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August Unemployment Report

November 4, 2014

I get a lot of reports from economists, and one that continues to haunt me is the August Unemployment Report provided by the Bureau of Labor Statistics. It was a pretty big disappointment! According to the August Unemployment Report, the percentage of Americans working or looking for work was at a 36-year low. People are leaving the workforce in record numbers. It’s not just that people are retiring – half of those left the workforce have stopped looking for work.  The question for the economy is,  Is this a cyclical thing that improves when the economy gets going or is it a structural problem that will be with us for a long, long time?

 

As I’ve stated time and time again, when the economy grows it energizes consumer spending. Right now, 70% of GDP is directly related to consumer spending. The math is simple:  if you have all of these people out of work obviously they won’t be spending. The economy is going to be in this sluggish kind of mode for quite a while. In fact, the Fed just dropped their forecast for the next three years. They think it’s going to be below 3% GDP growth for the next three years, which of course is not a great outlook.

 

Another article I came across recently was written by David Hay, the head of Evergreen Capital. He wrote a letter from the future and he looks back, stating, “Perhaps I’m wrong, but I don’t think there has ever been a rally that has taken stocks to such high valuations (time for my usual qualifier – based on mid-cycle profit margins, not the Fed-inflated ones we have today) concurrent with such pervasive fears American is on the right track.”

 

As Hay goes on in the letter he’s written from the future, “Finally we’re getting some stuff done.” The first topic he touches on is tax reform legislation. Keeping in mind as we’re reading this letter, we don’t know if this will ever happen but it’s definitely a nice wish. He states, “No longer will lawyers be able to dominate the role of the law.” It’s a nice little blueprint if we could ever get there.

 

Hay sums it up best, we’re going to have another major, major crash. It’s inevitable. It will take a harsh reality as this for the government to get around to enacting a portion of the items that need to be done to turn everything around.

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This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. Please consult with a professional specializing in these areas regarding the applicability of this information to your situation.

Andrew Wood, Dan Simon and Alison Slezak are Investment Advisor Representatives. Advisory services are offered through CoreCap Advisors, LLC., a Registered Investment Advisor. CoreCap Advisors, LLC and Daniel A. White & Associates, LLC are separate & unaffiliated entities. 

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