Weather Report: The Economy- Unemployment, Consumer Confidence, Stimulus, & Global Slowdown

THE ECONOMY–UNEMPLOYMENT: “ Unemployment sweeps the nation” says the headline at CNNMoney.com (money.cnn.com) of 1/27/09. For the first time ever, “All 50 states and the District of Columbia recorded unemployment rate increases compared with the previous month and year period, the Bureau of Labor Statistics of the U.S. Department of Labor reported.”

In conjunction with higher unemployment comes the additional bad news that state unemployment trust funds are facing difficulties with four states’ funds having become insolvent within the last four months and another thirteen on the edge. These funds are supported by taxes on employers.

THE ECONOMY–CONSUMER CONFIDENCE: CNNMoney.com (money.cnn.com) of 1/27/09 provided these headlines, “Consumer index sinks to all-time low”.

“The Conference Board, a New York-based business research group, said that its Consumer Confidence Index fell to 37.7 in January from the revised 38.6 reading in December. The month’s reading represents an all-time low going back to the index’s inception in 1987.”

THE ECONOMY–STIMULUS: “$825B question: How fast will it work?” is CNNMoney.com’s (money.cnn.com) question headline on 1/27/09. While the government’s stimulus plan is given an almost grudging nod by some, “Overall, the CBO (Congressional Budget Office) said the bill’s provisions “would have a noticeable impact on economic growth nd employment in the next few years.”, others believe that “…many of it’s provisions would not jolt the economy back to life quickly enough.”

PH Note: We here at PrudentHome believe that the real question is not so much one of timing but one that asks whether or not the stimulus package proposed will work at all! Perhaps there’s an equation that might help us: STIMULUS = EMPLOYMENT = CONSUMER CONFIDENCE = ?

Remembering that roughly 70% of the U.S. economy is the U.S. consumer, it seems reasonable to us that a high jobless rate diminishes consumer confidence which will in turn lead to reduced consumption which will then provide for continued recession/depression. The stimulus must ultimately substantially increase private sector jobs to be successful.

THE ECONOMY–GLOBAL SLOWDOWN: Bloomberg.com on 1/28/09 yielded this piece “Roubini Sees ’Nowhere to Hide’ From Global Slowdown (update 2)”. Nouriel Roubini, NYU economics professor, says “We have for the first time in decades a global synchronized recession. Markets have become perfectly correlated and economies are also becoming perfectly correlated. This is not your kind of traditional minor recession”

Prof. Roubini goes on to suggest a temporary nationalization of the biggest U.S. banks to keep them from bankruptcy.

Until week’s end, keep your eyes on the horizon.