My Financial Garden

Published Dec. 27, 2008
By Brian Kim


In this issue:
Unemployment Isn't Skin-Deep


Unemployment Still Not Factored In


The US financial markets continue to underestimate the effect of unemployment on future corporate earnings. It is especially frightening how investors are taking a “this time it’s different” approach with unemployment. This current recession has shown that even the most traditionally “recession-resistant” referred-to industries are actually “recession-prone.” When consumers cut back, they cut back. As especially apparent in this recession, there is no true consumer staples industry. Consumer staples bulls point to such firms as Johnson & Johnson stating that mouthwash is mouthwash and whether your paycheck comes from the state unemployment office or from your employer, you still use mouthwash, that is, name-brand mouthwash. These consumer staples bulls have largely gone back into hiding as the mouthwash mentality has been given the boot.


Retail sales figures poured in and the results weren’t healthy – which wasn’t a surprise. Consumers have noticed that the traditional holiday sales have been going on for sometime rather than strictly starting after the Thanksgiving period. As the Christmas buying period approached its end (Dec. 25), many consumers increasingly waited until the last minute to find more discounted items. Add to that the brutal storms blanketing most of the continental US and it’s the perfect recipe for a retail disaster.


For the week ending Dec. 20, the US Department of Labor’s Unemployment Insurance Weekly Claims Report shows that initial claims were at 586,000, an increase of 30,000 from the prior week. Even as a rise in new unemployment claims eventually levels off, the continuing unemployment base – those who remain unemployed – will persist.


Job cuts haven’t been discriminatory across any sector although the retail and consumer discretionary sector has taken a big hit. Many pink slip receivers in the past three months have been comprised mainly of lower wage earners, which in the aggregate, provide a bulk of the nation’s consumer-driven spending. As these lower wage earners aggressively pare back spending, segments across the US business universe will be adversely affected through lower revenues. Cutbacks by consumers are perhaps a US business’ worst enemy; in the US, there is no greater headwind than a thrifty consumer.