Blog, Economy Articles

US & Worldwide Trends 1

THE US Workplace

The U.S. economy shed “only” 345,000 jobs in May, the Labor Department said last Friday morning. The Street forecasted that today’s employment gauge would beat expectations, but this number smashed the Street’s guess of 520,000. Last month’s loss is the smallest since last September.

May’s number establishes a trend for 2009, too. While the US economy has shed 2.9 million jobs in 2009, the pace of job loss is clearly slowing. U.S. index futures jumped on the news and the Dow and S&P 500 opened up 1%.

But the details of today’s jobs report aren’t quite as rosy as the headline number. The unemployment rate rose to 9.4%, notably higher than the expected 9.2%. In other words, the unemployed are not being rehired. While the rate of firings cooled off, the number of unemployed is just getting longer and longer. 9.4% is the highest rate since 1983.

More disturbing details are that over 6 million people have lost their job since the recession officially began in December 2007 and the “long-term unemployed,” those out of work for six months or more, are now exceed a record 4 million. Many of these “long-term unemployed” people are not counted toward the official unemployment rate. In addition, 9.1 million people are working part time because they can’t find a full-time, who are also not counted as officially unemployed.

We don’t mean to rain on this parade. 345,000 lost jobs is certainly better than the half a million firings that have sadly become a monthly routine. But it sure is not a good number. To maintain some sense of perspective, this time last year, the US reported a “horrid” job loss of 49,000 for the month of May, a number nasty enough to push the Dow down over 3%.

Dollar & Commodities

The dollar got a healthy bump last Friday after the jobs report. The dollar index hopped almost a full point within minutes of the announcement, to a two-week high of 80.3. In real-world terms, that’s a 2 cent slash on the euro, now at $1.40. The jobs report took another 2 cents from the pound, which has been suffering all week from political and fiscal instability. It’s down to $1.59. At 97, the yen is a bit weaker too.

Crude oil is up. Less lost jobs likely means more burnt oil. Thus, the front-month contract rose as high as $70 a barrel this morning. As the dollar and U.S. outlook perks up, gold is on its way down. The spot price fell $20 this morning, to $960 an ounce.

Gold investors take note that Northwestern Mutual, the third largest life insurer in the U.S., is using gold to secure its long-term fiscal position. According to Bloomberg, the company has already bought about $400 million worth of the shiny stuff.

“Gold just seems to make sense; it’s a store of value,” said CEO Ed Zore. “The downside risk is limited, but the upside is large. We have stocks in our portfolio that lost 95%. But gold “is not going down to $90.”

In addition, Jeff Clark from Whiskey & Gunpowder claims that silver or silver stocks can’t go temporarily lower from here, but rather that the demand for silver as a store of value metal will be growing. Whether we’re served debilitating deflation or insidious inflation, holding gold (and silver), along with an appropriate allocation of precious metals stocks, offers us both a fort for protection and a canon for profit. Buying physical gold and silver as safe-harbor assets is for many investors a no-brainer at this point.

CHINA vs. Rio Tinto

Elsewhere in the world of commodities, we note that China’s biggest investment ever in a Western company collapsed this morning. Rio Tinto, the British/Aussie mining giant, bailed on its deal with Chinalco, China’s state-owned aluminum biz. Instead of solving its fiscal woes by getting into bed with China, Rio Tinto said it would rather turn to BHP Billiton, its biggest rival. Rio will raise about $20 billion through new stock issuance and a joint venture with BHP. China will have to settle for its 9% stake in Rio.

Budget Crisis

Back in the U.S., at least 31 states have overestimated 2009 personal income tax revenue, said a report from the National Conference of State Legislatures yesterday. 25 states have botched projections for all three tax revenue sources: corporate, sales and personal income. So when the collective $102 billion state budget gap comes due next month (the end of the fiscal year for most states), there’s strong evidence suggesting that most states will come up even shorter than they expected.

“The U.S. Highway Trust Fund,” reports Frank Holmes, “will need an additional $7 billion by August to finance projects already promised to states and keep the fund from going bankrupt.

“The HTF is the primary source of funding for road and bridge projects across the United States. It is funded through gasoline taxes and special taxes, mostly on heavy-use vehicles like trucks. This means that HTF relies on highway use for its funding. Traffic volume, however, has been generally trending downward since before the credit crisis began, according to federal statistics.

“This isn’t the first time the HTF has been on the edge of solvency. Just last September, Congress approved a special $8 billion rescue to keep it from going broke. And more bailouts are possible. The federal gas tax has been 18.4 cents per gallon since 1993, but chances are slim that it would be raised anytime soon, given the struggling economy.