator at troughs. For the economists statement to be correct, they would have to be assuming that the economy has bottomed already and the trough has passed. This is begging the question at its finest.

While the inventory cycle may have largely been completed, the larger issues of the capital investment cycle and the course of consumer spending have yet to have been resolved, IMO.

I seriously doubt that spending for capital equipment will pick up any time soon. Earning are too low and capacity utilization is too low too. Consumers have two strikes against them already in the large amount of consumer debt and the negative wealth effect from the declining stock market. Consumer spending is starting from an extremely high level (negative savings) and is very likely to be sluggish, at best, going forward.

The final strike would be if the rise in joblessness cuts into spending enough to put us into a cycle of less spending resulting in job loss and even less spending. This is what the Fed is most worried about.

I think the odds are close to 50% that a recession is unavoidable, perhaps we're already in one.
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