No Jobs, No Economic Recovery

Despite what you would think by looking at the constant media coverage by every major outlet, the biggest news this week was not the contents of Michael Jackson’s will or speculation on who will raise his kids (but really Mike – Diana Ross?). No, no…the big news was found in the U.S. jobs report, released on Thursday.

According to the Labor Department report, employers cut 467,000 jobs from their payrolls in June, after cutting 322,000 in May. This made June the first month since February where job cuts rose from the previous month’s number. And since everyone was expecting an economic recovery wrapped up nicely under the tree this Christmas, this data caught most everyone by surprise.

“The report was terrible,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. “It’s telling us that there is a lot more pain than people realize that we are going to have to get through before there can be a recovery.”

Actually, it wasn’t just the jobs report that showed that we are still a ways away from an economic recovery…a higher savings rate, a lower rate of consumer spending are all signs as well, but everyone was so focused on searching for the ‘green shoots’ that they went unseen.

In the DR’s Highlight of the Week, below, Bill Bonner points out another alarming trend: small U.S. businesses are going broke. Keep reading…

[Wednesday’s] issue of USA Today featured a report that said small businesses are going broke faster than expected. Small businesses are supposed to be the survivors. Like mammals in the Ice Age, they replace the dinosaurs. In a recession, big, costly, inflexible companies are supposed to get hit the hardest…leaving niches for small, nimble, low-cost competitors to slip into. These small businesses establish toeholds during the recession…hire people…and then scale up to the peak of commerce when the boom comes.

But this time it’s different. Small businesses are collapsing along with big ones. In April, for example, more than small 8,000 businesses went broke and filed for Chapter 11.

In addition to the business bankruptcies are the personal bankruptcies. According to the Los Angeles Times, the rate of personal bankruptcy is soaring in Southern California.

In April, according to David Rosenberg at Gluskin Sheff, the feds added $121 million (at an annual rate) in total stimulus to the consumer economy – including tax reduction and increased benefits. In May, the total stimulus rose to $163 million. How come so many bankruptcies when the feds were giving away so much money?

The answer, says Rosenberg, is that consumers didn’t spend the money; they saved it. Consumer spending rose just $1 billion April – despite $121 billion of stimulus. In May it rose $25 billion – despite a ‘stimulus’ 6 times that amount.

Meanwhile, the saving rate, which had been only 0.2% in March of 2008 exploded to nearly 7% in May 2009.

No consumer spending, no sales. No sales, no revenues. No revenues…no one can stay in business. And it looks like the consumer won’t be able to save the U.S. economy this time.

No small businesses. No new jobs. No new jobs, no economic recovery.

No economic recovery and the meddlers are back on the Hill asking for more power and money.

No surprise there.

The above is just an excerpt from Bill’s standout essay from this week. You can read it in its entirety here.

With all the trends pointing toward an U.S. economic depression, not just a recession like everyone hoped for, it’s not going to be long before the masses turn on their heels and start flocking to everyone’s favorite store of wealth: gold.

Byron King gives us a prime example of this:

“I’ve often referred to owning gold and silver as a form of ‘insurance,'” he writes to his Energy & Scarcity readers. “And now, guess what? According to a recent report from Bloomberg, Northwestern Mutual Life Insurance Co. – the third-largest U.S. life insurer by 2008 sales – has been buying gold. This is the first time in its 152-year history that Northwestern has purchased gold.

“According to Northwestern CEO Edward Zore, ‘Gold just seems to make sense; it’s a store of value.’ Then Mr. Zore added, ‘In the Depression, gold did very, very well.’

“According to Bloomberg, Northwestern has accumulated about $400 million in gold. CEO Zore believes that the price of gold could double “or even rise fivefold” if the economy continues to weaken. ‘The downside risk is limited, but the upside is large,’ Zore said. ‘We have stocks in our portfolio that lost 95%.’ But gold, ‘is not going down to $90.’

“So here’s a large, sophisticated company like Northwestern Mutual putting gold where its money is. I guess it wants to be around for another 152 years.”

Well, that does it for us this weekend. Please have a fun and safe Fourth of July weekend!


Kate Incontrera
The Daily Reckoning