US is Losing the Battle Against Unemployment. Here's a Gameplan.

Following a happy toast to better manufacturing numbers from yesterday's ISM report, policy makers are back at the drawing board. Earlier today, non farm payroll numbers (NFP) were released. NFP rose by 54,000 in August; matching up with July's revision. This signals an overall loss in jobs for three months straight. Even though the NFP results were slightly above expectations, it still gave further confirmation that the labor market is weakening.

Adding to the employment pressure, the unemployment rate rose slightly to 9.6% after hovering at 9.5% for the previous two months. A move downward could be a taste of worse to come, or just a minor loss that will soon be corrected. Either way, unemployment is still high and should be of main concern for policy makers. Meanwhile, the private sector added 67,000 jobs in August mainly in education and health care. The government cut 121,000 jobs mainly due to decreasing state budgets. Some signs of hope from the private sector tells us that there is potential, but the market needs an extra push for employment to expand at a reasonable rate for recovery.

Expect a shift from monetary to fiscal policy. This will come in the form of tax cuts for small businesses; maybe not an extension of the Bush tax cuts, but some other crafted tax strategy by the Obama administration specifically designed for the current economic situation. However, we must be careful about how this should be implemented. The US doesn't need a jolt of incentive to artificially boost data only to return to previous levels or worse; as seen in the housing market following buyer tax credits. The tax strategy needs to float - start with significant cuts, but slowly ease stimulus as conditions improve. Now is the time for impressive strategy, one that must be accessible by businesses - one failure of the stimulus being that much of it remains unspent because it was planned poorly on both federal and local levels and didn't effectively reach the public. The government needs to encourage on the job training through tax credits. This could potentially be a long term strategy as a bulk of the labor market gets trained in accelerating industries that are hiring; especially as most economists explain that the quality of the labor market does not meet the demand of the private sector (which apparently is hiring).

As for now, the US economy is showing more signs of decline despite impressive ISM numbers. I do see a turnaround as industry expands, but for the time being conditions will worsen. Once policy makers craft a plan, the support of industry and government incentives will provide a much needed boost. Currently, I'm bearish on the US dollar, as the market loses trust in our economy following the poor jobs numbers.

Also, it's important to note that the ECRI indicator that tracks inflation and growth in major economies just dropped to -10.1%. Zero Hedge, a financial blog, reports that the indicator is entering double dip territory.

We're losing the battle, and unfortunately the main casualties are the unemployed.