FINANCIAL FOCUS

Labor(ing)

      In this installation of Financial Focus, we will discuss the topic of the Labor Market, and its underlying issues. As always, we will provide some education and commentary for the inexperienced and/or uninformed.  

      In our publication When to Buy and When to Sell: Combining Easy Indicators, Charts, and Financial Astrology (available on Amazon), in Chapter 1, we briefly discuss the effect that employment has on the economy. Rising unemployment can create many problem areas in an economy, some of which have been ramping up in recent months. 

     Economic reports during high unemployment periods usually include declines in important categories like housing (mortgage applications/home sales/construction), manufacturing/factory orders, expected growth rates, and consumer confidence. The issues will be reflected by increases in layoffs, jobless claims, credit card debt, and loan defaults, all of which are currently occurring. The negative reports then tend to “snowball,” as less individuals working increases mortgage defaults, bankruptcies, and homelessness, which also affects recreational/discretionary spending that would normally boost the economy.     

     A closer look at the actual employment figures does not paint a rosy picture. Despite non-farm payrolls increasing on Friday, after a very low ADP report just two days before, job creation has decreased for 4 straight months. Additionally, the “revised” figures (which we often mention in our publications) have been significantly lower than the original reports, upwards of 30% and beyond. Between the agendas of certain media outlets, and the “skewing” of the figures from within, these reports should never be used to make financial decisions, including investments.  

     Also reported this Friday was the current “unemployment” rate, which remained level at 4.2%. That figure, though fairly accurate, only takes in account the percentage of known individuals who are out of work. It does not reflect the actual number of those unemployed, which has increased over the same time frame. It also does not include those who are not in the “work force,” which includes adult students, disabled, and/or those who are unwilling to work. These numbers take a toll on the welfare and services systems, which helps lead to inflated prices, which in turn leaves less for recreational spending. Additionally, many are required to hold more than one job to make ends meet, which also alters these figures. It takes quite a move in the number of unemployed to affect the percentage of those without jobs due to the large population of workers. 

      Every day there also seems to be another major company announcing layoffs, which is a result of the negative economic indicators, including less demand for goods (manufacturing), sagging retail sales, jobs that are replaced with AI/robotics, and the slumping construction industry.   

      Despite all the negatives, the equities markets have recovered most of their losses from February to early April. This is where divergence plays a role in the employment formula. During non-favorable economic times, layoffs can create hardship for some who can no longer pay for their necessities to live. Large companies, however, will “cut” expenses to preserve their bottom-line profit whenever possible. Less employees due to less demand for products may cause a loss in revenue, but can be made up for with less expenses (payroll tax, benefits, etc..). Therefore, the negative economic conditions could result in a rise in a company’s stock price if the net revenue increases. So long as a company does not downgrade their own sales/revenue forecast, they may not suffer the same fate as the average individual. Investors should remain cautious, however, as recession fears persist, and the Federal reserve fails to provide any confidence in the economy, or clear interest rate policy shifts, with their inconsistencies in reporting conditions from week to week.  

      Whether this is political or not, it ignites volatility and over-reaction in the markets. Furthermore, growth is now only projected at 1.6% for the U.S. economy (revised down from 2.2%), by the OECD (Organization for Co-operation and Development). A recent study by the same global group also indicated that the employed in the U.S. that earn average wages must work 30 hours per week just to escape poverty, while those who earn only 67% of the average wage must work 45 hours, one of the highest percentages in the world.  

     Under current conditions there has hardly been a more important time to budget, and curb any unnecessary spending, as the job market is on much thinner ice than reported. Make sure to have an emergency fund (preferably 6 months), and live below your means, while cautiously investing, if possible. 

     For additional discussions and education, please continue to visit our BLOG section here on ASTRO-FIN, where we provide periodic updates on a variety of topics. 

***As always, this information is not intended to be financial advice, or any specific buy or sell recommendation, but rather a guide to assist the reader in some further understanding of current economic conditions.