This week has been very busy with investors digesting multiple data points. However, as I indicated in my weekly newsletter EPIC Insights, Friday’s April employment report reigns supreme. Credit contraction caused the recession and market collapse. Since the ability to service our debts is dependent upon income, the unemployment rate should be watched closely. I continue to believe unemployment will reach 10% before the recession ends. With consensus calling for an 8.9% unemployment rate in April, evidence grows that we are getting closer to this point.
Each month, I compare this recession’s employment loss with that of prior recessions in order to provide a glimpse of the severity of our current crisis. We are now in the 16th consecutive month of job loss. This is the second longest period since 1948. Total jobs lost are now 1.9% of the population—nearly twice the typical recession. Total jobs lost exceed any period on record. We are beyond any traditional historical comparison and now find ourselves in a gray area between prior recessions and the Great Depression.
Believing that we are not entering a new Depression and that the unemployment rate will peak near 10%, the bottom in employment is quickly approaching. Employment is a lagging indicator with recessions typically ending seven to nine months before employment bottoms. Unless you believe we are entering a period where unemployment will exceed 12% in the near future, an event that would devastate our banking system and economy, we should treat each piece of incremental bad news as an indication that the end of the recession is quickly approaching. When everyone on Friday discusses the dire nature of an additional decline in payrolls of over 600,000 (the consensus estimate) and the unemployment rate nearing 9%, we will be best served by recalling this fact.
Those waiting for the economy to bottom before investing will have missed a large opportunity. Instead, look to when things will be improving and position ahead of the turn. Doing so will keep your portfolio growing and your investments ahead of the crowd.