For Immediate Release
Chicago, IL – December 7, 2009 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Ford (F), American Express (AXP), Capital One (COF), JPMorgan Chase (JPM) and Wal-Mart (WMT).
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Here are highlights from Friday’s Analyst Blog:
Unemployment Duration Still Rising
Long-term unemployment is a very different thing than just being out of work for a few weeks. Short-term unemployment is more like an unscheduled vacation, particularly if you know your old job will be coming back soon (as was the typical pattern in earlier recessions, Ford [F] might lay people off in a downturn, but the UAW members knew they would be going back to the same job as soon as auto sales picked up). That started to change in the early 1980’s downturn, when many of the plants were shut for good.
Partly as a result, even in good times the average length of unemployment has been getting longer with each expansion since the 1960’s. In fact, at the peak of the last expansion, the average length of unemployment far exceeded the worst levels of the 1948 recession. The 1948 recession was the only previous one to come near this one in terms of the total percentage of jobs lost to the economy.
Financially, long-term unemployment is devastating. When people are first laid off they will cut back their spending a little bit. Some of those savings are easy, or almost automatic. If you are no longer going to work each day, your commuting expenses go away, you might not need to go to the dry cleaners as often, and you no longer have lunch at a restaurant. However, other discretionary spending is at least partially locked in, and it does not make that much sense to pull little Jane or Jimmy out of their ballet or karate lessons. If you are a member of a country club, you don’t resign your membership right away. You don’t cancel HBO — heck, you finally have some time to watch it.
Regular unemployment benefits provide you with some income, generally about 60% of what you were making before you got laid off (this varies by state). This is not enough for most people, so they start to draw down savings and run up their credit card balances. However, the vast majority of people have very little in the way of savings, outside of retirement accounts (IRAs and 401-Ks) and tapping those is not an attractive option since they get hit with a tax penalty of 10%, in addition to having to pay income tax on what they take out.
As unemployment drags on, more and more cuts have to be made. Eventually, the savings run out and the credit cards get maxed out. These people are then at a huge risk of declaring bankruptcy. The big credit card companies like American Express (AXP) and Capital One (COF) recognize this and have been very busy lately either cancelling people’s cards or reducing their credit limits. From their point of view, it is much better if someone defaults on their cards when they max out at $5,000 rather than letting them run up the balance to $20,000 before they default.
In the past if they were homeowners, they could tap the equity in their houses by refinancing or taking out a second mortgage. But with so many homeowners already underwater on their houses, or close to it, that option is simply no longer available.
Under normal circumstances, regular state unemployment benefits run out after 26 weeks, although during recessions, the federal government will usually step in with extended benefits. That has happened this time around, and there are almost as many people on federal extended benefits (4.457 million) as there are on regular state benefits (5.465 million).
Keep in mind that median number of 20.1 weeks in the context of the 26 weeks of regular benefits. Put another way, 38.3% of all the unemployed in November had been out of work for more than 26 weeks, up from 35.6% in October. The chart below tracks the unemployed by the length they have been out of work back to 1960. Note that historically, short-term unemployed (pink and light blue lines) tend to far exceed long-term unemployed (yellow and especially the dark blue lines). Short-term unemployment tends to be very stable over time (the numbers are not population adjusted, so there should be a slight upward secular tilt over time to all the lines, but the cyclical influences are stronger).
It is the number of long-term unemployed that really make the difference between boom and bust. Note that we have already started to see the numbers in the shorter-term groups start to decline, while the dark blue line of the very long-term unemployed continues its rocket shot higher.
For those who dare make the claim that the Stimulus Bill has not made a difference, I would tell them to go talk to the more than 4.4 million Americans (and their families) that would have been left with no income at all if it had not been for the bill. Those are people who would have to do their banking at the local food bank, not at JPMorgan Chase (JPM). They would be hard pressed to do their holiday shopping at Goodwill, let alone Wal-Mart (WMT). If they could not spend, then those businesses would have had to lay off more people, creating a self-reinforcing downward spiral.
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