State of Dis-Union

03/30/2010 05:12 am ET | Updated May 25, 2011

The focus of President Obama's State of the Union address, as we all know, was jobs, jobs, and jobs.

But if you're one of the nearly 16 million Americans out of work, bad news. The President, who told Congress its number one focus this year should be on job creation, served up little in the way of realistic hope for resolving the nation's chief economic illness, lofty unemployment.

That was the reaction of one razor sharp economist to such proposals as:

  • A30 billion expenditure to banks for small business loans.
  • The elimination of all capital gains taxes on small business investment.
  • Tax incentives for businesses that invest in new plant and equipment.
  • Tax credits for companies to hire more people or raise wages.
  • And putting Americans to work today by building the infrastructure of tomorrow.

"I was very disappointed," says Madeline Schnapp, the economics chief of TrimTabs Research, a West Coast liquidity-tracking service partially owned by Goldman Sachs. "These proposals are not a meaningful and sustainable creator of jobs over the long run. The government is simply embarking on more of the same, expanding federal programs and spending more money than it has."

Arguing that such programs will come with lots and lots of strings, Schnapp contends what they will create are more bureaus of bureaucracy that will stifle small business. "How," she asks, "can federal bureaucracy in Washington, D.C. understand the needs of a small business in Sebastopol, CA, a town of 8,000, which is where I live?" The answer, she says, is it can't.

Of the five proposals, Schnapp found fault with four of them. The one that struck her positively was the elimination of all capital gains taxes on small business investment. "Yeah, I like this one," she says. "The more money small business can keep, the more they can invest in their own businesses, hire, and add productivity."

Meanwhile, we've all heard time and time again from economic experts over the past six months that our unemployment woes would be on the wane in early 2010 and that job firings would be replaced by job hirings amidst a peppier economy.

Sounds good, but the problem is someone forgot to tell the bosses. Their actions prove that talk of improving employment over the short term is for the birds. So far this year, for example, such corporate biggies as Wal-Mart, Sprint Nextel, Caterpillar, Home Depot and Pfizer have announced layoffs or planned layoffs of 56,500 employees. Wal-Mart's Sam's Club stores unit is one of the latest culprits, having recently announced it will scrap 11,200 workers.

This steady stream of renewed layoffs, plus New York City's growing number of beggars (who may well be on the rise in other areas of the nation), seems to offer evidence that Wall Street's employment script is cockeyed, notably its general expectation that this month will only show a loss of 5,000 jobs, versus a loss of 85,000 in December, and then turn in a gain in February, thanks to a slowly improving economy.

Schnapp is convinced the Street is blind-sighted in its employment outlook, which raises questions about the vigor of the economic recovery and the sustainability of the market rally.

"The facts tell us the ugly jobs picture will get a lot uglier before it gets better," she says.

In fact, her expectation is that the work force will actually lose between 50,000 and 150,000 jobs a month over the next six months.

TrimTabs, which claims about 150,000 jobs were lost in December, not the reported 85,000, has long contended that the jobs numbers issued by the Bureau of Labor Statistics are flawed because of seasonal adjustments and incomplete survey data. TrimTabs, for example, bases its employment numbers on the use of real-time tax deposits from every employee subject to tax withholdings (approximately 105-110 million), while the BLS only surveys about 440 business locations with roughly 30 million employees).

TrimTabs' jobs outlook is pretty grim, especially for the 15.7 million people (10% of the labor force) who are out of work, or actually 25.4 million (17.3% of the labor force) if you factor in the total number of marginally employed (people who have stopped looking for work and those who can only find part-time jobs). It's also bum tidings if you're one of the 10.5 million individuals collecting unemployment.

Why does Schnapp see the jobs picture getting uglier? "Because we don't see a ho-hum economy creating a lot of jobs," she says, meaning, companies will be reluctant to add employees.

Schnapp's economic outlook this year calls for puny growth in the range of 0% to 1.5%, which she sees characterized by high unemployment, falling wages and salaries, little or no private sector job growth, continuing high foreclosures and delinquencies, flat consumption growth, and rising interest rates.

Noting that the economic engine of the economy is small to medium-sized corporations, she notes that these companies do not have access to the stock and bond markets for capital to fund their needs. Therefore, she observes, their funding must come from organic growth, private investments, or from banks in the form of corporate and industrial loans. Meanwhile, banks' growth is declining at the fastest rate since at least 1980. And since there is little or no organic growth, banks are reluctant to lend to small and medium sized companies that lack extra capital with which to hire.

The bottom line: President Obama, like the Minnesota Vikings' aging quarterback, Brett Favre, may be forced to discover that high hopes, even backed with a seemingly solid strategy, don't always win the ball game.

And as far as John Q. Public is concerned, if you hate your boss, keep it to yourself.

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