Retail Sales Not Such a Big Deal; Debunking ‘Full’ Employment
It’s amazing how a bull market changes everything. Just two months ago there was actually speculation that Geithner would be removed. Now happy days may, in fact, be here again.
Shorts sellers, I’m afraid it’s too early to pop the champagne. Retail sales have dipped negative during bull markets, as was the case in 2003-2007. In addition, we’re talking about really tiny percentages here. A 1/10 percent decline is hardly anything.
This selloff is merely a blip considering that the S&P 500 is still 34% above its low. We’re seeing a massive recovery on a global scale after what was a brief shock to the financial system and stock market back in September/October. A bad retail sales number is hardly sufficient to derail it.
Is Full Employment Good?
Macroeconomics may by the gloomy science, but it’s also the most counterintuitive because what seems ‘good’ from a sociological standpoint is actually ‘bad’ from a macroeconomic one. Here is a post from the Seeking Alpha online investing community of someone who falls for the fallacy of full employment:
When companies cut jobs they are usually cutting the jobs that are inefficient, which is called structural unemployment. Those are the jobs that cost the company more money to too keep on the payroll than is produced in return by the employee. The person who lost his job has the option of either applying for a government handout, improving his technological proficiency (so he find find a job that is efficient), or starting a business to provide services that people need. The first choice hinders innovation and creates inflation. The later two options enable the advancement of society through the development of new technologies. This translates into a higher standard of living, and rise in GDP.
What about buying things? Those who are in the upper echelons of society such as entrepreneurs contribute the most to consumer spending. According to Tobias Levkovich, Citigroup’s chief U.S. equity strategist,
Twenty percent of the highest-earning Americans account for 42 percent of consumer spending, while 20 percent of people at the bottom of the pay scale account for just 8 percent…They buy more expensive versions of the same product,
It is in the government’s best interest to create an environment that benefits the highest earners because they not only create most of the efficient jobs, but consume the most, too. They also pay the most taxes. That’s why Obama should consider, for example, offering tax breaks for companies that ship jobs overseas.
A high job turnover rate gives people an incentive to seek or create employment that advances society. As humanity progresses to a type 1 civilization the baseline unemployment rate will steady rise from 4.5% to double digits. Currently unemployment stands at 9%. It will peak at around 10%, but as the economy recovers the unemployment rate will only fall to around 6-7%, where it will remain despite whining from the welfare liberals about ‘jobless recovery’. However, this high unemployment will not have a detrimental impact on GDP or the stock market.
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