For the first time since March, the stock market actually showed a little reaction to reality based information. As it turns out, even removing any hint of stimulus will cause the market to retreat. We already expected the cash for clunkers program was largely a gimmick with auto sales dropping like a stone in the last reading. Home sales are being artificially juiced by the $8,000 tax credit and the Federal Reserve keeping 30 year mortgages near historical lows. You can expect that if the Fed and the tax credit were removed we would see a similar reaction as the cash for clunkers program in the housing market. It is amazing that so much energy and focus is being put on bailouts, gimmicks, and transient market forces all the while ignoring one major component. Jobs.

The jobs report issued on Friday was another disappointment. The problem with how the jobs argument has been framed since the start of the year is any report is going to look good compared to the 741,000 job losses in January. Did anyone really think we were going to stay at an annualized job loss pace of nearly 9 million? Of course not. So every subsequent reading seemed like a blessing to the media. The rate of change on a month over month basis has been referred to as the second derivative (or more specifically the rate of change OF the rate of change). Let us look at both job losses and the rate of change:

It is rather obvious that we were not going to see 741,000 job cuts per month even if we were heading into another Great Depression. So as you can see from the chart above the second derivative from February to May of 2009 was positive. Yet anyone can see how flawed this argument really is. It is using the ground shaking monthly loss of -741,000 as a backdrop for every subsequent month. Nothing can compete with that. In fact, the following months had equally bad reports:

February 2009: -681,000

March 2009: -652,000

April 2009: -519,000

And then in June, we had the second derivative give out again. Of course the market being guided by easy money and unlimited stimulus kept moving on up. This minor hiccup was nothing to worry about. That is until the last report that shows the rate of change giving way again. Even at our current pace, we are losing over 3 million jobs a year yet somehow this is good.

Yet in this new economy apparently buying a car and buying a home are more important than having a stable job. Even Henry Ford understood that you needed to pay workers a wage to afford the product you were dishing out. In this new economy, apparently having a job is an afterthought.



Let us set aside the job losses for the moment. Who in the world is hiring? Apparently very few:

Those hiring are still at the levels seen in the March abyss. Virtually nothing has changed on the jobs front since March of this year. Instead of playing hide and seek with mortgages and creating a massive shadow inventory why not at least focus some energy on the employment situation?

There is this pervasive tunnel vision focus on everything put job creation. It seems like very few want to talk about this. They want to obsess that the Case Shiller has stabilized or that home sales have increased but fail to examine the employment front. For the first time in our history did we have an economy largely built on a housing and credit bubble. So why are we to expect similar outcomes in this so-called recovery? In fact, many of these jobs losses are permanent:

5.4 million people have been unemployed for 27 weeks or more. In times like this simple questions bring out the best answers. This is like asking how a person with no income and no job is going to pay a $500,000 mortgage in California? If you asked a question like that the outcome would have been obvious. So with this above chart, we ask who or what industry is going to employ these people? That is the question that has no answer even as we pass 21 months of our deep recession.