An article yesterday titled ‘Stocks turn to jobs as first half draws to close’ says an ‘economist poll’ is predicting that a further 325,000 U.S. jobs will be reported lost in June when statistics are released later this week – resulting in an unemployment rate of 9.6%.  As those of you who follow my Blog posts know, I consider the monthly job figures of paramount importance to the timing of U.S. economic recovery.  Last month early ‘job loss poll reports’ suggested a much higher number of May job losses (over 500,000) than ultimately was reported (around 350,000).  Many of these statistics subsequently get adjusted from ‘those first reported’ so who really knows what the correct numbers are?  That said, continuing job losses at over 300,000 per month does not in my view auger well for U.S. economic recovery any time soon.

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A New York TImes article today titled ‘French Minister Says Retirement Age Will Rise’ comments on a French Government plan to raise the retirement age in one-year increments to ‘help offset growing pension obligations’, and says that “Until recently, altering the retirement age had been taboo for a government wary of stirring up unions …”.

Whether or not the French Government successfully pursues this course of action, as job losses are experienced in the U.S. and elsewhere and the elderly see their assets and retirement plans plans deteriorate inevitably older people nearing what is thought to be ‘normal retirement age’ will look to extend their working years, and those who are already ‘retired’ will look to find full time or part-time jobs. These are people who have had many years of on the job training, and assuming adequate health and energy, often are much easier for employers to integrate into their business with less training time required. To me, this again emphasizes the issue of the need for Governments to focus on ensuring youth and new graduate employment as a high priority item on their respective agendas. The problem is a circular one, and one not easily addressed or resolved. That said young people are the future. Without ensuring a business climate where they can gain meaningful and productive employment, economies face obvious and large problems going forward. From my point of view, I am not seeing enough written and debated on this issue.

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An article titled ‘World Bank cuts 2009 global growth forecast’ says the World Bank has cut its 2009 global growth forecast and now says the world economy will shrink 2.9% (an increase of 1.3% from its March forecast) this year as “The global recession has deepened”, that global trade is expected to drop by 9.7%, GDP now is expected to drop by 4.2% for high-income countries, and that economic growth in developing countries should slow to 1.2% percent - but excluding relatively strong China and India, developing economies will contract by 1.6%.

The article reports The World Bank also said in a report released yesterday that:

• economic damage to developing countries “has been much deeper and broader than previous crises”;

• unemployment is on the rise, and poverty is set to increase in developing economies. In this regard foreign direct investment in developing countries is projected to drop year/year in 2009 by 30% to U.S.$385 billion in 2009 (U.S.$707 billion in 2008, U.S.$1,159 billion in 2007);

• the global economy should start to grow again in late 2009, but “the expected recovery is projected to be much less vigorous than normal”;

• the ability of banks to finance investment and consumer spending would be hampered by the overhang of unpaid loans and devalued assets; and,

• “To break the cycle and revive lending and growth, bold policy measures, along with substantial international coordination, are needed”.

These new forecasts come as no great surprise to me as there is really nothing new here. The last bulleted point in my view is a broad statement that means nothing without detailed strategy and a ‘coordinator’ given the power to coordinate such an effort – I can’t see that happening any time soon. Accordingly, I will be surprised if the global economy starts to grow again in late 2009.

Early estimates of U.S. job losses for June ought to be reported in the next few days and I continue to believe that all of the talk about ‘green shoots’ will be for naught until the U.S. population ‘gets back to work’ and U.S. consumers again spend. If that happens I think the result may be short-term economic revival in the U.S. That said, I don’t believe that will solve the longer-term underlying U.S. economic issues of loss of manufacturing base (which will in a time of recovery lead to U.S. trade deficits increasing from current levels), continually escalating National Debt, and what must be a serious erosion in U.S. income tax revenues on all levels. While I sincerely hope I am wrong, I think the logical upshot of all of this going forward is reduced economic growth from prior levels and importantly, a reduced standard of living for U.S. residents from what they enjoyed up to mid-2008.

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A Wall Street Journal article titled ‘Belt-Tightening by States Squeezes Cities and Towns’ says that in a recent survey 18 U.S. States reported cutting local aid.  The Executive Director of the National Association of State Budget Officers is quoted as saying “we think that’s going to grow”.  The article also says U.S. “cities and towns are bracing for more big reductions in local aid and revenue-sharing from their state governments”, that “the cuts are forcing belt-tightening moves that are very visible to voters”, and in my view importantly that “for many cities, state-aid cuts come on top of falling local revenue” – all this at a time when States are running record budget gaps as their tax revenue plunges while expenses increase.

In the past I have commented frequently on this Blog about what I have said ‘Must be reducing revenues at all U.S. Government levels’, and continually address macro-issues at the U.S. Federal Government level.  At Federal and State levels it seems to me some of the more important things that need to be considered are infrastructure deterioration (particularly roads and bridges), and health/school/prison systems.  At the municipal level important ‘maintenance-type’ issues have to include municipal services including sanitary systems and waste disposal, policing, water purification, delivery systems, and so on.  If the current recession does not turn around in the near term it seems to me these and similar services will have to be reduced from prior levels and then maintained at those reduced levels – all of which will result in possible (or in some cases likely) reductions in safety, education, and - importantly - the general standard of living of the average citizen.  Since typically you can’t take things away from people and leave them happy, if these things occur it seems to me unhappy consequences may be a reduction in youth employment (since ‘family providers’ sensibly would be employed first) and a general increase in crime rates.

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An article today titled ‘Business Outlook: Why Consumer Spending Won’t Drive a Recovery’ says in its sub-title “(U.S.) Households are paying down debt and rebuilding their nest eggs, so they’re not spending. Still, that’s unlikely to thwart a modest economic upturn”.  The article says:

•    wealth losses since early 2007 totaling $13.9 trillion Q1 2009, and in April U.S. consumers saved 5.7% of their earnings, the most in 14 years.

•    (U.S. consumer) liabilities have declined to 131.1% of after-tax income in Q1 from 138.6% in Q4 2007, in circumstances where based on 1990’s trends the ratio would be about 110% implying U.S. households still have about $2.2 trillion in excessive debt they need to eliminate;

•    households have been deleveraging for more than a year, and the saving rate may be close to topping out resulting in a conclusion that ongoing deleveraging is unlikely to prevent at least a modest upturn in the economy Q3 and Q4 2009;

•    (U.S. consumer) wealth losses seem likely to slow as well, with household net worth—assets minus liabilities—falling $1.3 trillion in Q1, 50% of the average 2008 quarterly decline;

•    given the stock market rebound in Q2, economists at UBS estimate net worth is on track to increase by some $3 trillion this quarter, the first gain in two years;

•    plunging U.S. household wealth is the chief reason households are saving more of their income, and if the decline in net worth is bottoming then the increase in the saving rate may be about over, too. The ratio of wealth to income, which tends to track the saving rate, is now about where it was in the mid-1990s, when the rate was about 5%;

•    (U.S.) consumer spending has stabilized this year despite the ongoing realignment in household finances; and,

•    much will depend on the labor markets. The slower they heal, the more drawn out the process will be, and the less (U.S.) consumers will be able to contribute to the recovery.

From my perspective this article sets out a lot of facts and surmises that don’t gel to a conclusion that ‘Consumer Spending Won’t Drive a Recovery’.  First, Q2 isn’t yet over and I see no assurance that, depending on statistics released over the next few months that  U.S. and world equity markets will hold the gains made in Q2 to date over the next several months.  Second, I believe – and have been repeatedly saying on this blog – that job loss and gain statistics are the principal ‘go-forward driver’ of U.S. consumer spending.  Deleveraging ultimately ought to look after itself, but if the total amount of U.S. consumer spending dollars derived from employment income continues to drop so too must the total number of dollars spend by U.S. consumers.  I would not be taking the headline or what I see as the optimism reflected in this article ‘to the bank’, but suggest you read it in its entirety by clicking here.

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An article today titled ‘Youth unemployment fans social ills of crime, unrest and extremism’ says that “While all forms of unemployment are bad, youth unemployment is probably the most searing because of its corrosive effects throughout society” as (presumably among other things) unemployment adds to the risk of drug abuse, criminality and, ultimately, incarceration.  The article quotes youth (ages 15 – 24) current unemployment statistics in Britain (16.5%), France (20.4%). Qatar and Saudi Arabia (each almost 25%).

Some months ago I wrote a blog on this issue.  As I have said in other posts I believe ‘old sayings are old sayings because they have stood the test of time’.  One old saying is ‘idle hands are the devil’s workshop’, and I think that is particularly true in the case of young  people whose value system and living habits are ‘a work in progress’.  The young people who in the recent past have rioted in Paris may be a precursor for what may happen in other cities and towns if there is not productive work available for them.  In the current economic environment I consider this worrisome – and think youth employment should be an extremely high priority with the governments of all countries.

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A New York Times article today titled ‘Looking to Buy Gold? Grab a Sack of Quarters First’ says that a German company is building vending machines that will dispense gold coins.  The company apparently is targeting a ‘machine franchising’ model that will enable customers to buy 1, 5 and 10-gram pieces of gold, and 1/10 ounce Canadian Maple Leafs and South African Krugerrands.  A one-gram piece, the size of a child’s fingernail, now costs about 30 euros, or U.S.$42.

This is interesting, and frankly to some degree amusing – at least to me.  The real question is:  Is this a relevant ‘sign of the times’ or not?

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Three articles today respectively titiled ‘May housing construction jumps by 17.2 percent’, ‘U.S. mortgage applications plunge to near seven-month low’, and ‘Industrial activity dips more than expected in May’ collectively send me ‘mixed messages’ on the direction of the U.S. economy.  In order:

•    the first article reports the U.S. Commerce Department said yesterday that May new home construction increased by 17.2% over April numbers, and that building permit applications increased month/month by 4.0%.  That said, the article says new home construction was none-the-less down year/year by 45.2% in May;

•    the second article reports the U.S. Mortgage Bankers Association said today the seasonally adjusted mortgage application index for the week ended June 12 dropped by 15.8% to 514.4, the lowest since November 21, 2008; while

•    the third article reports U.S. industrial production dropped 1.1% in May when economists expected it to decline by 0.9%.

It strikes me that anyone looking for ‘green shoots’ in these collective statistics likely is looking for them in the equivalent of an economic ‘junk yard’.  If green shoots do exist it seems to me, like plants in a junk yard, they may not flourish for long in a toxic environment of U.S. job losses, increased consumer savings, and ever increasing National Debt.  I suggest readers visit the referenced articles in turn and reach your own conclusions.

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An article today titled ‘EnCana hedges about 35 per cent of natural gas production in 2010 gas year’ says “Natural gas giant EnCana Corp. (TSX: ECA) has entered into fixed price hedge contracts on about 35 per cent of the its expected natural gas production and remains pessimistic about prices for the commodity in the short run”.  The hedge applies to about 1.39 billion cubic feet per day of its 2010 natural gas production as is reported to be at an average price of US$6.21 per thousand cubic feet for the 12 month period ended Oct. 31, 2010.  Encana is North America’s largest natural gas producer.

I think this is a transaction that investors ought to pay attention to.  I have always found in my business valuation consulting practice that ‘business operators’ know a lot more about the intricacies of their respective businesses than do consultants (me included), analysts, economists, and pundits.  Considering the NYMEX natural gas future is quoted at U.S.$4.26 this morning as I write this, the fact that Encana’s internal experts have decided to hedge at U.S.$6.21 I think is encouraging for anyone with a vested interest in a prospective increase in natural gas prices – particularly where the referenced article quotes Encana’s President and Chief Executive Randy Eresman as saying “We expect the prices to be between $4 and $8. We will continue looking at adding to our 2010 gas hedge positions as the year unfolds and as opportunities arrive until they are about in the 50 per cent range”.  Encana issued a Press Release with respect to its hedge position yesterday – for full text see StockResearchPortal.com → Company Research → Encana → Press Releases → June 15 – “EnCana extends risk management measures by hedging about 35 percent of natural gas production in 2010 gas year”.

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An article this morning titiled ‘Russia challenges dollar, China offers loans’ says that at a summit meeting yesterday Russian President Dmitry Medvedev pushed his call for new global reserve currencies to complement the dollar – saying “No currency system can be successful if we have financial instruments denominated in just one currency. We must strengthen the international financial system not only by making the dollar strong, but also by creating other reserve currencies”.  Given the state of the U.S. cumulative national debt, current and prospective fiscal deficits, and what must be drastically reduced revenues given reduced economic activity I think it of little wonder that China, Russia and other countries are (or so it seems to me) increasingly focusing on the U.S.$ as the world’s single fiat Reserve Currency and suggesting alternatives.  I expect we will hear nothing but more of this going forward, and it will not surprise me if the proponents of more than one Reserve Currency are successful in their quest in the next few years.

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