July 21, 2010: Jobs Paradox
July 21st, 2010
Yesterday, by a whopping one vote, the Senate passed the eighth extension of Jobless Benefits since July 2008. The price tag for these extensions now stands at $120 Billion.
This new measure will extend benefits to those who have been out of work for six months or longer (labeled “chronically unemployed”) to the end of November. Politicians are already talking about a ninth extension if the job market does not improve.
This is completely oppositite of language of the past several months that talked about massive job-creation or job-savings due to prior stimulus measures. If all those jobs had been created or saved, why would benefits need to be extended?
Supporters of the benefit extension point to the fact that recipients of jobless benefits will spend those funds quickly and by doing so, help support the economic recovery. Another question….if that’s the basis of our recovery, how sustainable is that? It sounds like a very short-sighted and certainly temporary solution.
There are two key upcoming data points which will tell a lot about the real state of the Economy. June Existing Home Sales comes out tomorrow morning at 10:00. Earlier this week, we saw much weaker-than-expected results from NAHB Housing Market Index and Housing Starts. Building Permits, however, were stronger-than-expected which got market-watchers thinking that Housing Starts may be stabilizing. Advanced Q2 GDP comes out on July 30 at 8:30. This is the first of three estimates of Q2 GDP. After Final Q1 GDP (+2.7%) matched the most pessimistic estimate of any of the three readings on Q1, it is reasonable to expect a weak first reading on Q2 and possibly a downward revision to Q1.
The Major Averages are all within 3.5% of break-even for 2010. The Russell 2000 is currently down 0.89% for the year but 7.67% below its 10% correction level. The Dow 30, the narrowest market gauge, is the only one of the major averages currently above its 10% correction level (by 0.72%). Only two of the nine S&P Sectors (Consumer Staples and Utilities) are currently above their 10% correction levels. We believe the above evidence suggests that underlying market sentiment is tentative, at best. Further, the on-going consolidation at or below 10% correction levels indicate that sellers are very willing to engage at increasingly lower levels.
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