Recovery? Jobs, Jobs and ....Jobs

Chinese New Year's Eve is here and this year I am sure the red packets are going to be a lot more generous compared to last year. In January - Feb 2009, financial markets globally were going through the largest gyrations since the Great Depression. I bet people packing their red packets cut their quantum by at least 50%. I know I did. This year, the picture will be different as markets have rebounded significantly since then. As Singapore braces itself for the most anticipated opening of Resort Worlds Singapore, plenty of closet and open gamblers rubbing their hands gleefully, all ready to wager all their new year monies and bonuses, the future looks bright for Singaporeans.

Why am I making another post before CNY? I just thought I should share a titbit with all of you, just something I read in the Wall Street Journal this morning. This is with regards to the jobs situation in the US. First let me lay it out for you.

November 1973-March 1975 - 16 months - 1.45 million jobs lost

Jan-July 1980 - 7 months - 0.97 million jobs lost

July 1981-November 1982 - 16 months - 2.84 million jobs lost

July 1990-March 1991 - 8 months - 1.58 million jobs lost

March 2001-Nov 2001 - 8 months - 2.68 million jobs lost

Dec 2007-June 2009 - 19 months - 8.42 million jobs lost

Why did I give these stats? Let me give you my 2 cents worth on these statistics. From 1980 till now we have had 6 recessions, 2 every decade. There seems to be a trend of recessions happening at the beginning of every decade. Do not worry, it is not going to happen this year as we are still having a lot of liquidity sloshing around in the system with much of the stimulus budget still not utilized. However, 2011 will be a challenge as inflation and interest rates will start to rise. This will be consistent with the past 2 decades when the recession happens in the the 2nd year of the decade. I do believe that we have come out from the last recession as it probably ended in June 2009, but I believe we have only found temporary reprieve through large stimulus spending. But I believe that the first signs of public spending coming to an end are starting to show, with the likes of Spain, Portugal and Greece looking to cut their fiscal spending to boost their sovereign balance sheets. Italy looks like a very likely candidate in the near future too. Cutting fiscal spending during a time when the economy is still on the recovery stage will lead to demand and confidence to fall and possibly push these economies back into a recession. That is why I believe that the countries like US and UK will face this problem in 2011.

Another observation from this statistic, was the number job losses in during this past recession. It is no doubt the longest recession in the last 3 decades, some historians have pointed out that this is probably the longest recession since the post war era. But never have we seen a recession that has led to a job loss number that has come even close to the 8.42 million jobs lost during 2007-2009. It is more than 3 times more than any other recession. So far the recovery has not led to any positive jobs growth and to add salt to the wound, many people have fallen out of the job market and given up on finding jobs. It is hard to fathom how long it will take before all these jobs are replaced. Many of which I believe have disappeared for good.

This number is equivalent to 6.1% of the total workforce, which is the highest since the great depression. Consumer spending accounts for 2/3 of the US economy and trust me, when 10% of your workforce is out of job, you are not going to see large spending and if you are expecting the government to make up for the slack, think again. The US government cannot afford to continue spending like this because they still have to worry about their social security and healthcare problems. The US economy will have to take a lower growth trajectory going forward, that is why PIMCO has called it "The New Normal". Without the consumer, the recovery will never be robust. The US government has to really focus on creating new jobs, I believe it will have to come from new industries like green initiatives and other innovative high value added services. This will take a long long time, that is why I believe the US has a long road to recovery and it will not be a V recovery for the US.

Funny thing is, if we added all the job losses from the previous 5 recessions, it will roughly be equal the the losses from this one last recession....that gives you a better idea of what we have just gone through and also bring investors' feet back to the ground. Why did I take time to write on this? My purpose is to remind readers and myself that the turnaround may not be as strong as what the media is painting. Sorry, but my tirade against the media continues.

Happy CNY!

SVI