Ignore the Jobs Report? Not I! - 11/06/09

Ignore the Jobs Report? Not I!
11/6/2009 9:24 AM EST

	Many will try to dismiss the jobs data, but I won't.
	The prices on Wall Street remain ahead of the conditions on Main Street.
	I remain of the view that the U.S. is experiencing a structural change in employment.

The jobs report is a bad report -- let the talking heads and investors/traders who worship at the altar of price momentum disregard it or rationalize it away.

But I won't, because in the fullness of time, fundamentals always trump the market's price momentum.

The prices on Wall Street remain ahead of the conditions on Main Street. The increased certainty and consensus of a smooth and self-sustaining economic recovery as well as a $72-$73 a share in 2010 S&P earnings should be tested in the period ahead -- in all likelihood, the unemployment rate will remain elevated at levels far higher than assumed by most. And with this will likely come disappointing personal consumption expenditures and higher savings, and, most important, lower-than-expected business confidence, expenditures and profits.

I remain of the view that the U.S. is experiencing a structural change in employment in the current cycle. (Just speak to company managements (as I do every week) and ask them what their hiring intentions are -- even if the revenue delta improves.)

Today's report showed a 55.1% structural loss of jobs not coming back, duration of unemployment was at a high of nearly 27 weeks and temporary workers experienced its largest jump in two years.

I wanted to repeat something I spoke about on "Fast Money" Monday night and that I wrote as a follow-up, in my opening missive on Tuesday morning:

It is truly is different this time.
America is about to experience a transformation from a nation with debt growing faster than incomes to a nation in which incomes will grow faster than debt. And it's not because incomes are growing especially quickly. They are not; they are trending lower. It is because of the expected large contraction of consumer debt, and the great debt unwind is the obvious byproduct of the credit crunch just passed. Past cycles, businesses have consistently been the driver of consumer incomes and spending.

I learned in my economics classes at Wharton that this phenomenon is known as Say's Law of Production. Say argued:

against claims that business was suffering because people did not have enough money and more money should be printed; and

that the power to purchase could be increased only by more production.

But -- and this is the big BUT -- over the last century, the consumer was in far better health than today.

Consider the following facts:

In the past, corporations didn't engage in the draconian cost-cutting that they have embarked on in the past several years.

Globalization wasn't the mainstay condition that it is currently, so previously we didn't see the wage deflation and the magnitude of the decline in disposable incomes present today.

Finally, consumers were not as tightly wound and leveraged in any of the previous cycles. Just look at the record level of household debt relative to incomes that exists today.

As a result of the above factors (and others), the U.S. currently has 10% unemployment, and if you count in part-time workers that can't get full-time jobs and those that have given up looking, the number almost doubles to one-fifth of all Americans. The consumer is in dire straits, and, for the first time in history, it is the consumer that is going to drive business' growth, expansion plans and confidence, not vice versa.

Sorry, monetarists and optimists, Say's Law might be dead -- and we face a structural rise in unemployment that the markets have not yet accepted.