The Chart of Charts in Presenting the Reason Why Job Security Is Crucial Today.
Aug. 11, 2009
David Rosenberg, the ex-Merrill Lynch economist, came up with this chart.
I look at this and see a crisis for anyone unemployed. He will have to do one of the following.
Find a niche job for which he is exceedingly qualified.
Use his network and hope that someone on it knows where that job is.
Cut his wage expectations below anything he would have imagined necessary a year ago.
Persuade his former employer to use him as a consultant.
Start a side business.
The discrepancy between the unemployed and the number of openings is larger than I recall in my lifetime. This looks like the Ph.D. glut. That glut never went away. It has been exactly 40 years.
Indeed, a poll undertaken by CareerBuilder.com and cited in the USA Today found that one in every ten Americans took on an extra job over the last year; another one in five said they intend to do so in the coming year. These numbers are double for the 45 to 54 year olds who now see early retirement, once around the corner, as an elusive concept.
At least 15% have taken a pay cut. That, in my view, is the last resort. Far better to increase your contribution to corporate cash flow. Let the other guy take the pay cut . . . or lose his job.
It gets worse.
Indeed, by our estimates, there is up to another $5 trillion of household debt that has to be eliminated in coming years and that process is going to require that consumers go on a semi-permanent spending diet. Companies see this, which is why they are not just downsizing their payroll, but have also cut the workweek to a record low of 33.1 hours. Fewer people are working and those that are still working have seen their hours dramatically cut this cycle.
This de-leveraging is going to decrease consumer spending and increase the savings rate. This is good, but the transition will be painful for retail sales.
How bad will it be? If things flatten out, awful. If they continue to fall, unthinkable.
What makes this cycle "different" is that three-quarters of the workers that were fired over the last year were let go on a permanent, not a temporary basis. A record 53% of the unemployed today are workers who were displaced permanently -- not just temporarily because of the vagaries of the traditional business cycle. This means that these jobs are not going to be coming back that quickly, if at all, when the economy does in fact begin to make the transition to the next expansion phase. In turn, this implies that any expansion phase is going to be extremely fragile and susceptible to periodic setbacks.
There will be new jobs. There always are. But not in some fields.
There may well be job growth in the future in health care, infrastructure, energy technology and the like, but we can say with a reasonable amount of certainty that there are a whole lot of jobs in a whole lot sectors where jobs lost this recession are not going to come back. For example, the 580k jobs lost in financial services; the 320k jobs lost in residential construction; the 1.7 million jobs lost in durable goods manufacturing; the 1.1 million jobs lost in the wholesale/retail sector; and the 380k jobs that were lost in the leisure/hospitality industry. That is over four million jobs that were shed this cycle that are not likely to stage a comeback even after the recession is over. To show you how big a number four million is, we didn't create that many jobs in the prior expansion until it reached its fourth birthday towards the tail end of 2005.
This has not yet hit the voters. It will begin to hit in 2010.
But the key to recovery is not voting. It is getting access to capital. Banks are not lending.
As we said above, companies have permanently reduced the size of their operations with the knowledge of how much credit is going to be available to them in the future to survive because the financial sector is going to be operating under more supervision and regulation and leverage ratios, which means the funds available to support a given level of GDP is [are] going to be measurably smaller than what we had become accustomed to during the secular credit expansion, which really began in the mid-1980s, only to turn parabolic during the 'ownership society' era of 2002 to 2007.
I encourage you to participate in the appropriate forums. You need every bit of advice you can get.
As for stocks,
Quite frankly, we cannot imagine a more difficult environment for the stock market -- the impact on both corporate earnings and fair-value estimates for the P/E multiple -- than a backdrop that includes a permanently lower level of potential GDP growth alongside a record output gap. What that means is much lower volume growth and much lower pricing power over the next five to 10 years. This means that bear market rallies will come, as we have already seen repeatedly in the last two years with an obvious exclamation mark on the one posted from March 9 to May 4 … and they will go.
The Establishment is facing a new world. The jobs are disappearing. The Federal deficit is not working here.
There is no perception among the general that we have turned a corner on the American dream. The nation's leaders think that a Federal deficit of $1.8 trillion is the solution, not the problem. It's deficits forever, and the economists cheer. Some want more deficits. Krugman is one of them. So, we will get more deficits.