Friday, November 6, 2009

What Is Being Missed By the Unemployment Report & Structural Issues

One of the items that no one refers to that is different this time around is that over the past decade, businesses figured out a way to hire employees without having to take on the burden of payroll taxes, insurance etc on behalf of these employees.  For instance
  • All real estate companies hire real estate agents as independent contractors
  • All mortgage brokers hire mortgage agents as independent contractors
  • Recently, I have become aware that even small hedge funds are now involved in the practice of hiring employees as independent contractors
  • A huge number of freelancers in advertising, legal and other services industries are hired as independent contractors
  • and so on..
This is yet another way that businesses figured out to screw workers out of benefits, reduce costs, reduce legal benefits.  The practice is pervasive across a large number of industries.

My question is what happens to U6 when we add in all the brokers, mortgage agents, construction workers, graphic designers, legal associates etc that have quit.  Remember as an independent worker, the company that hires you has no costs incurred for keeping you on as an employee.  I don't need to remind you what a shamble real estate has been the past few years with a pickup only occurring in the past few months.

The real unemployment numbers, whether you look at U6 or the reported unemployment rate, is far worse that what is being reported.

Structural Destruction
As a bull, there really is nothing in this data, nor in the initial claims data that supports the optimism of the bulls.  Consumers continue to lose over 500,000 jobs a month.  We are now close to a point where the structural impacts become damaging.  Companies are thriving by laying off workers and reporting no top line growth but bottom line earnings.  But earnings are driven by consumer spending.  The feedback effects have been muted to date as a result of massive stimulus spending. 

What's Coming
Over the coming months, option arms will reset, commercial real estate is about to collapse, the states are in financial shambles and the consumer is dying.  Valuations are at ridiculous levels.

Enjoy the optimism.  Unfortunately, in coming months, the reality is about to hit and we will not get back to this level of confidence for many quarters.


  1. interesting...

    to go off on a tangent, what are all of these "independent contractors" doing for health insurance?

  2. ...What health insurance?

    The smart ones ditch their ID and put "indigent" on the form.

  3. firtree
    thank you for posting on the blog, a large % of independent contractors are like many others not on health insurance

  4. Dave,
    thanks for the post, you are absolutely right, the scams that I came across are sickening

    I lived next door to a guy that drove a rolls royce, later found out he got his money on a lawsuit / disability