Recession over? Tell the bankrupt and unemployed
Posted
Sep 17 2009, 09:59 AM
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By Jim Van Meerten
Our Fed chief has announced that the recession is over, but I don't see it here in Charlotte. I'm seeing a lot of "for lease" signs in storefronts that were previously occupied and "for sale" signs in front of existing homes. Several large construction projects have ceased midstream.
We stock market investors tend to see the world through rose-colored glasses, and I may be the worst among us. In my blog, Financial Tides, I've been posting a CODE GREEN signal for some time. All the stock market indicators I follow at BarChart.com are positive, but what about the rest of the economy?
We are a consumer-driven economy, and for the consumer to spend, he must have a job.
Official unemployment figures are approaching, and expected to top, 10%. I've read several studies that say real unemployment is approaching 16% because the official figures do not include graduating seniors and dropouts who can't find a job, people who have been downsized but their settlement package hasn't run out, and people taking "early retirement" because they don't have new computer-age job skills and have given up looking.
Of course, the figures also don't include the underemployed. That's when a $75K person is laid off and takes a $40K job to pay the bills.
What's happening in the "real" economy? I looked at the Conference Board's Employment Trends Index, last published on Sept. 8. The index stands at 88.1, which is down year over year by 18.5%. The index includes initial unemployment insurance claims. People are out of work or scared of being put out of work. At most companies, headcount figures are down.
Yesterday, Warren Buffet was quoted as saying, "We've hit a plateau at the bottom." That says it all; it's not getting worse but hasn't started to get better. Some of the bad news is still to be revealed.
Here in Charlotte, a lot of the construction subcontractors are reporting they aren't being paid. Banks are beginning to hold back on construction draws, so the contractors can't pay the subcontractors for work done and materials already installed. The courthouse is full of attorneys filing construction liens for unpaid subcontractors. Many small business owners have depleted their cash reserves, used up their entire lines of credit and aren't sure how many more payrolls they can make before they must close the doors and lay off everyone.
Banks are not willing to lend to businesses on the ropes. How many small business owners are within 90 days of shutting the doors??
For me the real recession will begin waining after the unemployment figure tops 10%, reverses and comes back through that point. The recession will be over when the unemployment figure breaks through 6% into the high 5's. Then you'll see a high five from me.
Jim Van Meerten is a full-time investor and also blogs on Financial Tides. He is a former winner of the Strategy Lab Open and participated in the 2008 MSN Strategy Lab as the Amateur. Please post your comments below or contact him at FinancialTides@gmail.com
