I’m not superstitious. But I choose to take the following as a sign…Just as I sat down to write this, the phone on my desk rang.

“Hello,” I answered. There was a brief pause, followed by the unmistakenly robotic tones of a pre-recorded message.

“Please listen carefully. There is a solution that can solve all your debt problems…”

This type of automated cold calling is a sign of the times. We know all about Britons’ personal indebtedness — and so do the loan sharks. But now the economic slowdown is entering a new phase — rising unemployment.

Last week Taylor Wimpey shed 900 jobs. Today we read that another home builder, Persimmon, is to lose 1,000. In the past week, the construction sector as a whole has added 3,200 bodies to the unemployment count.

A survey by KPMG/REC, due to be published tomorrow, is expected to show the number of people seeking work rose last month. The OECD said last week that Britain will see 100,000 new unemployed over the next two years.

As slowdown becomes contraction — this morning’s Office for National Statistics figures show industrial production fell 0.5% between April and May — those looking for jobs will find them harder to come by.

There is an argument kicking about that, once the vagaries of the credit crunch have passed… and the oil market starts behaving itself… and all the other ducks are in a row, well, the economy will “bounce back”.

After all, the Government tells us our economic fundamentals are strong.

I’m going to put to one side for a second the misgivings I have about that statement. I’ll also overlook the fact that our current problems, far from being the result of external shocks that are separate from our economy, are actually the symptoms of real structural weakness.

Because even if the optimists are right in what they say, a prolonged recession will make them wrong. I’ll explain what I mean by that.

Let’s assume that the “fundamentals of the economy” (whatever they are) are indeed robust. But, despite these strong fundamentals, we have a recession. Something happens — the credit crunch, the high oil price — that causes our otherwise sound economy to contract.

Some people will lose their jobs. But, so the optimists believe, they’ll get new ones once all the bad stuff that caused the recession has gone away. The economy will start growing again quickly. It will “bounce back”.

But the longer the recession goes on, the weaker the fundamentals get. It’s no good looking at the way things are now and saying “If everything stays like it is then we’ll be fine when the bad things go away”.

The longer unemployment goes on rising, the more long-term unemployed there are in the economy. We have a greater number of de-skilled, de-motivated people. More small businesses will go to the wall — meaning there’ll be fewer places where the unemployed can find work.

The longer it goes on, the more business and consumer confidence is battered. Firms and households are less inclined to do the spending and investment necessary to get the economy growing again.

Put simply, a recession weakens economic fundamentals. That should be self-evident — but to those expecting the economy to “bounce back”, it clearly isn’t.

History shows us that, once a recession takes hold, it hangs about. Last time out, in the early 1990s, it took 13 quarters for GDP to get back to where it was before recession (that’s not to mention where it would have been had recession not occurred).

In the mid-1970s it took 14 quarters. In the early 1980s, 17.

So, even if fundamentals are strong now, they won’t stay strong. So you can forget about bouncing back.

And, by the way, it’s complete poppycock to talk of strong fundamentals anyway. This week’s Economist featured the following, which I liked:

“Share prices are suffering because of the outlook for four forces that impel stock markets: economic growth, profits growth, interest rates and inflation. At the moment, the first two seem to be slowing while the last two are rising. That is the worst possible combination.”

The economy, as well as the stock market, is in for a bumpy ride. The “fundamentals” all point to it.

That’s why the new report by the Fleet Street Letter recommends investments that are non UK-facing. I’ll be bringing you more on this report, including how to get your copy, later in the week.

A gold miner with all the right ingredients

Gold’s been on the march again. Over the last month it got itself back above the $900-an-ounce mark — though the price has eased in recent days.

Several commentators, among them Citibank, see gold reaching $1,200 before long… our Miner Diarists Erin and Isabel reckon that gold producers are being outshone by the metal itself!

But gold miners still offer a lot of promise. Erin and Isabel have taken a look at one such producer which, despite recent setbacks, still looks to have all the ingredients for success…

How to play the FTSE promotion premium

Four times a year, the FTSE 100 sees a change of line-up. Some stocks get promoted, while others are kicked out to make way.

And, weird though it may seem, there’s a very simple way you could make money just by following the stocks involved. Theo Casey, our research director, has back tested a very simple system — buy all the stocks that are promoted, then sell them at a pre-defined date.

It’s not foolproof — what system is? But, for most of the years he’s looked at, this simple method has worked.

Find out how you could have made up to 23% in recent years, buying and selling shares based on this one simple principle.

Until tomorrow

Ben Traynor

Source: Rising Unemployment - The Newest Phase of the Economic Slowdown