Has the job market healed?

A run of steady payroll gains suggests the worst is over. A dive into the data suggests otherwise.

By Anthony Mirhaydari Mar 9, 2012 2:36PM

Here's some good news. The unemployment rate held steady at 8.3% in February, while payrolls jumped 227,000. That puts the three-month average at 244,000. For job seekers, on a number of measures, the performance over the past few months has been the best of the recovery to date.

 

So that's it, right? Time to unfurl the "Mission Accomplished" banner, tell the Federal Reserve to withdraw the trillions in cheap money it's injected into the financial system like morphine, and ask your boss for that long-postponed raise? Well, not quite.

 

It's true that job gains are always positive. But there is plenty of evidence we've yet to shake the post-recession job market hangover. There are also reasons to believe that, as in 2010 and 2011, economic momentum is set to fade later in the year as temporary factors -- including unseasonably warm weather, inventory accumulation, and savings rate drawdowns -- start to drag on growth.

 

Let's talk weather. Bank of America Merrill Lynch notes that the average nationwide temperature in February was 38.3 F, 5 degrees above last year's and 4 degrees above the average of the past five years. Averaging December through February, we just experienced the warmest winter since 1999-2000.

 

During winter, the government adjusts employment data by adding jobs to offset people stuck at home because of snow and ice. Over the past five years, roughly 485,000 people couldn't work in February because of weather. This month, this number was just 178,000.

 

Basically, the payroll number was artificially boosted by about 307,000 jobs.

 

Moreover, while jobs are jobs, the quality and the remuneration of those jobs are arguably more important. On this metric, the situation remains weak. Average hourly earnings were up 0.1% for the fourth month in a row. For the year, earnings were up 1.9% -- continuing a trend of 1.8% to 2% growth seen over the past two years. According to Philippa Dunne of the Liscio Report, this suggests that low-wage jobs are playing a disproportionately large role.

 

Given that consumer price inflation has averaged 3.1% over the past year, even people who can find jobs are simply falling behind the rising cost of living. In fact, real disposable income has fallen in two of the past three months. This has never happened in a nonrecession environment before.

 

No wonder the 2011 holiday shopping season was driven by withdrawals from savings and rising credit card usage. Obviously, this isn't sustainable.

 

 

So it shouldn't come as a great surprise that, despite the employment growth of the past few months, the job gains aren't translating into increased consumer spending -- the vector by which all these jobs gains are supposed to result in higher economic growth. Real consumer spending has been flat over the last three months as shown in the chart above.

 

As a result, the team at Capital Economics believes the spending component of GDP (along with Friday's disappointing rise in the trade deficit because of high oil prices) could pull first-quarter growth down toward 1%. Wall Street economists are frantically cutting their growth forecasts in response.

 

This is below the economy's "stall speed" -- or the rate of growth that's needed to keep the unemployment rate from rising in response to a growing population. Not only that, but a dramatic fall in labor productivity and rising unit labor costs is making each new worker hired less profitable for employers. Both of these things will be a drag on the job market going forward.

 

Just look at what Bank of America Merrill Lynch economist Neil Dutta told his clients this morning:

 

"In other words, productivity is slowing sharply as companies have squeezed every drop of output possible out of their current workforce. Today’s data implies that corporate profit margins are coming under pressure. Unless economic growth begins to accelerate, it is difficult to see how this rate of employment growth can be sustained."

 

One more thing. It's important to keep all of this in perspective. My preferred measure is the percentage of the population in full-time employment -- you know, the kind of jobs that people really want. Jobs with benefits, a modicum of security and maybe even a retirement plan. Jobs that encourage spending on big ticket items like new cars and new homes.

 

 

By that measure, we remain near recessionary lows and are at levels not seen since the early 1980s. And we are more than 10.6 million full-time jobs below our pre-recession peak despite the fact the working population has grown by 10.4 million workers.

 

Total full-time job deficit: 21 million. We need more and better jobs.

 


Check out Anthony's investment advisory service The Edge. A two-week free trial has been extended to MSN Money readers. Click here to sign up. Contact Anthony at anthony@edgeletter.c​om and follow him on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.

81Comments
Mar 15, 2012 10:45AM
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http://www.gallup.com/poll/125639/Gallup-Daily-Workforce.aspx

 

Looking at these gallup polls, it's pretty obvious since the data isn't adjusted, it increases every winter, and falls every summer. But over the long term, and year-over-year, the numbers continue to improve.

 

Another down claims report this morning. 351,000. Unadjusted data was even better, around 337,000.

Mar 13, 2012 4:34PM
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I'm certain that a piece of this puzzle that you didn't mention and that Strom is oblivious to is the rising cost of energy especially gasoline. It must be nice to be Strom...so insulated from the real world that he can pick and choose data that only serves to bolster his skewed view.

I'm not picking and choosing.

 

Actually, Anthony choose some very specific time frames because of the nature of his argument.

Be reminded now that the minor improvement that his data shows won't stand up against the flood of graduates that will be entering the job market soon. 

Flood of graduates? Like *every year* - really?

 

On gas prices. It's fair to say that is going to bite into consumers wallets. But, I think more muted than 2008 or even 2011 (absent a war with Iran). Consumption has changed, peoples habits are changing still, where the same price of gas in 2008. May not have such a big impact as before when it was coupled with an environment that saw credit contracting.

 

I don't really care what he says, because he's been continually proven wrong, over and over and over again in the last 4 months. And as that has continued, it seems both the volume and "reasons why the market shouldn't be doing this" have increased.

 

That's the sound of someone missing the boat and complaining about it.

 

The S&P officially entered a new trading range today above the 2011 peak clearly. At this point, the next target is 1440, then the all time high of 1565. Within the next few months, we will finally have a pull back. Though, I think the S&P has officially moved the trading range to the next wrung on the ladder in this sideways action.

 

 

Mar 13, 2012 4:24PM
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Sure it does. It provides perspective.

Not of whether the labor market is turning. It does not.

 

If you're looking for points in the cycle, or even if you're wondering how the healthiness of this expansion compares to others, wouldn't use peak points.

that the job market isn't "recovering" as well as the simple unemployment rate decline suggests.

I'm not really looking at the employment rate. My argument is more about people being in jobs, paying income taxes, social security taxes, bringing UI coverage down, etc, etc.

Well you seem to be a big fan of "trends" -- and the trend for savings is clearly down. You can argue about time frames all you want. If you look at the chart, it suggests savings withdrawls. In late 2010 savings was 5.6%. It's 4.6% now. CC debt has been flat over that time.

It doesn't suggest withdrawals during this period of job growth (the last 6 months). It suggests exactly the opposite, an increase in the savings rate. You're whole post is about the growth in the last few months. A savings drop from peak is not very related being as it's a different time frame. But you felt free to use a minor increase in credit card debt in the time frame.

From June 2011 to now, both CC debt and savings have been moving in my direction. End of story.

....how does that apply to August thru February when the job growth has been happening?

 

You pick June, because the savings rate was 5% then. But the fact is, the savings rate was at 4.3% before all this jobs growth started happening. And a 1.3% increase in CC debt is not much.

The point is that something has changed over the last few months which suggests NEW PRESSURE on consumers that contradicts the "improvement" in the job market. Get it?

Yet, you want to use savings declines from 3 years ago? Or even 8 months ago? To make a point.

It all points to a less than stellar job market. That's the point.

I never said it was a "stellar" job market.

You are really trying too hard. All data in that chart is unadjusted.

Which is clear in the headline of it. Oh wait, it's not.

 

But even if you use unadusted, or adjusted, it points to growth year over year. Growth in the # of

Yes. But the point is that population growth is eating this up.

? If we use the low side of unadjusted, you still get around 3.5 million jobs in terms of employment.

 

2 years US pop growth equals? Less than 3 million a year, and of course, only 75% are of working age population. And even at 70% participation rate, the economy only needs to generate 130,000 more employed people a month.

 

Equals 3.1 million people over 2 years at a *very high* participation rate.

 

Except it increased last week and jumped back over its 4-week moving average for the first time since late last year.

Uh.....cause it's already at a pretty low level?

 

If in the 2000s expansion, it was around 325-350k most of the time. How exactly is it going to go much lower than that. It's going to move back and forth at this point, unless there's real improvement, or real detoriation.

 

The 4-week moving average has to move a sustained 30,000 people in either direction to signify something is changing.

I look forward to reviewing this topic with you in the weeks and months to come. Thanks for reading.

Let's review today.

 

S&P busted thru the 1375 peak. Retail sales jumped up even excluding autos/gasoline *above inflation rate* and were revised up for January as well. The actually housing survey posted 800,000 jobs in February (even factoring for weather, it's a big number).

 

I'll settle for *you're still calling the whole thing wrong*

 

Most of the rest of the point is how it relates to the equities markets, you seem to believe the jobs numbers will come back to reality, and therefor the market is going to majorly correct. It should be obvious that the market can do what it wants regardless of the job market, and does it quite often.

Mar 13, 2012 2:47AM
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Anthony Mirhaydari sees it right. The euphoria about remaining at the BLS 8.3% unemployment rate is to be mistrusted as at best wishful thinking and at worst blatant electioneering for the distributionist incompetent Obama. You only have to look at the number of jobs lost since the Great Recession, and the moribund housing market, and the blatant bias of the media, to know not to believe anything coming out of the White House or the main stream media. There are so many important and imperative reasons to defeat Obama's re-election - it is beyond ridiculous.
Mar 12, 2012 4:55AM
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I'm pretty sure Albert Einstein would've re-formulated his definition of insanity had he met Anthony first.  The author has been harping on how crappy the job market is for many months despite constantly improving data.  As far as stocks are concerned, WHO CARES either way?

The market rallied HUGE from 2009-2010 despite lingering 9.5% unemployment the entire time. The bottom line is JOBS don't matter to the stock market as long as you have a MADMAN running the FED.  He will continue to put more and more fake money into the system.  He knows that if you inflate enough then companies' bottom line will be inflated as well.  You don't need to have actual growth in the economy--you just need to give that appearance by devaluing the currency.

Bernanke really does believe the USA is impervious to hyperinflation because our dollar is the reserve currency of the world.  He's WRONG.  The guy is gambling the future of America away.  Arrest Ben Bernanke.
Mar 11, 2012 6:20PM
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Ernie V, LOL.  Maybe CKTVT has a Harvard, Stanford, UPenn degree.  The very point he was making is that the labor that is employed is pushed to maximum productivity so the employers will be forced to increase employees with any increase in product demand.   The coldest temperatures of the night are usually before dawn.  Study the major recession of 1980-82.  The lowest point of participating work force was after the recession was officially over in 1983 and then hiring boomed for about 5 years straight.  Doesn't take an Ivy league education to read the workforce particpation chart.   Just a little homework to see what happened in the last deep recession which involved high energy prices.
Mar 11, 2012 4:48PM
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Hey "Someone" dude, I noticed you don't have a weekly or daily "business" column ANYWHERE!!  So..what the hell do you know..degree from the Wharton School?  Harvard Business? GED? Mirhaydari, in this instance, is correct, the U-6 number still at 16-18%.  Sorry, these jobs are crappy low level fast food-dollar store stuff, low or NO benefits..yea something is better than nothing, but stop being a shill for the Pin Head in the WH and grasping at straws.
Mar 11, 2012 12:26PM
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Tony Baloney has misread the tea leaves, as usual.  We are poised for a surge in economic growth for the very reasons that Tony interpretes as harbingers of doom.  Consider the quote Tony cites from Neil Dutta (BOA economist): "...productivity is slowing sharply as companies have squeezed every drop of output possible out of their current workforce..."  In order to promote further profit expansion, these same companies now have no choice but to begin hiring in earnest.  Yes, there will be a pregnant pause while they nervously assess the landscape, but the sweet smell of success just around the corner will compel them to step up. And they don't want to be the ones getting in late in the game after all the better workers have been snapped up by the competition.  I predict a minor lurch and then a big surge forward.

Mar 11, 2012 1:08AM
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As negative as you want to be you pointed out a very good chart at the end Anthony.  Do some additional history lesson.  That employment participation rate is in fact at its lowest rate in 29 years.  That low dip 29 years ago came in 1983 AFTER the severe recession of 1980-1982.  History just repeating itself.  The bottom is in and more workers will be needed to increase production. 

 

Do some homework on Peter Lynch's best moves of that era.  Namely the auto sector.  Chrysler bankruptcy in 1980 as auto demand crashed.  2008 ring any bells?  Again, that recession created huge pent up demand just as it has today.  All boats in the auto sector will rise but Lynch's best buy was Ford back then and it will be the best auto maker to own as auto demand surges like it did back in the mid 80's.  Buy Ford with both fists.  ~Smalls

Mar 10, 2012 3:32PM
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Anthony,

 

I'm certain that a piece of this puzzle that you didn't mention and that Strom is oblivious to is the rising cost of energy especially gasoline. It must be nice to be Strom...so insulated from the real world that he can pick and choose data that only serves to bolster his skewed view. Be reminded now that the minor improvement that his data shows won't stand up against the flood of graduates that will be entering the job market soon. 

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Seasonally adjusted or non seasonally adjusted, and it looks like you are mixing the two from the pre peak to the low point now.

 

I'm not. Both non adjusted.

 

it makes no sense to use the very peak points which were the ends of 6 year and 8 year expansions.

Sure it does. It provides perspective. And it also shows, as the chart of full time employment as a percenatage of the population above, that the job market isn't "recovering" as well as the simple unemployment rate decline suggests.

 

 

How exactly is that negative to wages? or employment?

 

Did you read the quote from Merrill?

 

 

You do see how that is a contradiction right? Your point is the current job growth (the last 3 to 6 months) is not so good. But savings *have not declined* in that period.

Well you seem to be a big fan of "trends" -- and the trend for savings is clearly down. You can argue about time frames all you want. If you look at the chart, it suggests savings withdrawls. In late 2010 savings was 5.6%. It's 4.6% now. CC debt has been flat over that time.

 

From June 2011 to now, both CC debt and savings have been moving in my direction. End of story.

 

Yes, debt is down over the last three years. That's not the point. The point is that something has changed over the last few months which suggests NEW PRESSURE on consumers that contradicts the "improvement" in the job market. Get it?

 

Ok......you're gonna use BLS data to determine labor market data and then turn around and use Gallup to support your employment argument?

It all points to a less than stellar job market. That's the point.

 

 It's extremely misleading when you don't simply point out that you are using interchanged seasonal and non seasonal data and from a point before the recession when talking about peak full employment *ratio*

 

You are really trying too hard. All data in that chart is unadjusted.

 

 

I now the faults of the data, but using non seasonal or seasonal the number of full time employees, or # of employed period, has gone up 3.5-4.5 million in the last few years (since December 2009). Period.

 

Yes. But the point is that population growth is eating this up.

 

 

And show no signs of moving back up.

 

Except it increased last week and jumped back over its 4-week moving average for the first time since late last year.

 

I look forward to reviewing this topic with you in the weeks and months to come. Thanks for reading.

 

 

 

 

Mar 10, 2012 12:28PM
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You can put any spin you want on it.
The REAL numbers are at a depression level.
19%
Pretty soon Obama's minions will be asking the illegal's on the corner -- Did you work today?
Yes, well that's one less unemployed person!

Doesn't mater if he paid taxes or not -- He worked!

Save your BS for your fellow lefties- better yet, tell an ex 99 er who still can't find work or the underemployed now making $26,000 coming from a $75,000 yr job - how well they are doing!


Mar 10, 2012 12:02PM
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http://www.dol.gov/opa/media/press/eta/ui/current.htm

Last bit of data here. Unadjusted and seasonally adjusted initial unemployment claims are practically identical.

And show no signs of moving back up. While job creation could fall off, the number of employed overall is going to continue to rise at this level of claims.
Mar 10, 2012 11:50AM
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The data i used for the chart is in household survey data tables A-1 and A-9, unadjusted. Here are the links:

You mean, the same data I already posted from the employment situation reports. Yes, I know where the A tables are at. And the archived reports.


You're measuring from a point in 2006. It's extremely misleading when you don't simply point out that you are using interchanged seasonal and non seasonal data and from a point before the recession when talking about peak full employment *ratio*


When you say "peak full time employment* without qualifying it, that means the *nominal* peak. Standard definition. 


And we are more than 10.6 million full-time jobs below our pre-recession peak

 Peak %, not pre recession full time jobs peak. Peak %.


And, it's still wrong to point to the single last year of expansions as the % point, if you are wanting to point out where we are in the cycle. The actual one to be used would be, a recovery point from prior recoveries. 49%, 50%, 51%. 


I now the faults of the data, but using non seasonal or seasonal the number of full time employees, or # of employed period, has gone up 3.5-4.5 million in the last few years (since December 2009). Period.


______________


And again, you are trying to tie all your recent articles to why the market is about to hit a wall. 


The job market, earnings, etc might bear out over the long term, but in the short term, the market can go where it wants. There's a lot of bad potential out there, there's also record earnings.


There's lots of opportunities in the US market on the upside in real terms. You see credit expansion as bad when it's been on lockdown for near 4 years. To me, that could be a positive. You see high oil price as bad. Maybe in terms of consumption spending. But in terms of domestic energy? The US will grow even more supplies. Low wages are bad, ever think that margin pressures of this huge multinationals are because expenses are up overseas. If shipping rates are gonna go up (really, there's huge oversupply in the shipping market, BDI is in a depression, did you really say shipping rates are going up and will be high?) slightly, does that open domestic production?


*Mostly* from my perspective, your credibility has taken a huge hit in the last 4 months. I take a few ideas here and there from the articles, but you've been wrong for 4 straight months. With no acknowledgement of it at all. And not being straight forward with the readers here.

Mar 10, 2012 11:29AM
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Real Unemployment numbers are at 19% if you count:
The ex 99 ers- Those who couldn't find a job in 99 weeks --- SURPRISE!they don't get counted anymore!
They don't use Unemployment Insurance to count if you're unemployed in the BLS data.
Mar 10, 2012 11:25AM
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Well, I guess it depends on which numbers you use. Gallup puts the forced part-time unemployment rate near its highs over the last three years. since 2010. So, don't be so dismissive.

Ok......you're gonna use BLS data to determine labor market data and then turn around and use Gallup to support your employment argument?


A) The gallup sample size is much smaller and not from the CPS. I think we can agree the CPS is *by far* a better tool that polling.


B) The poll error is larger than BLS. Period. 


C) None of their data points are seasonally adjusted at all.


D) The comment was in response to people being off UI. Since they don't use UI to track unemployment in the first place, saying those falling off UI won't be counted is nonsense reasoning.


It's indirect, and not 1 to 1. A person collecting UI might never look for a job, and then not be counted, a person falling off might start looking, and then be counted. The point, UI isn't the determining factor.

 Plus, get a load of their unemployment rate rising steadily since late last year from 8.4% in November to 9.1% now.

Uh, cause it always rises in the winter if you don't seasonally adjust? As mild as the winter was (which, it's been more mild now, than back in November/December) you're still going to get a rise in the near term.


It's the same reason their poll drops unemployment a lot lower in the summer.


They put the underemployment rate at 19.1%.

Factoring the increase outside the labor force, adjusting for growth rate, increased numbers in retirement, and already counted (U-6), that seems high.  Even using 15.6% in the non-seasonally adjusted U-6, +2.3% (calculated based off above normal increase in outside the labor force population) I get 17.9%.

Mar 10, 2012 11:19AM
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You miss my point. If the job growth was so good and of high quality, wage growth would be pushing savings rate higher AND supporting spending (remember this is a balance sheet recession, so debt needs to come down). This isn't happening.

A) Savings did go up in December. In fact, it was 4.3% back in September and now it's 4.6%, so your argument is that the *current* job growth is not pushing savings (i.e. the job growth we've seen in the last 3 to 6 months)?


You do see how that is a contradiction right? Your point is the current job growth (the last 3 to 6 months) is not so good. But savings *have not declined* in that period. 


You can't make both arguments here for the same time frame. You point to credit card debt being slightly up over the holidays. But savings are too. 


Over the last 3 years, savings are down. But debt is *way down* over the last 3 years. Including credit card debt. It's down 17% from peak.

 

Yes. Increased credit card debt.

Again. You're taking liberty with the time frames. You're using a long time frame for savings drop (6.5 to 4.6) and the short current time frame for credit card debt. To explain why the last 3-6 months of job growth is not that good.


That's not consistent. Savings has *increased in the last 6 months*

My point is that the job growth of the last few months has been low quality which explains why credit card debt is up and savings rate is down.

Only *savings are not down in the last 6 months* they are up.

 Less savings + more debt in a balance sheet recession = not good. It's simple.

You're pointing to a really *small* increase in credit debt. 

Just look over the last few months. Data supports my argument just fine.

Savings is up since November. It went from 4.3% to 4.6% now. Sorry, if you are saying, savings is down in the last few months, that is not correct. 

 I don't know what to tell you. The data is there. You need to look at the household survey data tables. Non adjusted. Go find it.

I already attached the links to the employment situation reports. That's the *same* data as in the A tables.

Mar 10, 2012 11:18AM
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More capex and labor expense = smaller margins.

I don't really disagree, my point is more along the lines that there's significant switching to quitting rather than being let go. Businesses may have to accept smaller margins. But since below (businesses aren't the ones driving GDP domestically) the only point there has to be related to market growth. (stock market)


Mostly, yes. Try this nugget: Car sales accounted for 82% of the increase in aggregate demand in Q4 according to Nomura.

So 62% is mostly? And again, the government dragged down Q4 GDP by almost 1% itself.

 

You are contradicting yourself. So businesses have to spend more to increase production but that's not going to pinch margins in a low growth environment? By definition, this isn't true.

I disagree about wages and hiring related I didn't say business expenses wouldn't increase. Your reasoning was about jobs growth/wages related to margin pressures, not about margin pressure in the context of earnings and results to stock market index from that. 

 

Think of it this way: Late in the business cycle, all the well qualified, cheap workers are gone. All that's left are lower skilled, slower workers.

Which is why businesses have started putting out bounties, increasing education budgets to send workers to school, etc, etc. How exactly is that negative to wages? or employment?


I see evidence that corporations are finally putting that 2+ trillion in cash to work. 


You have a point here. But it doesn't invalidate the point of the piece. A return to pre-recession participation rate of 53.12% would be another 16.2 million jobs. Return to 2000 peak of 54.67% would be 20 million. It's in the ballpark. Don't get too excited. ;-)
Seasonally adjusted or non seasonally adjusted, and it looks like you are mixing the two from the pre peak to the low point now.

The other thing is, if you're looking for the definition of a "healthy" recovery, or start of expansion, or are we coming back, it makes no sense to use the very peak points which were the ends of 6 year and 8 year expansions.

I do see what your calc now is, you're using 54.67 against the current working age population, and comparing that to the non seasonally adjusted number of full time workers. But your graph says none of that, your presentation says none of that. 
Mar 10, 2012 10:38AM
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Has the job market healed?  Are you kidding me!  I see the unemployment rate at close to 9%.  It appears the jobs being created are nothing but service jobs, low wage, low benefits.  I know many people that have finally given up and just quit looking. It's very sad.  I'll say it again, I don't think this president has done squat for the unemployed, and the congress hasn't helped.  I know there are many President Obama defenders out there, but I think this unemployment trouble rests solely on his shoulders, he is the President in charge. The little bit of good new I read about is mostly smoke and mirrors.
Mar 10, 2012 7:07AM
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What we need is a new world war.  Just look at WW2 to see how a world war can eventually fix the global economy.

 

But I could never support, and no modern nation would or should support a war where people get injured or killed. Instead we should use robots to fight this war - this would result in some great advances in robotic technologies and lead to substantial improvements in other robotic applications that could eventually apply to manufacturing and service industries.  I dream of the day when we can reduce our work week to 20 hours per week.

 

Alternatively, any war must be limited to the use of paint ball guns so no one gets hurt.  Instead of using a bunker busting bomb, a big tank of red paint should be dropped to indicate a facility has been taken out and can no longer be used in support of the war.

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