As the calendar shifts from September to October, we face a three day focus on the job market. Wednesday will bring employment into focus with the ADP report showing the economy lost an additional 200,000 jobs in September. This would register as the smallest decline since June 2008 and is well below the 736,000 jobs lost in March. Thursday brings the weekly report with initial claims slightly increasing to 535,000 and continuing claims increasing to 6.17 million. Friday ends the week with the September employment report.
As reported Friday, the economy is forecast to have lost an additional 180,000 jobs with the unemployment rate increasing to 9.8%. While the unemployment rate continues its eventual rise above 10%, many will highlight the fact that 180,000 lost jobs is the fewest in over a year and well below the peak of 741,000 jobs lost in January. Never a believer in second derivative ideas such as a declining rate of change, I would rather focus on longer trends. In that regard, the picture is extremely bleak. We are now in the 21st consecutive month of losing jobs, have seen over 7.1 million jobs disappear, and are at total jobs lost levels that are well beyond those of any prior recession. Many argue that this prolonged slump will lead to an equally dramatic boom, but I am wary. We are in uncharted territory, and those making such bullish prognosis have nothing but hope to support their view. Hope that consumers will spend, deficits will shrink, and unprecedented printing of money can only yield positive results. Hope that government plutocrats know more than market forces. Hope that the vast unknown will only yield positive results. The stark truth is that hope may be a belief system that helps people cope with the unknown, but it is not an investment strategy.
In my weekly newsletter EPIC Insights, I have been a vocal believer that the recession has ended and stock prices will continue higher over coming weeks. However, considering how some economic reports have blindsided the market and badly missed consensus estimates (examples are consumer confidence and existing home sales), investors should closely watch the jobs reports over coming days. A market resting on hope does not possess a steady base. Were any of these reports to badly miss the mark, we will see just how quickly hope morphs into fear.