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Why Over 8% Unemployment Could Lie Ahead

Home - by - February 19, 2013 - 16:45 America/New_York - 13 Comments

CNBC

Severe fiscal tightening in the U.S. will lead to no growth or a contraction in the first two quarters of 2013 and will push unemployment over the 8 percent level, according to Lombard Street Research.

The knock-on effect will mean pain for the business sector, with corporate profits falling after a hit to consumer spending power, the firm said.

“Our view that unemployment could rise above 8 percent and that profits will be squeezed reflects a forecast of nil to negative 2013 (first quarter) growth, and further stagnation in (the second quarter),” a Lombard Street report released on Friday said.

The view contrasts sharply with that of other analysts who are considerably more bullish on the U.S. economy.

Keith McCullough, CEO of Hedgeye Risk Management told CNBC last week that he thinks employment could actually improve below 7 percent by the fourth quarter, adding that from a housing and employment perspective U.S growth is “pretty solid”.

Lombard Street does not agree.

At the start of the year, the payroll tax that funds Social Security was raised two percentage points to its 2010 level of 6.2 percent. This was the largest component of tax increases approved by Congress in the resolution to the “fiscal cliff”.

Retail sales rose 0.1 percent in January, data released by the Commerce Department showed on Wednesday. These two events together should set alarms bells ringing as tax increases suggest a slowdown in the pace of consumer spending, Lombard Street said.

“Retail sales data encouraged the idea that the payroll tax hike from 4.2 percent to 6.2 percent, worth 1 percent of personal disposable incomes, would pass off with little impact. But the effect of the payroll tax was only partly in January,” it said, indicating that only a modest impact would have been expected for January.

MORE  http://www.cnbc.com/id/100467373

» 13 Comments

  1. Brian in BC

    February 19th, 2013

    Well this is totally unexpected…

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  2. Kenny Sullivan

    February 19th, 2013

    If “Severe fiscal tightening in the U.S.” means lower government spending, this whole idea is pure propaganda. There are no cuts anywhere in the horizon! Obama has been spending a trillion more bucks every year he has been in office than Bush ever did in any year, and now cutting less than $1 trillion over the next ten is called ‘severe’? Our media simply lies to our faces. Until people understand that spending is set to increase, even with sequestration, we have no hope of ever recovering from this fiscal decline in to poverty.

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  3. Bad Brad

    February 19th, 2013

    Mendermen, “Severe fiscal tightening in the U.S.” Mean corporate America is pulling it’s fiscal belt even tighter. I think they left out the effects of Obama care too. 8 percent my ass.

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  4. eternal cracker p

    February 19th, 2013

    The spending is the addiction. They don’t admit it, therefore denying the problem. The first step to ending the addiction is to admit the problem.

    We aren’t even on step one yet, folks.

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  5. Bad Brad

    February 19th, 2013

    Also, spoke with my neighbor this week end. He works for a large defense contractor and in the last month they have had two layoffs. If sequestration hits, he’s pretty sure he’s out of a job. Meanwhile, Barry’s playing golf.

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  6. grayscape

    February 19th, 2013

    It’s already at least 15-16%….so yeah, “over 8%” is a certainty. Kinda like predicting rain when it’s already raining. Pure genius….

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  7. Kenny Sullivan

    February 19th, 2013

    Is sequestration retro-active? When Barry spoke today, he had cops and firemen behind him saying they would be facing furloughs as of March 1st. Wasn’t their salary bugeted for the entire fiscal year?

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  8. Bad Brad

    February 19th, 2013

    Mendermen, Most excellent point. And at the State, County, and Municipality level too. What do the Feds have to do with it? Just more bullshit out of the White House.

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  9. sablegsd

    February 19th, 2013

    Yeah, right, like unemployment isn’t already 18%.

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  10. Stranded in Sonoma

    February 19th, 2013

    Yep. Still at 23%.

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  11. jackson

    February 19th, 2013

    I didn’t vote for the commie.

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  12. Mr.Gates

    February 19th, 2013

    Real unemployment has been in double digits for 4 years.

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  13. MNHawk

    February 20th, 2013

    This particular piece of low information media lost me at…

    “Severe fiscal tightening in the U.S…”

    $3.6 trillion on the way to $4.5 trillion in a few years isn’t such.

    Thumb up +1