Non-farm payroll employment fell by 240,000 in October, and the unemployment rate jumped to 6.5%, up from 6.1% the month before, the Bureau of Labor Statistics reported in early November.

October’s drop in payroll employment followed declines of 127,000 in August and 284,000 in September, according to revised BLS reports. Employment has fallen by 1.2 million in the first 10 months of 2008, with more than half of that decrease occurring in August, September and October. In October, job losses continued in manufacturing, construction and several service-providing industries. Conversely, the healthcare and mining sectors saw their job ranks grow.

And it’s going to get much worse before it gets better, Goldman Sachs Group Inc. (GS) has predicted. Goldman Sachs says the U.S. unemployment rate will spike to 9.0% by the fourth quarter of 2009, as corporate profits plunge an estimated 25% – and that’s after an estimated decline in profits of about 10% this year, Goldman analysts say. The U.S. economy – as measured by gross domestic product (GDP) – will decline by 5.0% in the current quarter, followed by declines of 3.0% in the first quarter of 2009 and 1.0% in the second quarter, Goldman analysts predict.

Those numbers are worse than Goldman originally predicted, and create an outlook similar to Money Morning’sprojections, which called for a credit-crisis-nurtured economic downturn that could last as long as 12-18 months.

The NBER yesterday (Monday) formally announced that the U.S. economy peaked and entered into a recession in December 2007. The U.S. Commerce Department estimated that the U.S. economy, as measured by GDP, rose 0.9% in the first quarter. In the second quarter, GDP advanced an estimated 2.8%. For the third quarter, GDP declined an estimated 0.3%.

Also this week, the U.S. Federal Reserve’s “We have marked down our forecasts for US real GDP in response to continuing signs of falling domestic and foreign demand, labor market deterioration, renewed tightening in financial conditions, and an apparent impasse in fiscal policy pending the transfer of power to the Obama administration in late January. As a result, we expect the unemployment rate to reach 9% by the fourth quarter of 2009, profits to fall 25% for 2009 as a whole following an estimated 10% drop this year, and the Federal Open Market Committee (FOMC) to use nontraditional policy tools more aggressively, as detailed below – Beige Book – due out tomorrow (Wednesday) – offers a look into activity within the various regions of the country.

Weekly Economic Calendar

Source: November Unemployment Statistics to Highlight Economic Reports This Week

There were three news stories, although all are quite well understood. Dollar weakness, the unexpectedly large US unemployment report, and the Iranian “story” from Israel all conspired to trigger the upward move. So far, so good. But it’s the same news as we’ve seen many times before. Nothing new, really. (139th story about the impending attack on Iran, for example… Yeah, right. I’ll believe it when I hear the bombs explode.)

But then came the short-covering that drove what would have been a $2 or $3 move into an almost $11 move. Hence the melt-up.

The normal reaction to the excessive advance is a retreat… and this is what we’ve seen early week — when retreated about $3/bbl.

By definition, the “futures” markets are all about the future.

In general, in the future people expect to see a weaker dollar and tighter supplies of oil that cannot meet projected demand.

The way to break this cycle is with a clear signal from the US Federal Reserve that it will defend the dollar. I’d like to see a 1% interest rate increase, with language that if this does not get the dollar on track then there will be more rate increases. This will hurt some parts of the economy (like housing). But it will salvage the rest of the economy. As things now stand, high energy prices are just going to kill off the bulk of the economy and destroy the American middle class.

But this monetary action is only half of the solution.

The other half is that the US govt needs to adopt a strong, production-oriented energy policy. Yes, the new policy must include the usual tributes to conservation & efficiency… as if high energy prices do not enforce and drive home the import of such virtuous behaviors. And the new policy should give wide leeway to windmills, solar, geothermal and 2nd generation biofuels. It’s a true shame to waste good coal or oil on something that you can do with a windmill. But you cannot run an economy on windmills, solar, geothermal and biofuels alone.

U.S. Dependence on Oil…

The US needs to focus on North American energy production, via oil & gas drilling in Alaska and offshore, plus “clean coal” technology, coal-to-liquid, oil shale development, gas hydrates, next-generation nuclear, and anything else that will work in the next 10-20 year time frame.

Just the announcement that the US is adopting this pro-production policy will shape the marketplace and tend to drive long-term prices down. The worst case is that it will sure moderate any future price increases.

There is an astonishing amount of energy technology out there, already invented and workable. The great challenge of the future is systems integration, to bring it all together and apply it to our problems. Integrate it, make it work and scale it up. This just takes a lot of hard work, with direction and incentive to achieve.

The first energy “system” that is broken in the US is the lack of coherent, national energy policy. We have to fix that.

And if we don’t defend the dollar, what’s the use? The dollar will die, and we’ll be calculating our energy transactions with seashells or pretty stones.

Best,

Byron King

Note: Byron King is a frequent contributor to the free e-letter Whiskey & Gunpowder. To receive daily insights into energy, oil, commodities and other natural resources sign up here!

Source: The Oil ‘Melt-Up’ and Why the U.S. Economy Won’t Run On Windmills Alone.

Of course, this doesn’t include the 8,800 layoffs Dell announced, the proposed breakup of UBS (which should result in more layoffs), and others which I just can’t find right now.

And all of this weakness should continue into May. But I do expect some of those tax rebates to come in and prop up consumer spending for a month. I’m glad (please note the sarcasm) that our government decided to take a loan on a $150 billion tax break.

If they did this over ten years, that means we’ll pay an additional $37.5 BILLION in interest payments when all is said and done. And to what, prop up spending for a month?

Oh well.

Since the market opened though, three of my open positions are doing great. One isn’t. But then again, that’s a long-term hold. So I don’t expect it to perform great right now. But in about two years I should be sitting on 200-300%.

Now, if only the Dow could go ahead and fall about 200 points, then I’d feel much better about the market. Reason being, the Dow is sitting right under trend-line resistance. If the Dow breaks through this, it could signal further gains.

But if it fails to pass this resistance, then it should mean the Dow could move back down to 12,000 at the very least.

One thing is certain, next week we’ll see a lot of volatility. Hopefully the market does what I expect so I can make boatloads of cash. If not, then it would be time to reverse course and start looking for the beaten down companies.

This brings me to an important point. Always have a plan of action.

Sometimes when you invest, you’ll be wrong. And if you have several positions open, then you’ll need a plan of action in case you have to reverse course. If you have a plan ready, then you can quickly eliminate the losers and get into positions that will make you money.

Alright, it’s time to go get some coffee. So I’ll talk to everyone later!