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Friday, April 2, 2010

Real Unemployment Increases!

The Department of Labor announced Friday (with the stock market closed) that payrolls rose by about 162,000 in March, a figure which includes about 48,000 census workers and likely more seasonal accountants and tax preparers.

Before you believe any spin about this being good news (such as White House chief economist Christina Romer saying this shows "gradual labor market healing"), consider that the total "underemployment" rate (including part time workers who wish they were full time, and others who want work but are considered to have given up) went UP from 16.8 to 16.9 percent.

On a related economic note -- expect to see more overt signs of economic distress such as unemployment actually rising, more business failures, more foreclosures and more business space vacant.   Even if there is a "recovery," that simply means that conditions are improving when compared to an earlier period.   The shock experienced in the credit markets was severe in 2008-09 (and is not over by any means, just not as grave).   An improvement still means that conditions are serious.   Therefore, many businesses may continue to suffer and experience negative cash flow (accounting for debt service) or liquidity crises (both of which can kill a going enterprise even if it is profitable on an operating basis).   A recovery may mean conditions are improving -- but do not assume that such improvement will be enough to stop the bleeding.   The rate of deterioration may lessen -- but it may not stop.   Business failures (which are a lagging indicator) will continue to pile up.

Eric Dixon is a lawyer in New York and New Jersey who also engages in strategic and economic analysis for clients.   He can be reached at

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