I love how the government and media quietly announced the unemployment statistics for August last Friday as many of us were either out of the office or rushing to get an early start to the Labor Day weekend.
I enjoyed even more the subtle way in which the news acknowledged the fact that the unemployment rate jumped to 9.7 percent, only 30 days after we had heard that it had declined in July to 9.4 percent from 9.5 percent in June, a trend which was heralded as evidence that the U.S. had reached or was near the bottom of this recession. Of course we learned last Friday that the unemployment figures for July were “upwardly revised” and as a result we didn’t experience a decline in the first place, a side effect of what I term “premature calculation”!
We also were told that the unemployment increase in August was “less bad” because the rise was less than what the economic analysts had originally forecasted. Tell that to the 216,000 workers who lost their jobs and the thousands of businesses impacted as a result.
So, the question I’ve been asked to address is which unemployment rate is the most relevant to the ARM industry. My answer: the one that represents the biggest impact to an ARM company’s liquidation performance.
After reviewing the various unemployment calculations maintained by the Bureau of Labor Statistics, I have come to the conclusion that the U6 calculation (Unemployed, discouraged and underemployed workers) is the most relevant, which increased 0.5 percentage points in August to a whopping 16.8 percent, representing a total of roughly 20 million people in the U.S. And remember, this is “less bad”. I like that the U6 number includes underemployed workers, because these are people that have jobs but aren’t making as much money as they are accustomed; they have been forced into part time work. This can impact payments to ARM companies.
So, what should ARM companies do with this information? Our recommendation is that executives of ARM companies, particularly consumer focused ARM companies, keep track of the unemployment rate because it can help them assess future changes in liquidation performance. If the unemployment rate is rising chances are that the future liquidation performance may decline.
Whether you believe the unemployment rate is 9.7 percent, 16.8 percent or something else the important thing to know is how it is changing over time. Feel free to give us a call and we will keep you apprised of changes in the unemployment rate and other key economic and market statistics that we believe are most relevant to the ARM industry.
Mark Russell manages M&A transactions for Kaulkin Ginsberg. To confidentially discuss your business interests, please contact Mark Russell at 240-499-3804, or by email.