Daily Investment Interpretations

February 21, 2009

2009-2-21 I wrote below that "Dr. Nouriel Roubini is more optimistic, positing that 2009 will be a recession year, but implying that 2010 will be better". The reason I thought he was more optimistic than Paul Krugman, Paul Volcker and George Soros was because he's still forecasting a 10%+ yearend unemployment rate. But after thinking about it, I'm not so sure he's more optimistic than the others. Initial jobless claims have been running about 600,000 a month out of a total January-31st working population of 153,716,000, adding about 1/3rd percent (0.33%) a month to the total 7.6% unemployment percentage. If initial unemployment rates continued to run 600,000 a month for the 11 remaining months of 2009, it would subtract 6.6 million additional employees from the work force, elevating the total unemployment percentage by 4.4%, and bringing the total yearend unemployment rate to 12%. (Please note that this doesn't include part-time, temporary, and underemployed workers the way it did in the past) . This is within hailing distance of Dr' Roubini's 10%+ year-end unemployment rate.
    A year-end unemployment rate of 10% would imply 2.4% added to the end-of-January 7.6% unemployment rate spread over 11 months, or on average, about 0.22% or 330,000 layoffs a month for the rest of the year... 3.6 million additional jobs lost this year. This would compare to the 6.6 million jobs that would be lost this year if the average monthly unemployment rate remained at 60,000 a month over the next 11 months, and is consistent with the Administration's plans to add 3,000,000 jobs to the economy. 
    I know. The Administration is projecting that the 3,000,000 jobs it will save will be spread over two years, so the timing doesn't exactly jibe, but Nouriel Roubini's yearend unemployment rate of 10%+ isn't as optimistic as I first thought it to be.
    Standard & Poors is warning that the nation is heading into a renewed credit crisis in which the Fed is pumping money into the economy but the banks are continuing to sit on the money rather than loan it out... not that there are that many takers for the money, anyway: Credit crunch may only have just begun, S&P warns. Given that spending is so subdued, most companies are facing over-capacity and don't need to borrow money to expand their operations.