Real economy

Opinion

According to new figures released this week by the Bureau of Labor Statistics, the nation’s jobless rate recently fell from 8.1 percent to 7.8 percent.

While both presidential campaigns sprang into spin mode before the ink had dried on this latest report, this columnist ran for his calculator. What I found behind the numbers may prove informative for long-term care insurance (LTCi) advisors operating in the weeks ahead.

But first, some history.

The events of September 2008 triggered what we now collectively refer to as the “Wall Street Collapse”, followed by a nationwide recession many economists rank behind only the Great Depression in magnitude.

Four years on, how do we measure our return to normalcy? There are any number of market indicators, including stock market valuations, new & existing home prices, the nation’s unemployment rate, and so on. We can even make a direct attempt to take Americans’ temperature by conducting “consumer confidence surveys”. Let’s see how we’re faring.

Incorporating data from previous crashes, wars, and political instability, one major study concluded that the stock market’s average recovery time from a “major historical shock” is between 1 to 4 months (with an average of 3.3 months).

Sure enough, we find that the Dow Jones began its path to sustained improvement just 5 short months after the Collapse, and overcame its pre-Wall Street benchmark over 2 ½ years ago.

Corporate balance sheets are the strongest in 60 years (the new buzzword is “self-insurance”), and personal savings rates are coming back. Consumer consumption is decent, too. It turns out when you conduct a “Consumer Confidence Survey," Americans have an unhealthy habit of regurgitating the negative press they’re exposed to 24/7 on cable TV. They see “how bad it is out there," and parrot those same responses... but their own buying behavior for durable goods doesn’t correlate with their own answers at all! What’s more, we can now look back and tentatively pronounce the European Sovereign Debt Crisis “contained.”

So where does that leave home prices?

While home values have not yet returned to their previous highs, delinquencies are at an all-time low. According to the figures I have on file (from Sept. 11), the housing market was over-supplied by 3 million homes (expressed another way, that’s a 9 ½ month supply).

Home prices in 2010 were down 15 percent, but as of last year down only 4 percent. One factor keeping home prices from increasing is a “25/25” rule of thumb: at any given time, 25 percent of all houses sold are distressed/forced sales, selling for a 25 percent discount.

But here’s where the story may actually be a blessing in disguise: So many consumers have re-financed during this period of unprecedented low interest rates that the average household is now saving over $3,000 per year.

According to USA Today, our interest-paying burden is now the lowest since 1977. The next time you encounter a prospect who feels too anxious about his net worth to apply for a long-term care insurance policy, you might remind him that his new, lower mortgage payments just put an extra $3,000 in his pockets this year. So unless he’s putting that home on the market, your $1,200 to $2,200 per year LTCi premium should be manageable.

In any economic recovery, the last indicator to rebound is always unemployment. We know this, but still we complain. It "feels" so real: Heartache in the heartland. We see it on TV.

Enter the calculator.

If it’s true that only 114,000 new jobs moved the dial 0.3 percent, then using only grade school math we can deduce that a fully employed workforce as defined by the BLS would consist of just 38 million. Considering that the U.S. Census Bureau (2010) counts as many as 186 million Americans between the ages of 20 to 64 (out of a total U.S. population of 310 million), it's anyone’s guess why the employable population is as small as 38 million, but vitally important in any discussion of unemployment.

The ramifications are immediate. For instance, to drive America towards a healthy unemployment rate of 5 percent (from our present 7.8 percent) requires the creation of just 1 million more new jobs by whichever candidate wins the presidency.

In other words, what has become the central campaign issue (getting America “back to work”) is an issue which directly impacts just 1 million Americans... yet upon which 310 million Americans have focused their full attention. (Have we finally found the real 1 percent who control everything?)

How large (or small) is this need? On average, in a city the size of Seattle (pop. 620,778), we need only find employment for an additional 2,000 people. In infamous Flint, Mich. (pop. 102,434), we only need to create work for 330.

And in a battleground state such as Ohio (pop. 11,544,951), roughly 37,200 people need jobs in order for America to reach a 5 percent unemployment rate.

Whether you find these numbers attainable or insurmountable is a matter of opinion, I suppose. It must be remembered, however, that these are nothing more than averages. For instance, a report came out this week suggesting that the unemployment rate among Millennials may have topped 11.8 percent

That’s terrific news if you’re older than 35! Since the age-group born from 1978 to 2000, known as Millennials, is generally counted at 80 million, this means there’s a cohort behind them who are too young to work, and a mix of groups born before 1977 who make up the balance of the workforce. It stands to reason that if the total unemployment rate for all ages is 7.8 percent—but specifically 11.8 percent for the youngsters—then it must be significantly LESS than 7.8 percent for those of us older than 34 (the cut-off for Millennials). You don’t even need your calculator for that one if you don’t care about the exact number.

Bottom line: adding up the rebound from the stock market that occurred over 2 years ago, the $3,000 savings from home re-finances, and the “real” unemployment rate... there are plenty of consumers out there ready and able to apply for the solutions we’re offering.

Too many producers keep psyching themselves out that conditions still aren’t ideal for sales.

Why? Because the last piece of the rebound puzzle hasn’t been played yet: Good employment numbers, which are the last to come back.

Don’t wait! For the market we serve, the rate is low... and when we count the “real” number of individuals looking for work, it may even come as a surprise.

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