Weak US Employment Report Helps The Cause Of Big 3 Automakers

The only positive kernel in the US November 2008 unemployment report is the fact that it is a lagging economic indicator and a leveling or upward reversal of its direction down the road would be ecstatically received by the stock market. Now for the bad news…

Unemployment claims @ 533k far exceeded consensus expectations ranging from 220k to 350k and labeled November 2008 the worst month for job losses since December 1974’s 602k. Thus far, 1.9mm job losses have been reported as payrolls have contracted every month this year. With November’s report, unemployment now stands at 6.7%.

The most vulnerable areas of weakness in the economy appeared to be services, transportation, and manufacturing:

1) The biggest contributor to U.S. GDP is derived from the services sector and the fact that 370k jobs were lost will lead economist to revise GDP projections downward. Current estimates are now tracking GDP @ -5%.

2) Transportation is another vital area  as it facilitates the transfer of goods and people providing services. This sector of the economy lost 147k jobs. A weak transportation industry is bearish for commodities, especially energy. Merrill Lynch issued a research call yesterday which projected $25/bbl oil and all of a sudden it does not seem to be so far fetched. Energy companies represent @ 13% of the SP-500 benchmark index.

3) With the recent weak ISM report, the 163k jobs lost in goods producing industries probably surprised no one, but underscores the weakness of the manufacturing base.

Summary: The employment situation gives the auto makers badly needed ammo to further plead their cause for bridge loans. Meanwhile, the game of chicken being played between the Bush administration and lawmakers is coming to an end and both blink after realizing that they are on a collision course with blame for mismanaging an economic crisis instead of their political egos.

Despite being a lame duck, President Bush may be motivated to salvage his legacy while Congress and the Senate may not want to squander the political currency of mandates for improvement and change given to them by their constituents. If anything, the 2008 presidential, senate and congressional elections reminded politicians that reactionary populist democracy still exists.

Unfortunately, the sense of urgency has escalated and it definitely helps the cause of an auto industry in disarray. Realistically, GM (GM) and Ford’s (F) productivity and technology are more than sufficient to meet the transportation needs of the U.S. economy and Chrysler is truly a dead man walking. Nevertheless, the Big 3 are now more than likely to get the subsistence capital they need, albeit with an oversight board for restructuring or pre-organized bankruptcy and benchmark strings attached.

Disclosure: None

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