Friday, January 04, 2008

Recession

Here's some more on the latest job numbers. Employment has sort of been limping along for the last few months, and while one shouldn't make too much out of a single month of data, the latest numbers certainly suggest that the bad times are coming. Roubini's characterisitically pessimistic, but he's been pretty right - if slightly premature - about things so far.

Until now soft landing optimists could dismiss other recessionary signals in the economy – a much worsening housing recession, faltering capex spending by the corporate sector, a severe liquidity and credit crunch, oil at $100, forward looking indicators of supply (ISM) showing contraction, a weakened consumer that was saving-less and debt burdened – based on the argument that as long as there was job generation the consumer would keep on spending and – with consumption being 72% of aggregate demand – a recession could be thus avoided.

Until now the US consumer had negative savings, was debt burdened and was being buffeted by many shocks: falling home values, falling home equity withdrawal, rising debt servicing given resetting ARMs, rising delinquencies on mortgages, credit cards and auto loans, falling consumer confidence, high and rising gasoline prices and, more recently, falling stock market wealth. But as long as income and jobs were generated at a satisfactory rate the optimists argued that all these shocks did not matter as the consumer would keep on consuming. But the dismal employment report today – 18K jobs created, private jobs falling by 13K and unemployment rate up to 5% from 4.7% - confirms that even job and income generation is now faltering making a recession an almost sure outcome.