	Generational Dynamics
	Forecasting America's Destiny ... and the World's

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Generational Dynamics Web Log for 3-Dec-04
November jobs report much softer than expected

Web Log - December, 2004

November jobs report much softer than expected

In a story we've heard repeatedly for three years, companies are not hiring at anywhere near the rate predicted by politicians, journalists and high-priced analysts.

The U.S. economy created 112,000 new jobs in November, according to the Bureau of Labor Statistics. Analysts had forecast an increase of 180,000 to 200,000 new jobs.

By now, according to analysts in 2003, the economy should be creating some 300,000 new jobs per month or more. As late as this past February, just ten months ago, the White House projected that the economy would create 2.6 million jobs in 2004. They made this estimate by assuming that the recent recession is just like other recent recessions, such as the 1991 recession, or other recessions since 1945.

What Generational Dynamics says is that today's economy is like the 1930s-40s depression economy. The reason is that, within the last ten years, the generation of people who lived through the great depression have all disappeared (retired or died), all at the same time, and so our society has been making the same mistakes that gave rise to the 1930s depression, especially the massive 1990s stock market bubble, which still hasn't fully played out. We haven't suffered the massive bankruptcies and homelessness of the 1930s because Alan Greenspan's Fed has kept interest rates close to zero for the last three years, allowing people and businesses that would otherwise have gone bankrupt to borrow huge amounts of money at low interest to stay afloat. However, lowering interest rates hasn't eliminated the danger, but only postponed it. That's why we've been saying, since 2002, that we're entering a new 1930s style Great Depression.

Historical Price/earnings ratio for S&P 500

Historical Price/earnings ratio for S&P 500

The fact that stocks are due for a big fall has been evident for years to anyone looking at the extremely high price/earnings ratios, well into the 20s. If history is any guide, and it is, then the price/earnings ratios are going to fall below 10, which means that the Dow Jones average will fall to the 4000 range and the S&P 500 index will fall to the 400 range.

Alan Greenspan and the Fed have an immediate problem to deal with: Will they increase interest rates again and risk hurting the employment situation still further? Or will they leave interest rates steady, and risk letting the already plummeting dollar to fall still further on international markets? We'll all be breathlessly waiting to see which it will be. (3-Dec-04) Permanent Link
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Generational Dynamics Web Log for 3-Dec-04 November jobs report much softer than expected

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Generational Dynamics Web Log for 3-Dec-04
November jobs report much softer than expected