Unemployment Understated of Underemployed Too?

Of course we have nothing but big-news weeks anymore, so this week was par for the course.  The Administration put out details and started up the federally guided mortgage modification and extended refinance program that is supposed to help 7 to 9 million home owners. The Dow dropped to 6,600 (is at 6,602 at this minute) and another 651,000 jobs were reported lost in the month putting us over 3,000,000 jobs evaporated in the past 5 months and 4.2 million in the year.  Each of these is monumental on its own and we receive it as just more news.

Both of the Home Affordability actions are on the face between banks and borrowers, but we the taxpayers are deeply involved with guarantees and incentives both to the mortgagors (borrowers are “paid” $1,000 per year via principal reductions if they continue to make timely payments after modification) and to the loan servicers (who are also paid incentives when payments continue to be paid timely).  If you would like to refer back to the primer on the tax credits, loan mods and refi programs, visit this prior post on ActiveRain link  (click here) for a reprint and the links to the Treasury Dept websites.

A couple of notes on unemployment: We hear the topside numbers (651,000 and 8.1%) and some color (8.1% unemployment is now higher than at anytime in the past 25 years.)  Here is some additional color on those facts:  Unemployment is measured in sectors.  The two most interesting groups to me are the temporary workers and the professional sector.  The temp jobs are somewhat of a leading indicator where there have not been increases in temp labor workforce in over 24 months now.  In other words the drop-off started there even when jobs overall were steady to increasing. In the past 12 months, the temp labor force has already dropped ~25%. There is some talk of that group now stabilizing and looking to turn around.  At the other end of the time spectrum, professional services are typically the last to go into decline. In February, the professional and business services sector accounted for the largest increase at 180,000.  The hope is that we are now getting to the depth of the job loss timeline.  That’s not to say that job losses will start reversing themselves.  Unfortunately, unemployment is one of the later things to turn around in a recovery.  First the stock market turns up with a view of future earnings.  Employers are reluctant to hire until it is clear the stability is truly there.  It is much like the $600/$1,200 refund checks that individuals got last year.  Most banked it with worries about what might happen next.  Spending on new jobs is slow to pick up.

Another graphic on unemployment:  The 8.1% are only the “Unemployed”.  There are two other large groups defined as “Discouraged, not Looking” (bold line in the top chart) and “Underemployed” (bold line in the bottom chart.)  In the 1982 recession, the equivalent number to the bottom chart (combined 14.8% Unemployed, Discouraged and Under-employed) reached 16%.  We are clearly pointed to surpassing that number this time around.  Let’s hope the leading indicator of temp workers and lagging of professional services workers are pointing to a slower rise in these numbers and eventually a reversal.

Another matter to consider is the rather quiet action, with far-reaching impact, taken by Sheila Blair and the FDIC last week.  The FDIC announced that the costs of taking over the likes of Indy Mac Bank will costs participants in the shared insurance plan an additional $27 B this year.  The impact of that for lenders is that income and therefore capital will shrink by the same amount.  Less capital means cap ratio lending will shrink at 6x.  So it equates to a $150 B reduction in lending capacity at a time when lending capital is most needed.  This represents a tightening mostly in the Commercial Lending and Consumer lending worlds.  Our Commercial Lending sources are still lending and looking for borrowers.  Another owner-user, light industrial, cash-out refi borrower signed a letter-of-intent with a lender last week.  Let Signet help you and your associates take care of business.

Times are hard.  We appreciate what you are experiencing.  I am encouraged by reports of small acts of kindness and support that happen individually every day.  The bond markets are all up and rates are down.  We welcome your calls and look forward to helping you and yours.  Make it a great week! - Dave