Unemployment Still Rising

Recent reports show that unemployment continues to rise. The Department of Labor reports that unemployment has reached 9.8% in September and that U.S. employers cut far more jobs than expected. This is the highest unemployment rate since June of 1983 and has been described as the worst recession in 70 years.

Since Obama has taken office, the unemployment rate has gone from 7.6% to 9.8%. By this time, unemployment was not suppose to be any higher than 7.8%. The Obama administration said the stimulus plan would create or save 4 million jobs by the end of 2010. Conn Carol writing for the Heritage Foundation stated:

“To close the Obama Jobs Gap, the U.S. economy would have to go through the greatest 16-month average increase in employment in modern American history. During the peak of the Reagan boom in December of 1984, the U.S. economy added 373,000 jobs a month. Obama would need to create 477,000 jobs a month. That is not going to happen.”[1]
I must also point out that 9.8% is not an accurate representation of the unemployed. Many people have dropped out of the job market. The Department of labor reports that discouraged workers rose from 239,000 to 706,000 compared to the previous year.

Discouraged workers are workers that have given up looking for work because they believe that there are no jobs available for them. These workers are not reflected in the unemployment rate. The unemployment rate only reflects those actively searching for work and receiving benefits.

In good times there is often 5% of the populous that is not currently looking for employment. In this situation we have nearly three times as many people dropping out of the job market compared to last September. Not to mention those who have not been recorded because they have not applied for unemployment benefits. Taking these factors into consideration the unemployment rate is actually greater than 10%. I have heard some pundit’s state that the employment rate is approximately 10.2% when you factor in the discouraged worker. I think it probably is actually closer to 12%, which is very conservative.

Some suggest that our economy has started to grow in the third quarter, however I highly doubt this will mean more jobs. Sales overall may increase slightly throughout the remainder of the year, but this will not mean more jobs. Typically going into the holiday season means that more workers are needed, but last year we had the lowest seasonal employment growth in 20 years. I see no reason this will change this year.

Due to the high unemployment rate many cannot afford to purchase more than what is necessary. Many others who are employed are being cautious with their spending dollars. Therefore, the number of people willing and able to participate in the marketplace is diminished. What this means is that consumers are not going to part with their dollars unless there is a major incentive to do so.
This will directly affect the job market. In this market price is “king” and is truly the only way to drive sales in a sluggish economy.

For those who do not understand how this works let me explain. All businesses operate and require “cash-flow” which is the actual dollars coming into the organization that pays for all expenses. Without cash-flow businesses cannot survive. Many businesses have failed even in spite of showing a profit. This is because “receivables” or money owed to the company is not cash. This would be like your employer giving you an “I owe you” (I.O.U) instead of a paycheck. Imagine trying to buy groceries with an I.O.U.

Due to slow sales, some companies may have an inventory position that requires them to discount deeper than before to create cash-flow. This could be for two reasons: (1) They are overstocked and need to move product to make room for the next seasons products and need capital in order to purchase new inventory. (2) They are in a negative inventory position and need capital to purchase more inventory.

In the big picture this means fewer jobs because discounting means cash-flow certainly, but it also means less profit. Lower profit means fewer available dollars and this will directly affect the job market. Remember, cash-flow is real money used to pay for all overhead including wages. The smaller the pool of available cash translates to fewer jobs. Fixed expenses such as rent and utilities are often not controllable in the short term. The number of employees can have immediate effect to the cost of overhead.

Many companies will have to evaluate their position and determine whether or not adding additional holiday workers is possible. With slimmer margins due to deeper discounts, most will probably decide that they cannot afford to do both. It truly becomes a matter of survival.

I predict that there will not be any significant increase in employment for the holiday season. In fact I fully expect that it will be even lower than last year. Last year was the lowest seasonal job growth in 20 years and at that time we did not have a greater than 10% unemployment rate. When you look at the key elements in play here I cannot find any reason to believe the job market will improve throughout the rest of 2009.

Polices that the government has been pursuing from the stimulus plan to health care is undermining the “free market.” Proposals of higher taxes for any entity will have a negative impact on the economy and the job market. The continued government spending, borrowing and the printing of money will have detrimental effects on our economy. If we fail to change course we could be heading towards a job market that has 25% of the population unemployed. For those who think that could not be possible, in 1933 during the depression era unemployment reached 24.75%. Throw in high inflation, higher taxes and you can see a cycle that continues to drive the economy further down setting up the possibility of a federal financial collapse. If that were to happen, the depression era of the 1930’s would be a walk in the park in comparison.

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