Unemployment Progress? – Impact on Interest Rates, Inflation

My initial intentions were to write about my views on the Canadian Federal Budget just released last night. But as it turns out, it was truly a non-event, so I thought I would focus on the state of employment and people’s ability to earn an income.

Today’s U.S. employment headline: The Household survey showed a decent 308,000 increase in February.

"The chances that we are about to see employment conditions stabilize are high. However, job losses still stand at a massive 8.4 million since the recession began in late 2007. The size of the workforce is no higher now than it was in September 1999 and yet the economy is one-fifth larger (as measured by real GDP)."

The total unemployment and underemployment rate stands close to 17% and a record 40% of the unemployed have been without work for over six months.

Businesses see what we see — a recovery that has been engineered by massive bouts of fiscal and monetary stimulus that is likely to be unsustainable. So, against that uncertain backdrop they are opting to tap staffing firms to skate them for now rather than make a commitment to hire full-time staff.

The bottom line is that the U.S. economy is currently about 12 million jobs shy of being at full employment and as such it will likely take anywhere from 5 to 10 years to get back to the prior pre-recession peak in the employment-to-population ratio. This is a signal to us that deflation will be the primary theme for some time to come.

Now although this is a U.S. concern, it will unquestionably affect us, the little brother, here in Canada.

Safety and income at a reasonable price (SIRP) will be one way to play this theme.

What does DEFLATION mean to you?
- low or sustained low interest rates (mortgages and investment)
- Wage pressure non-existent (little if any increases to our pay)
- Our ‘Standard of living’ will only advance marginally

Data Source: David Rosenburg, Gluskin Sheff + Associates Inc.



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