US unemployment hits 10.2% photo: Bloomberg

Economy is being propped up by government spending not consumer demand

With stories from Bloomberg CBC

The US unemployment rate soared to a 26 year high of 10.2% in October. 190,000 jobs were lost in the month.

The Dow futures were lower on the news. The New York market opened slightly lower then gained slightly. Investors will watch nervously. They may have slid by the witching month of October only to fear the November cold winds.

CNN Money reports at 10 AM “Wall Street musters small gains after an early selloff on the weak October jobs report. Weaker dollar boosts commodity shares.”

Bloomberg is also reporting Canada shed 43,000 jobs last month and it’s unemployment rate climbed to 8.6%

“The rise in the unemployment rate is very ugly,” Ethan Harris, chief U.S. economist at Bank of America Merrill Lynch, said in an interview with Bloomberg Television in New York. “This is a big backward step to get this high of an unemployment number this early in the recovery.” Bloomberg

CBC calls this a jobless recovery.

The data adds credence that the United States is in the midst of a “jobless recovery” where certain economic indicators begin on a positive trend, but individuals don’t feel any of the positive economic activity.

Last week, official data revealed that the U.S. economy expanded at a 3.5 per cent annualized rate last quarter, built on the back of government spending.

“[But] you need explosive growth to take the unemployment rate down,” said Dan Greenhaus, chief economic strategist for New York-based investment firm Miller Tabak&Co. CBC

While the economy is expanding, the growth is artificially stimulated by trillions of dollars in stimulus money both in the US and Canada. Consumers are sitting on their wallets and credit cards expecting the worst is yet to come.

Without real increase in consumer demand, the recovery can sputter out. Market optimists and profiteers will point to the sudden rise in stock markets since spring 2009. Short sellers and other pessimists throw cold water predicting another sharp decline in markets.

In the article Four Reasons Why Hyperinflation Hasn’t Hit the U.S. Economy…Yet holds dark visions of the future with the current stimulus spending.

“Everything we know about classic economic theory suggests the U.S. economy should be experiencing Zimbabwe-like hyperinflation right now, thanks to the nearly $2.2 trillion the U.S. Federal Reserve has pumped into the system.” Money Morning

Keith Fitz-Gerald, Chief Investment Strategist at Money Morning points to four factors that loom on the horizon as spoilers: 1) banks are hoarding cash 2) inflation is being exported to China which is not letting the currency float to market 3) consumers are still cutting back and 4) businesses continue to cut back instead of hiring.