To provide further fuel for the economic fire, jobless claims in the first week of November were higher than they have been since September 2001. My hunch is that the current recession will be worse than the one in 2001. And the reason is that the 2001 recession was an equity-led recession, while the current recession is debt-led.
How bad are the jobless statistics? Initial jobless claims grew by 32,000 to a larger-than-forecast 516,000 in the week ended November 8th, up 7% from a revised 484,000 the prior week. Big banks, which have already fired 150,000 people, recently announced an additional 12,000 layoffs.
Why is this recession so much worse than the one in 2001? As I posted in January -- when I suggested then that investors get out of stocks -- equity-led recessions limit their damage to people and companies that own over-valued stock. But debt-led ones blow up a bigger bubble that forces the rapid sale of collateral -- like houses, cars, stocks, and other assets -- thus driving down prices and creating a vicious cycle of closing businesses and firing people.
That's not good for an economy that depends on consumer spending for 70% of its growth.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College. His eighth book, You Can't Order Change: Lessons From Jim McNerney's Turnaround at Boeing, will be published by Portfolio on December 26, 2008.
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Reader Comments (Page 1 of 1)
11-13-2008 @ 11:34AM
Virgil Bierschwale said...
The unemployment report is MUCH worse then our government will say.
I am attempting to create our own unemployment report so that we can get accurate data with the details so that we can verify it because without accurate data, you cannot plot your strategy and as you said, the consumer accounts for 70% of our economy.
Put the consumer out of work and all the credit in the world doesnt amount to anything.
Please tell anybody that is out of work or worried that they might lose their job about this site.
Thanks,
Virgil
http://www.KeepAmericaAtWork.com
By the way, you may want to read the article titled "Polls" to see what I think the unemployment number actually is.