The Crumbling Of The North American Job Market
Friday, January 9, 2009
by Martin Denholm, Managing Editor, Smart Profits Report
Dear Smart Profits Report Reader,
On Thursday, America’s incoming president, Barack Obama, noted the need for drastic action to combat the rapidly deteriorating U.S. economy.
Gee, you think? I like Obama so far, but that’s a serious understatement. It merely pre-empted this morning’s news that confirmed just how bad the climate has become.
December saw American employers lay off another 524,000 workers, which brought the total number of 2008 losses to 2.4 million (one million of which came in just the past two months). It could still end up worse than that, given that the government revises the figures later. For example, October’s layoff total was revised from 320,000 to 423,000, while November’s data came in at 584,000, higher than the originally reported 533,000.
It means that 2008 was the worst year for the job market since World War II and the jobless rate now sits at 7.2%, up from 6.8% in November - the highest in 16 years.
With some $800 billion worth of stimulus money sitting on the sidelines, waiting to be released into the economy as soon as Obama takes office, the new president even admits that it’s unlikely to prevent the unemployment rate from shooting into the double-digits.
Mark Zandi, chief economist at Moody’s Economy.com, supports that fear. Quoted in the International Herald Tribune, he says, “There was a change in psychology around the time the financial crisis devolved into a panic in September or October. Businesses went from trying to hold on to their workers to laying them off in an effort to survive.”
And the mass layoffs over the past couple of months have resulted in major drops in consumer spending (evidenced in yesterday’s terrible December retail sales report) and business spending.
And brace yourself for a very weak fourth quarter GDP growth report. Many employees who still have jobs have found their hours reduced - another sign that productivity will decline markedly. The number of aggregate hours worked in December dropped to 33.3 hours - the lowest since 1964. And the number of people forced to take part-time work because their regular hours were cut back rose by 3.4 million to 8 million over the past 12 months.
And it’s not just America suffering in the labor market. The situation is similar in many parts of Europe and also north of the border…
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Construction Crushes Canadian Jobs
As the country’s construction industry grinds into neutral gear, Statistics Canada reported today that employment dropped in December by 14,000 more than analysts had forecast.
On the back of 70,600 layoffs in November, the world’s eight-largest economy laid off a further 34,000 workers to end the year. It means the jobless rate is now 6.6%. The construction sector led the tumble, laying off 44,300 workers - the highest monthly figure in that sector since 1976.
Like the Federal Reserve and several other major central banks around the world, the Bank of Canada is currently in rate-hacking mode itself. Last month, it slashed the base rate by 0.75% to 1.5% - the lowest level since 1958 - amid what it called a “broader and deeper” global downturn.
For Canada, this will result in the country’s first budget deficit in more than a decade and a 0.4% drop in GDP. Its major commodities like oil and wheat, which account for half of Canada’s annual export revenue, are also suffering from a lack of demand and falling prices.
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A Parade Of Ponzis
If you thought the Bernie Madoff fiasco was the last you’d hear about unscrupulous Ponzi schemes and investment fraud, think again.
On Thursday, authorities announced that they’ve uncovered two more shady Ponzi operations. And while they amount to only a fraction of the $50 billion that Madoff raked in - and subsequently lost - that isn’t much consolation to the people who invested in these latest two.
Meet Joseph Forte, 53, who allegedly accepted $50 million from some 80 investors. While he reported annual gains between 18.5% and 38% since he began the operation in 1995, turns out his mouth moved faster than his returns. Instead, he had to withdraw $23.1 million of the $50 million he raised to cover his consistent losses.
Unsurprisingly, Forte wasn’t registered with the SEC, who only learned about the fraud after Forte turned himself in late last month after he was unable to cover redemption requests from existing shareholders.
The second Ponzi scheme operator uncovered recently is 82-year old Richard Piccoli. His racket only dates back to 2004, so the total that he’s raked in comes to a “paltry” $17 million. And in true sleazebag fashion, Piccoli ran advertising in Catholic newspapers, thereby largely signing on clergy and religious charities.
Though he guaranteed a return of 7.1% or more by “buying high-quality residential mortgages,” he didn’t actually make any actual ventures into the real estate market.
As the downturn continues and people withdraw large sums of money from their investments, Joel Cohen of the Clifford Chance litigation and dispute resolution practice puts it best: “It’s consistent with previous times when markets are down. The rocks get exposed when the tide has washed away.”
Amid the fear, panic, and financial losses, beware of those who promise a lot, but deliver little as this recession continues.
That’s all for this week. On behalf of the Smart Profits Report team, have yourself a great weekend.
Martin Denholm
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