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Goldcorp Heading for Andean – Analyst Blog

Currently, Goldcorp is a short-term (1 to 3 months) Zacks #3 Rank which translates into a longer term (6+ months) Neutral recommendation.



 
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New Contract Lifts Air Products – Analyst Blog

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New Pick: Cadence Pharma – Voice of the People

Zacks' Voice of the People Highlights user BioMO: "New Pick: Cadence Pharma" from the People & Picks community.

For more Voice of the People, visit http://at.zacks.com/?id=5851

Featured Post

New Pick: Cadence Pharma

Candence Pharmaceuticals (CADX) has an early November PDUFA date and expected FDA decision for OFIRMEV (intravenous or IV acetaminophen).

CADX is developing OFIRMEV (acetaminophen) injection in the U.S. market for the treatment of acute pain.

CADX has in-licensed the exclusive U.S. and Canadian rights to OFIRMEV™, an intravenous formulation of acetaminophen that is currently marketed in Europe for the treatment of acute pain and fever by Bristol-Myers Squibb Company, or BMS, under the brand name Perfalgan®. According to IMS data, since its introduction beginning in 2002, over 250 million doses of intravenous acetaminophen have been sold in Europe and it has become the market share leader among injectable analgesics.

Because of delays we can look back at two recent run-ups of CADX.

During its run-up in 2009 CADX hit a high of $11.76 (10/12/09)
During its Feb 2010 run-up CADX hit a high of $10.91 (1/7/10)

The stock price as this is written is 7.99.
Our target price, assuming it is dilution-free, is $10.50. This would be a 30% gain.
We are targeting this price prior to the FDA approval date in November 13

Another way to play this stock is via options. $10 November Calls which expire AFTER the FDA date of 11/4/10, allows for speculation on share price if approved. Currently these calls are trading for around $.90, expectations is that the calls should be “in the money” before 11/4/10.

CADX as to the 'game' is being added as an stock pick.
Disclosure: I am an alter-ego of MightyMo.

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August Employment Report (Part 2) – Analyst Blog

4 Different Lengths of Unemployment

The census bureau tracks four different groups by length of unemployment. The short-term unemployed are those that have been out of work for less than five weeks (blue line). Almost always this is the largest group of the unemployed.

The next biggest group is usually those that have been out of work between five and 14 weeks (red line). Being out of work for a month is really not that big a deal, but as the joblessness stretches on it becomes a bigger and bigger problem. Not only do your finances start to run dry, but your contacts start to dry up and your skills start to wither. The longer you are out of work, the lower your likely salary once you return to work.

Normally the next two groups, those out of work for 15 to 26 weeks (green line), and those out of work for more than 27 (orange line) weeks are a very small proportion of the total unemployed. That changed in a very big way during this downturn, and in August, 6.572 million, or 42.0% of the 14.860 million total unemployed have been looking for more than 26 weeks.

The good news is that the number of long-term unemployed has fallen for two straight months now. In June, there were 6.751 million very long-term unemployed, or 45.5% of the total. While the decline in July might have been due to the cut-off of extended benefits that occurred due to a Senate filibuster and resulted in over 2 million people temporarily losing their benefits, the filibuster was eventually overcome, and the benefits were restored.

Those who lost their extended benefits might have simply dropped out of the workforce in July. However, with the restoration of benefits, and the rise in the overall participation rate (as opposed to the decline in the participation rate we saw in July) that is unlikely to be the case this time.

It appears that many of the long-term unemployed might have actually found new jobs. If so, that is very good news. Still a little perspective is in order -- a year ago there were “only” 5.024 million people, or 33.6% of the total unemployed, that were out of work for more than 26 weeks.

The numbers in the graph below are not adjusted for population growth, so we should expect to see a bit of an upward tilt in all four groups over time. Still, in a healthy economy, the number of very long-term unemployed should be down closer to 1 million, not above 6 million. On the other hand, the 2.76 million who are out of work for less than five weeks is actually lower in absolute terms than the average of the last 35 years.



Demographics of Joblessness

This recession has hit men harder than it has hit women. However, over the past year, things seem to be “evening out” between the genders. In August, the unemployment rate for adult men rose to 9.8% from 9.7% in July, but down from 10.2% a year ago. Most of the change is due to changes in the participation rate for men. It rose to 74.3% in August from 74.1% in July, but is down from 75.0% a year ago. The employment rate for men actually ticked up to 67.0% from 66.9% in July, but is below the 67.3% rate of a year ago.

For women, the unemployment rate was 8.0% in August, up from 7.9% in July and from 7.7% a year ago. However, in the female case, the increase in unemployment this month was due to the participation rate holding steady at 60.1 million (but down from 60.7% a year ago) while the employment rate actually declined to 55.3% from 55.4% in July and 60.7% a year ago. Thus, while it looks like men and women fared equally in the last month, with the unemployment rate both ticking up by 0.1%, men are doing better directionally, but still have a ways to go before they catch up with the women in terms of jobs.

Still, looking at the big picture, men have fared far worse than women in this downturn. There are two possible reasons for this. The first is that the industries that have been particularly hard-hit in this downturn tend to be far more male-dominated than the industries that have made it though this recession more or less unscathed. The most glaring example of this would be the construction industry versus the health care industry (more on the industry breakdowns below).

The second explanation is that on average, women tend to still be paid far less than men do, and employers might be more prone to let their relatively high-priced male employees go first before their cheaper female employees.  The industry effect is probably the bigger reason, but the two are not mutually exclusive and both might be playing a role.

Teens, regardless of gender, have had a very hard time of it in this recession. Just go to a McDonald's (MCD) and you will see this for yourself. Normally the blemishes you see on the cashier's face is acne, not wrinkles and age spots, as is the case now.

In August, the teen unemployment rate rose to 26.3% from 26.1% in July and 25.7% a year ago. The increase, though, was all due to a big jump in the participation rate, which rose to 35.2% from 34.6% in July, but well below the 37.5% rate of a year ago. The percentage of teens that actually have a job was just 25.9%, up from 25.6% in July but down from 27.8% a year ago.

While for the most part the earnings from teen jobs tend to go towards clothes from Abercrombie & Fitch (ANF) and other teen clothing stores, for many it is a significant part of paying for college. Also, when teens work, they learn important job skills, such as the importance of actually showing up, and doing so on time. The extremely low levels of teens working is not a good sign for the future.

Not surprisingly, Whites have a lower unemployment rate that do Blacks or Hispanics. The rate for Whites rose to 8.7% in August from 8.6% in July, but down from 8.9% a year ago. However, the increase in the white unemployment rate this month was entirely due to an increase in the participation rate to 65.2% from 62.1% in July, but down from 66.0% a year ago. The employment rate for Whites has held steady at 59.5% for three straight months now, but that is down from 60.1% a year ago.

The unemployment rate for Blacks rose to 16.3%, a big jump from the 15.6% rate in July and up from 15.2% last year. Here again, it is mostly a story of changes in the participation rate. For the month, the participation rate for Blacks rose to 62.2% from 61.5% in July, and is at the same level it was at a year ago. The employment rate for Blacks actually ticked up to 52.0% from 51.9% in July, but is still well below the 52.7% rate of last year.

For Hispanics, the unemployment rate in August improved to 12.0% from 12.1% in July and down from 13.0% last year. The monthly improvement is mostly a mirage, though, as the participation rate fell to 67.2% from 67.4% in August and 67.6% last year. The employment rate actually fell to 59.1% from 59.2%. However, part of the year-over-year drop in the unemployment rate is for real, as last year’s employment rate was 58.8%.

Stay in School

The unemployment rate for high school dropouts rose to 14.0% from 13.8% in July, but is down from 15.5% a year ago. The deterioration in the job situation for those without even a high school education is worse than those numbers let on.  The participation rate among the dropouts fell to 46.4% from 47.3% in July and is down a full point from the 47.4% level of a year ago. The percentage of high school dropouts actually employed fell to just 39.9% from 40.8% in July and is down from 40.0% last year. Those who dropped out of high school are now dropping out of the labor force.

Just finishing high school or getting your GED substantially increases your odds of having a job. The unemployment rate for high school grads (with no college) rose to 10.3% in August from 10.1% in July and 9.8% a year ago, but in all three months the level was far below that for dropouts. The increase in the monthly unemployment rate was all due to an increase in the participation rate, which rose to 61.9% from 61.6% last month, and was equal to the participation rate a year ago. The employment rate for high school grads actually increased to 55.6% in August from 55.4% in July, but remains below the 55.8% rate of a year ago.

Those who went to college but did not finish, or only got an Associates degree, had an unemployment rate of 8.7% in August, a big jump from the 8.3% rate in July and the 8.2% rate a year ago. Again, that increase is deceptive, and is due to a big increase in the participation rate, which rose to 70.5% from 70.0% in July. However, the year-over-year increase in the unemployment rate for those with associates degrees seems real, as their participation rate a year ago was 71.3%. The employment rate for this group actually rose to 64.4% from 64.1% in July, but is down from 65.4% a year ago.

For those who stay in school to get their BA (or higher), the unemployment rate ticked up to 4.6% from 4.5% in July, but down from 4.7% a year ago. However, the reality is not quite that pretty. The BA participation rate fell to 75.8% from 76.2% in July and 77.0% a year ago. The actual percentage of college grads who are working fell to 72.3% from 72.7% last month and 73.4% a year ago. More than a full percentage point drop in the employment rate for the well educated in just a year is more than a little disconcerting, especially when the year-ago level was already depressed.

Where the Jobs Are and Are Not

As mentioned at the outset of this post, more than all the drop in total payrolls came from the layoffs of temporary Census workers. Excluding the Census, there were 60,000 more jobs in August than there were in July.

The private sector added 67,000 jobs, and the rest of government shed 7,000 jobs. Within the private sector, the goods producing sector on balance neither gained or lost jobs. The big surprise there was the composition of the jobs gained and lost. The construction industry actually gained 19,000 jobs, the first increase in recent memory.

The construction industry has been particularly hard hit in this downturn, accounting for about 25% of all the jobs lost, even though at the start of the recession it accounted for less than 6% of the total jobs in the country. I have to say, given the other numbers we have seen on the sector, I am a bit skeptical about the increase and suspect it might be due to a (faulty) seasonal adjustment or will be revised away next month. The number is strikingly different from the ADP numbers that were released on Wednesday morning, which showed a loss of 33,000 construction jobs.

On the other hand, manufacturing lost 27,000 jobs, breaking a very nice string of gains in that sector. This is at odds with the ISM survey’s employment index, which seemed to indicate very strong gains in manufacturing employment, and is much worse than the 6,000 factor jobs lost according to the ADP numbers. In this case, there is a clear potential for a seasonal adjustment problem. The major automakers did not take the normal summer break to change over models. Relative to a “normal” year, this would have boosted manufacturing employment in July, but since we didn’t have the “normal” return to work after the shut down, it depresses the August numbers.

That is exactly what the numbers show. In the auto industry, 22,300 jobs were gained in July, and 21,600 were lost in August. Excluding the auto sector and the potential seasonal adjustment problems it might cause brings the BLS numbers for the manufacturing sector into much-closer alignment with the ADP numbers.

The service sector added 67,000 jobs in the month, down from an increase of 70,000 in July but up from 60,000 in June. A year ago the service sector dropped 85,000 jobs. The biggest contributor to service sector jobs, as always, was the health care industry, which added 40,200 jobs. The health care industry has not had a single down month in terms of employment during the entire downturn. The health care industry has a far higher proportion of women working in it than does the economy as a whole, and this is a big part of the reason that the unemployment rate for women is so much lower than it is for men.

Of particular interest is the increase in temporary workers -- meaning temps working for firms like Kelly Services (KELYA) and Manpower (MAN), not the Census workers. Those jobs increased by 16,800 in August after falling by 900 in July and being up by 18,600 in June.

It is not that being a temp is the greatest of highest paying job in the world that makes them of particular interest. It is because they are a good leading indicator of future employment trends. When during a downturn an employer first sees a pick-up in demand, he will not know if it is just a temporary blip or the start of a real recovery. Thus he is going to be hesitant to take the time and expense of bringing on new workers who will just have to be laid off it if does turn out to be just a blip.

The first think she is going to do is work the existing workforce harder. This is particularly is hours have been previously cut back due to slow demand. The upward trend in the average work week is a very good sign in that regard, in addition to the fact that working more hours means more income, and thus more spending by hourly employees.

The second thing an employer will do when faced with an increase in demand is going to be to call a temp agency. Only when the employer is reasonably sure that the upturn is for real and will last will he figure that it is worth bringing on a full time permanent employee. The dip in temp workers was one of the more disconcerting things about the July report, and it is very good to see that temp workers are back on track in August.

Better than Expected, but Not Good Enough

Overall, this was a much better-than-expected report. The upward revisions to the previous month's data is additional good news. The uptick in the unemployment rate should be ignored because it is coming from an increase in the participation rate. The private sector continues to add to jobs, and has now done so for 8 straight months. The decline in the unemployment duration numbers is extremely good news.

All that being said, however, the pace of job creation we are seeing is not going to be enough to put a dent in the huge numbers of people who are without work and want it. Yes, the pace of job creation in this recovery is much better than it was coming out of the last two recessions, but that is pretty cold comfort for those who are being forced into abject poverty because they can't find work despite months and months of pounding the pavement (or the keyboard as is more likely these days). Most of those people are really not going to be all that interested in how the pace of this recovery compares to the pace of the recovery following the 1991 downturn, they just want a job that can support their family.

The damage done by this downturn was far deeper and more extensive than in those downturns. The final graph below, from (http://www.calculatedriskblog.com/) shows just how deep and nasty this downturn was relative to all the post-war recessions that came before it. By this long after the previous peak in employment, in every case but one, the economy had fully recovered and had more total jobs than when the recession started. While clearly we have started the upturn, with or without Census hiring, it is going to take a very long, long time before we surpass the total number of jobs the economy had back in December of 2007.

At the pace of the first half of the year it would be in mid-2017 before we saw a new peak. Even if we could go back to the awesome job creation pace of the late 1990’s it would be 2013 before we got back to pre-Great Recession levels of employment.



The fiscal stimulus, as helpful as it has been in preventing a much deeper downturn and giving us the start of a recovery, is starting to wear off. Unfortunately, there seems to be no appetite in Congress for renewing it. Instead, we get misguided demands that we immediately try to balance the budget, and in the process repeat the mistake that FDR did in 1937 when he prematurely cut back on the New Deal stimulus and pushed the economy back down, and it only revived when a much bigger stimulus, known as WWII, came along.

Hypocritically, those who are demanding immediate cut-backs in spending to get the budget deficit under control are demanding that the biggest source of the deficits, the Bush tax cuts, particularly those on the highest incomes, be made permanent. Call it the pro-high-unemployment caucus in Congress. It currently has 40 members in the Senate, and the odds are that there will be more members in the next Congress.

More monetary stimulus from the Fed would help, but they have already done quite a bit, and short-term rates are already as low as they can go, and long-term rates are new historic lows. Pushing down interest rates a little bit further might help a bit at the margin, but is not going to make a lot of difference. Fiscal stimulus would be far more effective at this point.

Dirk van Dijk, CFA is the Chief Equity Strategist for Zacks.com. With more than 25 years investment experience he has become a popular commentator appearing in the Wall Street Journal and on CNBC. Dirk is also the Editor in charge of the market beating Zacks Strategic Investor service.

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Ahead of Wall Street – Ahead of Wall Street

Easing worries about Goldman and strong profit numbers from Citigroup helped lift financial shares and the broader market even as speculation about possible changes to financial-industry regulations hovered over Wall Street.

Stocks seesawed through afternoon as traders came to terms with the government's charges against the Wall Street giant.  A late-session rally, however, put the beaten-down financial shares in the driver's seat. Shares in Citigroup (NYSE:C) surged after its quarterly profit report surprised investors.  Goldman (NYSE:GS) advanced 1.6% even as the Securities and Exchange Commission voted 3-2 on party lines to press the civil fraud charges against the firm.  Goldman said it will fight the charges.

Shares of airlines companies also felt the heat of a volcanic eruption in Iceland that has resulted in cancellations of hundreds of flights and stranded passengers across airports.  American Airlines parent AMR Corp. (NYSE:AMR) retreated 4.3%, while shares in UAL Corp. (NASDAQ:UAUA), the parent of United Airlines, dropped 5.1%.  The spread of ash resulting from the eruption has enveloped European airspace, and analysts estimate the losses resulting from the ash cloud at more than $1 billion.
 
Zacks Investment Research

Ahead of Wall Street – Ahead of Wall Street

Easing worries about Goldman and strong profit numbers from Citigroup helped lift financial shares and the broader market even as speculation about possible changes to financial-industry regulations hovered over Wall Street.

Stocks seesawed through afternoon as traders came to terms with the government's charges against the Wall Street giant.  A late-session rally, however, put the beaten-down financial shares in the driver's seat. Shares in Citigroup (NYSE:C) surged after its quarterly profit report surprised investors.  Goldman (NYSE:GS) advanced 1.6% even as the Securities and Exchange Commission voted 3-2 on party lines to press the civil fraud charges against the firm.  Goldman said it will fight the charges.

Shares of airlines companies also felt the heat of a volcanic eruption in Iceland that has resulted in cancellations of hundreds of flights and stranded passengers across airports.  American Airlines parent AMR Corp. (NYSE:AMR) retreated 4.3%, while shares in UAL Corp. (NASDAQ:UAUA), the parent of United Airlines, dropped 5.1%.  The spread of ash resulting from the eruption has enveloped European airspace, and analysts estimate the losses resulting from the ash cloud at more than $1 billion.
 
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August Employment Report – In-Depth – Analyst Blog

It looks like Labor might actually have something to celebrate this Labor Day. OK, the celebration will not be with champagne -- more like with Budweiser -- but they still got something to cheer about in today’s employment report.

While the unemployment rate did tick up to 9.6% from the 9.5% level it was at in both July and June, that increase was due to more people entering the labor force -- a reversal of the recent trend towards a declining civilian participation rate. The total number of non-farm jobs fell by 54,000, matching the decline in July and down from a decline of 175,000 in June.

However, all of those declines -- and then some -- were due to pink slips being given to temporary Census workers. There were 114,000 Census workers laid off in August, following layoffs of 161,000 and 236,000 in July and June, respectively. The Census workforce peaked at 564,000 in May, and in August was down to just 82,000, so it is a pretty safe bet that the Census layoffs will be smaller again in September.

Given the political sensitivity of the employment numbers, I think the large volume of Census layoffs speaks volumes about the integrity of the Obama administration. It would have been very easy to keep them, or at least a large percentage of them, on the payroll through the November elections.

Gains in Private Sector & Productivity

The private sector added a total of 67,000 jobs in August, down from an addition of 107,000 in July but up from 61,000 in June. The July and June numbers were revised sharply higher. As of last month, it was thought that the private sector added just 71,000 jobs in July and 31,000 in June.  The total non-farm payrolls had previously been reported as a decline of 131,000 in July and a loss of 221,000 in June.

For all employees, the length of the average work week remained at 34.2 hours and is up from 33.8 hours a year ago. For production and non-supervisory employees, the length of the average workweek increased to 33.5 hours from 33.4 hours in both July and June; a year ago it was at 33.1 hours. While an increase of 24 minutes a week over the last year might not seem all that significant, it really is when you multiply it times the 130.311 million people that were working in August.

Average hourly earnings inched up to $19.08 from $19.05 in July, and up from $18.69 a year ago. That works out to be 2.1%, which is not great. But then again, inflation is pretty low as well.

Consider Where We've Come From

It is also worth considering how well we are doing on the employment front relative to where we were a year ago. Last August, the economy dropped 212,000 jobs in the month, including 215,000 from the private sector. The unemployment rate stood at 9.7%. This month is sort of a milestone in it is the first month that the unemployment rate is lower than the rate a year ago since the recession started. That, however, has to be taken with a big grain of salt, since the civilian participation rate last year was 65.4% and it is just 64.7% now.

Participation and Employment Rates Rise

While the unemployment rate gets the headlines, it is worth digging just a little bit deeper into the number. The unemployment rate is really the civilian participation rate divided by the employment rate, also known as the employment population ratio. The total population is divided into three groups: the employed, the unemployed and those not in the workforce.

The participation rate (red line in graph #1 below) is the percentage that are either employed or unemployed. It will never reach 100%. For that to happen, we would have to do away with all child labor laws and insist that those lazy 2 year olds stop napping and get to work. The Social Security retirement age would have to be raised not to 66 or 67, but to 127. The highest the participation rate ever reached was 67.3% in April of 2000.

The participation rate will normally slump during a recession and its aftermath. However, as the first graph below shows, the participation rate was in a huge secular increase from the mid-1960’s until the end of the 20th century. Yes, it would flatten out and decline slightly during recessions, but it would always return to a higher high, and the low during the next recession was always much higher than the previous low. That did not happen in the last expansion. The highest the participation rate hit during the last expansion was 65.8%, in January 2005.

The Historical Context

The secular rise in the participation rate was due to two huge demographic trends. First was the entry of the Baby Boomers into the workforce. Remember, you are neither employed not unemployed when you are a kid. The Baby Boom started in 1946, so by the mid-1960’s they were reaching the age when they were either employed or unemployed (or out of the country getting shot at in Vietnam). That was a major force lifting the participation rate until the early 1980’s.

The second major demographic force that started just a bit later (with notable strength) but continued longer was the increased participation of women in the labor force. Back in the mid-1960’s, if a magazine article mentioned the words "woman" and "labor" in the same paragraph, the odds were that the article was about childbirth. That clearly is no longer the case today. In August, there were 65.6 million women working -- not that much behind the 75.5 million men with jobs.

The front end of the Baby Boom is just now hitting retirement age, and that will put continuing downward secular pressure on the participation rate for years to come. The participation rate took a big dive during the early part of the recession, started to rebound earlier this year, but then started to drift lower in June and July. The uptick to 64.7% in August is very good news, even if it does put upward pressure on the unemployment rate.

The other side of the decomposition of the unemployment rate is the employment to population ratio, or the employment rate (green line). That is the percentage of the population that actually has a job. One way or another, these are the people that have to support the rest of the population. This is a hugely under-reported number, and one that deserves a lot more attention than it gets.

Like the participation rate, it had been in a secular upward trend from the mid-1960’s through the end of the century. It is, however, much more volatile than the participation rate (it has to be -- if it always moved in tandem with the participation rate, the unemployment rate would never change). Its high water mark was 64.7% in April 2000.

Unlike previous recoveries, it never came close to hitting a new high after the 2001 recession was over, only getting back to 63.7% in March of 2007 before starting to fall again. During the Great Recession it really fell off a cliff, hitting 58.2% in December 2009. It has erratically pushed its way higher so far this year and was 58.5% in August.  Still, that is a smaller percentage of the population employed than in November of 1983.

Better than the Last Two Times

Note that in the 1991 and 2001 recessions, the employment rate continued to decline for a very long time after the recession ended. While the NBER has not declared the Great Recession officially over, the consensus of economists is that when they do get around to it, they will probably date the end of the recession as July 2009. You would never know it from listening to the press or the pundits, but this recovery has been significantly better on the jobs front than the two recessions that preceded it, particularly when it comes to private sector employment (for more on that see Post-Recession Private Job Growth).



As a matter of economic history, it should be noted that both Presidents Carter and Reagan get a bit of a bum rap when it comes to the unemployment rate. When the participation rate is rising, the economy has to produce significantly more jobs to keep the unemployment rate from rising. On the other hand, the second President Bush gets way too much of a free ride when it comes to the unemployment rate, since the participation rate was falling for most of his time in office. As for Obama, if the participation rate had remained where it was when he was sworn in, and the employment rate was where it is now, then the unemployment rate would have been 11.0% in August.

Duration Down Again

There was further good news on the duration of unemployment front. Over time, the number of short-term unemployed really does not vary that much. People are always losing jobs, or in boom times, quitting jobs. The difference is that in good times, they can find a new job without much difficulty. It is the number of long-term unemployed that really make the difference between boom and bust.

The extraordinarily long time that people have been out of work after they lose their jobs is what has really set this recession apart from all the previous post-war recessions. We now have the second straight month of good news on this front after a very long string of absolutely horrifying numbers.

The average duration of unemployment (red line) fell to 33.6 weeks from 34.2 weeks in July and the 35.2 week peak in June. Still, that is well above the 25.2 week level a year ago, and at the time, that was an all-time record. Prior to the Great Recession, the previous all-time record high was set in June of 1983 at 20.8 weeks.

The median (blue line, half above, half below) duration will always be lower than the average duration since it is impossible to be unemployed for less than zero weeks. Its history is not quite as long as the average, but it too showed significant improvement, falling to 19.9 weeks from 22.2 weeks in July and 25.5 weeks (the all-time record) in June. While it is still much higher than it was a year ago at 15.5 weeks, the rapid decline over the last two months is highly encouraging. Prior to this downturn, the highest the median duration had ever hit was 12.3 weeks in May of 1983.

Note that it is normally the case that the duration of unemployment continues to rise even after the recession ends. This happened not just in the last two recoveries, but in all post-war recoveries. However, following the 1991 and 2001 downturns, the persistency of high and rising unemployment duration was much more pronounced than in the earlier downturns. This time, while the peak was a Mount Everest relative to any previous experience (except perhaps for the Great Depression, but the data is not available), it is coming unusually quickly following the end of the recession (again assuming a 7/09 recession end). That, of course, assumes that the downtrend we have seen in the last two months continues.



Long-term unemployment is a very different experience than short-term unemployment. It is not just an unplanned vacation, it is an existential treat to your standard of living. When you lose your job you don’t know how long it will take you to find a new one. You get unemployment insurance benefits (usually, but not always), but in general, they cover just 60% of what you were earning when you were employed, up to a cap of around $400 per week (this varies a bit by state).

Thus for many, if not most, the pay cut is much more than 40%. Most people have fixed, or at least semi-fixed expenses that use up more than 60% of their income. They therefore have to dig into their savings and/or run up their credit cards. Regular state unemployment benefits run out after 26 weeks, and after that people move over to extended benefits which are paid for by the federal government, and which this time around have become a political football.

By the point that people get to the six-month mark of joblessness, they have usually depleted most of their savings outside of their 401-k or IRA plans, and may well have started to dip into those as well (in the process paying a 10% penalty plus having the withdrawals taxed as ordinary income). That is particularly true this time around, because going into this recession the savings rate was at a historic low.

In past downturns, the unemployed who were also homeowners could generally tap into their home equity to tide them over. With 23% of all homes with mortgages now underwater, and another 5% with less than 5% positive equity, that option is no longer available for millions. Thus, without extended benefits, these people would be left with no financial resources at all.

(EDITOR'S NOTE: We will continue Dirk van Dijk's report analysis in Part 2.)

Dirk van Dijk, CFA is the Chief Equity Strategist for Zacks.com. With more than 25 years investment experience he has become a popular commentator appearing in the Wall Street Journal and on CNBC. Dirk is also the Editor in charge of the market beating Zacks Strategic Investor service.

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