Would the Real Unemployment Rate Please Stand Up
I love how the government and media quietly announced the unemployment statistics for August last Friday as many of us were either out of the office or rushing to get an early start to the Labor Day weekend.
I enjoyed even more the subtle way in which the news acknowledged the fact that the unemployment rate jumped to 9.7 percent, only 30 days after we had heard that it had declined in July to 9.4 percent from 9.5 percent in June, a trend which was heralded as evidence that the U.S. had reached or was near the bottom of this recession. Of course we learned last Friday that the unemployment figures for July were “upwardly revised” and as a result we didn’t experience a decline in the first place, a side effect of what I term “premature calculation”!
We also were told that the unemployment increase in August was “less bad” because the rise was less than what the economic analysts had originally forecasted. Tell that to the 216,000 workers who lost their jobs and the thousands of businesses impacted as a result.
So, the question I’ve been asked to address is which unemployment rate is the most relevant to the ARM industry. My answer: the one that represents the biggest impact to an ARM company’s liquidation performance.
After reviewing the various unemployment calculations maintained by the Bureau of Labor Statistics, I have come to the conclusion that the U6 calculation (Unemployed, discouraged and underemployed workers) is the most relevant, which increased 0.5 percentage points in August to a whopping 16.8 percent, representing a total of roughly 20 million people in the U.S. And remember, this is “less bad”. I like that the U6 number includes underemployed workers, because these are people that have jobs but aren't making as much money as they are accustomed; they have been forced into part time work. This can impact payments to ARM companies.
So, what should ARM companies do with this information? Our recommendation is that executives of ARM companies, particularly consumer focused ARM companies, keep track of the unemployment rate because it can help them assess future changes in liquidation performance. If the unemployment rate is rising chances are that the future liquidation performance may decline.
Whether you believe the unemployment rate is 9.7 percent, 16.8 percent or something else the important thing to know is how it is changing over time. Feel free to give us a call and we will keep you apprised of changes in the unemployment rate and other key economic and market statistics that we believe are most relevant to the ARM industry.
Mark Russell manages M&A transactions for Kaulkin Ginsberg. To confidentially discuss your business interests, please contact Mark Russell at 240-499-3804, or by email.
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Comment from Bert on September 9, 2009 at 8:47PM EST
What happens when 9.7 'official' becomes 10.7, 11.7, 12.7? I think we're at the point where The Government just can't print money fast enough to glue the wheels back on. And, runaway debt spending is a fast track ticket to the dollarpeso. What are things going to look like when we tie with countries like Spain, currently 19% and rising? What happens if we make it to 25%, 1 in 4 people, no job, no money, no future? What if it goes beyond that? There's no law saying that the United States can't go bust, and some say that it already has, that what we're seeing is chickens coming home to roost from eggs hatched in the 60's, when we started becoming the world's largest debtor, instead of the world's largest creditor. Could the lights go out? Concievably. Is it likely? Not really, because Americans are smart enough to make it without money if they have to, and smart enough to make money and recover, left to their own devices. But, one thing is for sure, when people are being cyclically billed with digital efficiency, that doesn't leave a lot of breathing room. While we're on the subject, let's talk about credit ratings. Why is it important to 'build your credit'? Why not earn more money instead, and just buy your stuff and pay your bills that way? Why even have credit cards? There's two things in life you'll want to buy on credit, and that's a house, or a car. Everything else, you need to learn how to save your money, or buy things second-hand, or, if you've got a little energy, start learning how to make things for your self on your own, without ever setting foot in Wal-Mart or some other store like that.
We've been trained to the 16-digit consumer slab, and it's all good and fine, as long as you keep getting those monthly paychecks, but when that action dries up, what then? What then? What then, for millions of people? Sleeping in a cardboard box? Jail for the indigent? When we say 'recession', aren't we really saying class warfare of one kind or another?
Tune in next time, when you'll be getting twitter messages via carrier pigeon...
Comment from Liz Boers-Maynard on September 10, 2009 at 4:25AM EST
and what about all thoe people who are sick through stress of perhaps losing their jobs so are not actually working BUT don't count in the numbers? Maybe that does not have such an effect in the US. I have always wondered about that, especially here in The Netherlands where I have the impression that the "bar" to be signed off sick is lower than my experience in the UK. So how do they really measure it - who's in and who's out?