Condor Options

Wall Street evidently neglected to read beyond the headlines Friday stating, as The New York Times put it, “Jobless Rate Holds Steady, Raising Hopes of Recovery”. One need look no further than paragraph two to find the other side of the story that the rest of us already know: “The monthly snapshot of the job market released by the Labor Department on Friday was hardly cause for celebration….”

After noting that “most experts” see the number of jobs beginning to increase, the article goes on to summarize the bigger story:

But even as the report eased worries that the economy might tip back into decline, it did little to dislodge the widespread notion that the recession had given way to a tepid and tentative expansion, one unlikely to significantly cut the ranks of the jobless.

…“It’s almost two separate Americas,” [Lakshman Achuthan, managing director of the Economic Cycle Research Institute] said, meaning that much of the work force is already seeing the return of work opportunities, while those mired in long-term joblessness are facing the worst prospects since the Great Depression. “They have been left behind, and their problems are not solved by recovery.”

That other America includes the underemployed and “persons marginally attached to the labor force”—i.e., those who want to work but have given up looking for employment within the past 12 months. These people are included in the Bureau of Labor Statistics’ U-6 unemployment measure, which actually rose, from an already astounding 16.5% in January to 16.8% in February.

And what about people who want jobs but have been discouraged from looking for more than 12 months? The Department of Labor stopped counting them in 1994, but economist John Williams’ Shadow Government Statistics estimates that when these “long-term discouraged workers” are included, not only did unemployment increase in February, but it currently stands at the shocking level of more than 21%.

So what about the future? The Times article later elaborates on its statement that experts expect jobs to increase:

…the report did little to resolve contrasting views of the basic dynamics at play, with economists in roughly two camps. Some say a now-tepid economic recovery will eventually become vigorous; others envision a long slog through relatively anemic growth. Optimists point to modest expansion on the factory floor and continued increases among temporary workers (whose ranks rose by 48,000 in February) as a sign that commerce has reawakened.

…But others point to uncertainties gnawing at businesses and households as portents of subdued growth. After years of borrowing against home equity to finance buying sprees, many households are tapped out.

Yes, temporary hiring is often a precursor to jobs growth, but it’s also a sign that businesses want to be able to pare back quickly if the economy fails to pick up. And for now, at the risk of sounding too pessimistic, I have trouble believing that temp wages are going to give workers enough to start spending more, after paying their mortgages, home-equity loans, credit-card minimums, and car loans (which, the Times article also notes, were the primary driver behind January’s rise in consumer credit reported Friday).