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What the Employment Numbers Do Not Tell You!

If things go as expected, the economy should gain about 200,000 jobs when the Labor Department releases the latest jobs report on Friday, April 1, 2011. Employment gains within this neighborhood would be a significant validation that the economic recovery is solid and continuing to gain steam. The unemployment rate may increase above its current level of 8.9%. If so, that should not create any concern. Keep in mind that as the economy grows, more discouraged workers (meaning those who dropped out of the labor market because they could not find a job) will reenter the labor market. When they return and search for work, they will initially be counted among the unemployed, until they find work. Whereas when they stopped searching for work, they were no longer included in the unemployment figures. As a result, sometimes when the economy begins to grow, you may initially see an increase in the unemployment rate prior to the rate decreasing significantly.

If we only had to worry about domestic economic growth, that would be one thing. However, there is much more to worry about than just economic fundamentals. Listed below are the five big issues that concern me greatly:

Each could have a rather significant impact on continued growth and our future quality of life. We may not see the effects of these issues in the jobs report on Friday because that will take a longer time to materialize –but we can expect to feel their impacts in the coming months. So you should stay attuned to them. Here they are:

1. The US housing market is declining again. This decline sets off my alarm clock. Home purchases and home prices are extremely weak and are not recovering along with other sectors of the economy-- as you would expect to see in an expansion. Eventually, this may put a drag on economic growth because housing accounts for one of the most important components of investment spending. Think of the economy as a train that is standing still. Then the engine takes off (i.e. economic growth) and yanks all of the other cars along with it. But suppose the caboose (i.e. the housing market) has its breaks on. Eventually, this car could stop the entire train from moving forward.

2. Second, I am extremely concerned about the effects of the nuclear crisis in Japan, which is disrupting global supply chains and having a tremendous adverse effect on the Japanese economy-- the world's second-largest. Most people assume that this will eventually be fixed as the Gulf oil spill was fixed. That assumption may be overly optimistic, however. It is not inconceivable that the devastation from the nuclear crisis is so prolonged and significant that it may marginalize Japan as a major economic power. If one or more of the reactors melt down (and there are increasing signs that at least one has melted a bit), the nuclear cloud it will emit across the country could cause any location upon which the cloud settles to be uninhabitable for all eternity! This is a real possibility -- yet people are not focusing on it.

3. Concern 3 is the uprisings in the Middle East and potential disruptions to global oil supply. This turmoil is already driving up energy prices and cutting into the spending power of US consumers. If you had to this the growing concern over the safety of nuclear energy in the loss of at least 20% of Japan's normal energy production, you get a scenario of increasingly strong demand for oil, at a time when Mideast turmoil is disrupting supply. This means escalating oil prices, declining consumption, and increasing inflation.

4. The election returns in Germany appear to represent a growing challenge to Chancellor Merkel's policies. This challenge may ultimately play out in the form of policies that prevent additional bailouts to debt laden countries such as Ireland and Portugal. If this occurs, it will cause a crisis in the global bond market, which will have significant domestic repercussions—given our large debt.

5. It is very likely that several of the scenarios above will materialize. However, even if they do not, we still face the problem of persistently high unemployment in the US-- in a rebounding economy. Unemployment for the entire workforce is not likely to drop below 8% over the next few years even under the most optimistic growth scenario. This means that unemployment among blacks, and Hispanics will remain stuck at depression era levels-- an issue that national economic policymakers have failed to address.

Thomas “Danny” Boston, CEO EuQuant