Monday, August 10, 2009

Rosie Cautions on the Rosy Scenario

David Rosenberg today on the economic "banana" and this past Friday's non-farm payrolls data:

From our lens, it is still too early to declare that the recession ended based on the data that matter most; and it is not clear to us that the 3Q snapback in growth is going to have legs either. There is a lot of noise right now over the fact that the unemployment rate fell to 9.4% from 9.5% in the first decline since April 2008, but if truth be told, the only reason for the decline was because of the 422,000 slide in the labour force — the second falloff in a row. Without that bizarre development (if things are really that good, people would be coming back into the fold to look for work) the jobless rate would have ticked up to 9.6%.

This goes along with other data that while perhaps the downturn is ending or has ended, times are not good.
Except for a brief period around the time of the combination of the S&L mess and the spike in oil prices in 1990 when Iraq invaded Kuwait, there was steady job growth from 1993-2000. Look what the equity markets did. In other words, the strength and durability of any economic expansion absent government make-work programs such as repaving roads has yet to be determined. The economy can go anywhere; up and then down, up forever, down forever . . . investors need to be careful about projecting a cyclical rebound indefinitely forward.

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