"The only blemish we see on the outlook for the next couple of weeks is an old one, the job market. Specifically, there are two elements that don't bode well. First, the extent of the unemployment problem has been well hidden, and so the potential fallout has been difficult to grasp. This is not a new problem. Since at least the early 1980s the government has reclassified hundreds of thousands of unemployed people as disabled. This blatant deception makes a fair assessment of the job market and the economy all but impossible, especially for the typical investor. Not surprisingly, the distortion has always worked in the favor of the politicians, not the unemployed, and not investors."
"Job market distortions of the 1980s are in the past and best left there. But the problem persists. Despite the stunning 8% growth in 3Q GDP, October disability applications leapt 20% over September applications, and tied the all-time high. Clearly unemployment in our country is higher than we've been told, and at the very least the situation is not improving. For all we know it might be growing worse."
"Which brings us to the second point about the troublesome job market. Some, though certainly only a few of the most vocal, economists have rightly pointed out that the jobless economic growth we're seeing is a historical anomaly -- one that is almost certainly doomed to failure unless the job market improves rapidly and very soon. That runs counter to today's pervasive theory of our current turnaround, namely that the U.S. economy is growing strongly because of our country's unmatched productivity gains. We, the theory goes, are better off getting more work out of our workers in less time, than any other nation on earth."
"Unfortunately, in our history ALL significant increases in productivity have accompanied matching rises in employment. Simply put, they go hand in hand. Given the strength of our recent GDP growth, we should see growing companies hiring talented workers. These newly employed should be putting in a sane number of hours per week, but getting a lot done in that time. Instead, we see companies asking their bare-bones staffs to work more and more hours per week. Over time, the latter formula has never produced sustained economic growth."
"These are problems likely to show in the mid to long-term. In the short term, investor optimism could pull stocks higher. The one glitch will be if the unemployed, numbering far more than we know, spend much less than anyone had expected. If that happens and the holiday Retail season turns into a disaster, then watch for investors to head for the exits."
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