The November Unemployment Report showed a decline in the unemployment rate to 8.6% as well as 140,000 jobs added in the private sector, which was partially offset by a decline in government payrolls of 20,000. Sounds good at first blush, private payrolls are adding jobs and the size of the government is declining. While it is encouraging, there are two major problems with accepting this at face value. First, employment is up, but not enough relative to where we should be more than two years into the economic recovery(?). Secondly, consumer spending indicates desperate behavior that is further weakening the underpinnings of this recovery.We’ve discussed before that the economy needs to add approximately 125,000 jobs per month just to keep up with population growth. This month’s net number of 120,000 still leaves more people unemployed in the long run. The reason the official unemployment rate dropped to 8.6% is primarily due to the 317,000 people who haven’t actively looked for a job in the last four weeks and have therefore, fallen off of the unemployment report. Had those people sought employment, the continuing claims number would have been negative by nearly 200,000 and created a significantly different headline picture.
I question the impact of this recovery and have concerns about its ability to continue to gain traction due to the historical perspective of the jobs situation and our population’s spending habits. The Federal Reserve Economic Database is accessible by anyone. Looking at their employment graphs we can see that since 2007, the number of people not in the workforce has grown by more than 10 million. Conversely, when we look at the total employment level in the United States it shows that we are at the same level of employment as we were eight years ago. This ties in well with the thesis that American businesses and American workers are more productive than ever. This has led to healthy corporate profits while the domestic demographic spread continues to widen.
The American public on the other hand, is a bit of a concern. CNBC released a survey detailing the economic expectations of the American population versus our expected spending habits this holiday season. Retail sales have surged to all time highs, surpassing even 2007’s high, which was fueled by credit. This year, CNBC’s survey is expecting holiday spending to be 22% higher at the individual level. This would represent a 4.6% gain in total holiday spending over 2010. This makes no sense when 61% of American’s polled believe that the economy is in poor condition with equally dismal expectations for 2012. This is the worst reading in the five-year history of a poll that includes the euphoric ’07 highs as well as the desperate ’08 lows.
My fear for 2012 is not the Mayan end of the world. My fear is that Americans are dipping into the minimal savings they’ve built up in the last two years on one last party of a holiday season. According to CNBC, 74% of this year’s holiday purchases will be made with cash. This will leave most people skating on thin ice. The idea that we are spending more while expecting less just doesn’t jibe with the narrow cushion we stereotypically hold. When we combine this with the fragility of the European Union situation and its ability to quickly throw us back in recession, I’m afraid that this holiday’s spending habits may simply be the average American giving up and throwing ourselves a party while we still can.
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