- - Thursday, September 1, 2011


As the excitement and concern surrounding Hurricane Irene subsides, investor attention will revisit recent happenings like the noncommittal commentary from Federal Reserve Chairman Ben S. Bernanke at Jackson Hole, Wyo., last week, and brace for the plethora of economic data ahead.

I continue to see the overall stock market seesawing in the coming days as we digest the latest on consumers, the domestic manufacturing economy, construction spending and, most important, jobs. As last week’s durable goods report showed, we often see below favorable headlines what the data are really saying. The devil is in the data and policy is in the details.

In recent weeks, we have had a several takes on consumer and manufacturing economies, which at best suggest a slowing economic recovery. The one series of data that offers a fresh update is Friday’s employment report for August. Nonfarm payrolls rose more than 100,000 in June for the first time in several months. What is key to understand is that level of job creation is widely thought to support a steady rate of unemployment. While that sounds goods, the reality is that August job gains were barely enough to cover the growth in the labor force under normal economic conditions.

As I have discussed over the past several months, whether we look at the reported economic data or simply look at what’s going on around you at work, at home, at the mall or elsewhere, it’s apparent that the U.S. is not in a normal economic environment. Rather than having a robust recovery characterized by job growth, we instead have had millions of discouraged Americans leave the work force. As pointed out by several sources, job growth likely will have to exceed 200,000 per month to accommodate growth in the normal and discouraged-worker labor force.

After working to get their personal balance sheets in order, it’s not that surprising that consumers are becoming jaded as seen in this week’s latest consumer confidence reading, which was the lowest in two years. Clearly, part of that uncertainty is reflected in the weakening recovery and job market, but also fueling that growing sense of unease is the lack of visibility and clarity in terms of what can be done to heal the economy, create well-paying jobs versus minimum-wage work, address the country’s debt and deficit and what the potential tax impact of that will be. Those are but some of the issues weighing on the consumer, and I suspect there are at least several more.

A similar form of uncertainty exists in the corporate world, which I would argue is a result of weakening demand in general and speculation as to what President Obama’s post-Labor Day job-creation speech may bring and what the fallout in the coming months will be from the congressional supercommittee’s recommendations to cut $1.5 trillion from the federal deficit.

While many point to high levels of cash on corporate balance sheets, the reality is that companies are unlikely to expand when confronted with slowing demand and uncertain changes, such as tax rates and job stimulus, with scant details in front of them.

Last week, I wrote about the rash of cuts to gross domestic product forecasts from a number of analysts and economists. As companies incorporate those revisions and alter their own outlooks, a concern I have is a resurgence in layoffs should those adjusted GDP forecasts ring true. The trend in layoffs has been on the upswing in recent months, with August job cuts up 60 percent compared with those in the prior month. That makes it the largest monthly total since March 2010, according to Challenger, Gray & Christmas Inc.

Needless to say, I look forward to the details of these deficit reduction and job stimulus initiatives.

Chris Versace, the Thematic Investor, is director of research at Think 20/20, an independent equity-research and corporate-access firm in the Washington, D.C., area. He can be reached at cversace@washingtontimes.com. At the time of publication, Mr. Versace had no positions in companies mentioned; however, positions can change.

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