CONTACT US

Blog

Sandy on the Market


July 11, 2012

The way the stock market is jumping around indicates that the investing public is wary at best, petrified at worst. They act as if the U.S. were heading straight into another recession. This fear seems to be mostly impacted by the relatively anemic job growth. Unemployment has been disappointing and commands big headlines whenever numbers are published. Is the gloom and doom based on relatively high unemployment really justified?

Most folks seem to think that we have exported most of our jobs to developing countries, such as China. We have exported some jobs, but far more jobs have been lost to increased productivity. Robots don’t require health insurance, don’t require overtime pay and don’t go out on strike. The good news is that the consumer wins with less expensive goods to buy. The bad news is my grandchildren are having difficulties finding jobs, even those who are graduating from college.

Greatly increased productivity has resulted in huge company profits. Corporate America is sitting on piles of cash. That is not a good thing. T’would be better if they spent that money on expansion. But demand, while having increased, isn’t that great. Current demand is easily met with the aforementioned productivity increase. As long as we have excess production capacity (which we do), spending money to further increase production capacity makes no sense. Besides, the government stalemate between the two political parties increases corporate planning anxiety and makes expansion even less likely. No one knows what will happen by years-end as we approach “the cliff” if we don’t have legislation that will attack our huge deficit. Thus far, all we seem to have in D.C. are posturing politicians. Oh well, if the cash can’t be used up to increase production, corporate boards can always pay more dividends to the stock holders. (BIG SMILE)

There are increasing numbers of unfilled job openings advertised. The applicants aren’t qualified and/or there is a mismatch. The education system takes a while to adapt to the needs of the marketplace. Those workers who have been replaced by the productivity surge need to acquire some more education or training. The numbers of students and re-trainees will increase as armed forces are down-sized due to the wind-down of the war in Afghanistan.

President Obama was correct when he stated that the private sector was doing fine but the public sector was hurting. The Republicans jumped all over him for saying that. No doubt it was a political mistake. One does not say such things when there is 8% unemployment! But the private sector has been adding jobs and government is laying off. That’s a good thing. With our huge deficit, we don’t need government to grow. But the transition from public to private enterprise will cause some pain and keep unemployment numbers from dropping as fast as we’d like.

So the answer to the question we opened with, the gloom and doom based on stubborn unemployment is not justified. There are still other headwinds that could push us toward recession: the congressional stalemate concerning our deficit; possible European Union breakup; and continued degradation of China’s economy. To end on a positive note, it appears that the real estate market is showing signs of life and may start to improve, adding some jobs.

POPULAR POSTS

The Need for Tax Planning

2871 VIEWS - February 27, 2017

How to Freeze Your Credit

1341 VIEWS - September 12, 2016

Cyber Security Part One: Password Protection

1198 VIEWS - November 28, 2016