Bleeding in the Labor Market 19 comments
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Our long-running worry that the economy's suffering would get worse before it gets better finds ample support in this morning's employment report for November. Nonfarm payrolls plunged by 533,000 last month, the U.S. Labor Department reports. That's the steepest monthly decline since 1974 and the sixth-worse number on record going back to 1939.
The labor market, to be frank, is bleeding, and it's not obvious that blood will stop flowing soon. The negative momentum has a head of steam — no question about it. Whatever monetary quivers the Federal Reserve has left to play should be deployed post haste. That includes dropping the Target Fed Funds Rate to 50 basis points, perhaps even to 25 basis points, while ratcheting up efforts on so-called quantitative easing, which is to say the full array of unconventional monetary policies. With interest rates so close to zero, all that's left with monetary policy are the irregular methods of injecting money into the economy. It's not clear that such efforts will provide much additional stimulus, but at this point there's little reason not to try.
The main front in the war to battle deflation and recession now shifts in earnest to Congress and fiscal stimulus. Alas, there's a bit of a political issue tied to this idea at the moment. The economy can't wait for President-elect Obama to assume the presidency late next month. Allowing the economy to fend for itself over the next 7 weeks risks letting an already troubling situation fester into an even deeper problem. The Bush administration needs to reach out to the Obama camp and the two sides need to work as one with the lame-duck Congress.
It's debatable how much fiscal stimulus is needed, but whatever the number it should be big: $500 billion at a minimum, although double or even triple that amount isn't beyond the pale. We don't make that recommendation lightly. The details of how it is spent matter too. The brightest minds in economics, hopefully, will advise the politicians on how to spend a new round of fiscal stimulus to insure maximum stimulative results. In any case, the stakes are clear: If the government has any hope of keeping the economy from further deterioration, the window of opportunity is closing fast and so bold, effective action is required soon.
Of course, the argument for acting now may not look all that compelling if we limit our gaze to the unemployment rate, which rose to 6.7% in November from 6.5% previously. By historical standards, that doesn't look excessively alarming. But the depth of the jobs destruction in nonfarm payrolls last month speaks loud and clear about where the unemployment rate is headed: higher, perhaps much higher.
The leverage and excess built up over the years is unwinding, and it's now infecting virtually every corner of the economy. Indeed, other than in the government and education/health services areas, job losses were the norm across the economy last month. Notably, the usually robust services industry shed a huge 370,000 jobs last month alone, more than half of the total jobs lost in the nation. Services, which collectively employ the lion's share of the country's workforce, have only recently started losing jobs. That's not surprising, since services tend to hold up better than, say, manufacturing, which feel the pain first when the business cycle starts to falter. Nonetheless, the magnitude of losses in services highlights the depth of the recession that now has the economy by the throat.
"This is a clear employment blowout. Firms are reacting as dramatically as they can to make sure they have cost structures they can survive the recession we are in," Joel Naroff, president of Naroff Economic Advisors, tells Reuters today.
Turning around the negative sentiment won't be easy, but an all-out effort has rarely looked more convincing. The moment for action on the fiscal front has arrived. Yes, the thought of creating so much government debt raises a host of issues for the years ahead. But doing nothing courts even greater risks. We must wage war on the enemy as it arrives, and for the moment the monster at the door is recession with a capital "R". Dealing squarely with the beast is, for the moment, priority one, two and three.
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I'm no optimist on the near future, its going to suck...but everyone's NOW is the worst time in the history of the world egotism is just going to make the downturn worse. At least put the numbers in context. There are MORE people and MORE money out there than in the past, so obviously the numbers are going to increase. Let's just get more historical relevance than trying to grab the BIG TERRIBLE headline.
There's more fluff and smoke and mirrors in the reporting of this economic situation than in the government, companies and people who have created it.
Thank goodness the US government can handle an infinite amount of debt. Otherwise I might get worried.
On Dec 05 12:24 PM CJJ wrote:
> Can people put these numbers in historical context. This is the 41
> worst drop in job losses as a % of total jobs ever. 41ST. Not 1st,
> not 2nd, 3rd....41ST. I'm not saying its good since the onslaught
> has been going on for a year and it going to continue. But I'm tired
> of the worst numbers seen since X years ago(many of which are like
> worst since 5 years ago...oh no).
>
> I'm no optimist on the near future, its going to suck...but everyone's
> NOW is the worst time in the history of the world egotism is just
> going to make the downturn worse. At least put the numbers in context.
> There are MORE people and MORE money out there than in the past,
> so obviously the numbers are going to increase. Let's just get more
> historical relevance than trying to grab the BIG TERRIBLE headline.
>
>
> There's more fluff and smoke and mirrors in the reporting of this
> economic situation than in the government, companies and people who
> have created it.
I read journalists for facts not speculation, is what you don't seem to get. I think the readership is smart enough to figure out for themselves that the little squiggly line looks headed down, we don't need you to enlighten us to that fact.
Still doesn't change the fact right here, right now, this is the 41st worst drop, not the worst ever.
This does shape up to be one of the worst recessions in a long time... But it also looks like it'll be the one most aggressively fought by the government ever, with an absolute tsunami of money.
I honestly am not sure which side will win... though by nature I would rather bet on my fellow man than against.
If you do that the situation is less draconic but job levels are clearly falling from a cliff.
That is logical; total housing value lost can be 10 to 11 trillion US$ in home value. Now we are about halfway and of course a lagging indicator like NFP numbers will get dragged down at some point in time.
At last: The Oct numbers were rivsed from minus 240 to minus 320.
This could mean that in the last two months about 900 K jobs are lost...
On Dec 05 01:31 PM Muzie wrote:
> sheople: "With an economy now based 70% on spending and the masses
> with no money to spend, that 41st is going to be decimated."
>
> I read journalists for facts not speculation, is what you don't seem
> to get. I think the readership is smart enough to figure out for
> themselves that the little squiggly line looks headed down, we don't
> need you to enlighten us to that fact.
>
> Still doesn't change the fact right here, right now, this is the
> 41st worst drop, not the worst ever.
>
> This does shape up to be one of the worst recessions in a long time...
> But it also looks like it'll be the one most aggressively fought
> by the government ever, with an absolute tsunami of money.
>
> I honestly am not sure which side will win... though by nature I
> would rather bet on my fellow man than against.
On Dec 05 12:37 PM User 185823 wrote:
> The exploitation of statistics for journalistic impact is irresponsible.
> Don’t contribute to fear mongering. Emphasize the relevant employment
> statistic, which is the 6.7 percent unemployment rate. Although
> not perfect and subject to revision, the unemployment rate compensates
> for population changes and is the appropriate metric to apply when
> comparing time periods. The November 6.7 percent rate is significantly
> lower than the 10.8 percent level in 1982 or the 20+ percent levels
> that occurred during the 1930’s. For real perspective, the November
> 2008 monthly increase in unemployment is only the 41st worst as a
> percentage of total employment. The unemployment rate is trending
> up, and perhaps we will approach prior high levels, but currently
> we’re not even close. These are the statistical truths that should
> be reported.
On Dec 05 02:02 PM dw57 wrote:
> but thats the u3 number, which is manipulated to make it look good.
> the really good number is the U6, which if you looked at it was more
> %12
>
> On Dec 05 12:37 PM User 185823 wrote:
Um, people, personal disposable income was 3.8% higher in October 2008 than the prior year's October.
Personal consumption was 2.3% higher. The balance increased the savings rate. Income is running at a 10696 billion a year annual rate with consumption at 10040. "But, but, how can income be rising when there are no jobs?" Because 93.3% of the workforce has jobs and their pay is 3.7% higher, for starters.
She's a big ship. She doesn't turn on a dime.
As for the panic to stimulate and stimulate some more, there is a 6 to 9 month lag for the actions already taken. We won't see the effects of the Fed rate cuts in full until about the end of Spring, and we won't see the effects of the bailout in full until the summer, and we won't see the effects of direct intervention in the mortgage market etc until the early fall of next year.
Frankly we are probably already in overkill on the interventions. I say that even though I still fully expect unemployment to go right on rising through the summer, topping out between 9 and 10%.
Guess what? In that whole period, the worst that will happen to disposable income is that it stays flat, and it will probably actually rise marginally. "But how is that possible, 3-5 million people will lose their jobs!" Yeah, and 140 million won't. Also, tax receipts will drop. Transfer payments will increase. All the extra debt the government is running up shoveling money out the door will end up in some bank or fund portfolio still worth par, and also as cash money in some spending recipient's pocket.
The reason there are lags is the household sector needs to rebuild its savings rate, up from zero, and banks need to reduce their leverage and rebuild capital, adding to reserves, etc. But it is a deterministic process of accounting identities that they will do so. The government can't run up trillions in net new debt without someone or other acquiring claims against it.
This isn't 1930. It isn't even 1982. Some elements of 1974, at the worst, probably not even that bad.
Just be cool, folks, she'll hold. It is just a big ship - these things take time.
but how long will it last...
As for what numbers to use or shadowstats, etc. that is all noise. A 533,000 monthly drop and the conspiracy theorists still hang on that its a manipulated number. We all know what the number represents, it is stated in print what it represents. If you don't agree that is TRUE unemployment, fine. But I also don't agree with Nielson ratings about TV viewership, but I don't think its some conspiracy by Nielson, its just a bad system.
This is a deep downturn, no doubt. But businesses are just not created to suceed in downturns because in downturns people do irrational things. People, just like companies hoarde money. So most money goes to NECESSITIES like bills, healthcare, etc...not to discretionary...retail... eating out, etc...This is OBVIOUS and cyclical. To hear everyone rooting for certain companies to go out of business that are obviously going to struggle in a downturn is silly, I say to watch out, you may get what you wish for.
On Dec 05 03:15 PM JasonC wrote:
>
> Um, people, personal disposable income was 3.8% higher in October
> 2008 than the prior year's October.
>
> Personal consumption was 2.3% higher. The balance increased the
> savings rate. Income is running at a 10696 billion a year annual
> rate with consumption at 10040. "But, but, how can income be rising
> when there are no jobs?" Because 93.3% of the workforce has jobs
> and their pay is 3.7% higher, for starters.
>
> She's a big ship. She doesn't turn on a dime.
>
> As for the panic to stimulate and stimulate some more, there is a
> 6 to 9 month lag for the actions already taken. We won't see the
> effects of the Fed rate cuts in full until about the end of Spring,
> and we won't see the effects of the bailout in full until the summer,
> and we won't see the effects of direct intervention in the mortgage
> market etc until the early fall of next year.
>
> Frankly we are probably already in overkill on the interventions.
> I say that even though I still fully expect unemployment to go right
> on rising through the summer, topping out between 9 and 10%.
>
>
> Guess what? In that whole period, the worst that will happen to
> disposable income is that it stays flat, and it will probably actually
> rise marginally. "But how is that possible, 3-5 million people will
> lose their jobs!" Yeah, and 140 million won't. Also, tax receipts
> will drop. Transfer payments will increase. All the extra debt
> the government is running up shoveling money out the door will end
> up in some bank or fund portfolio still worth par, and also as cash
> money in some spending recipient's pocket.
>
> The reason there are lags is the household sector needs to rebuild
> its savings rate, up from zero, and banks need to reduce their leverage
> and rebuild capital, adding to reserves, etc. But it is a deterministic
> process of accounting identities that they will do so. The government
> can't run up trillions in net new debt without someone or other acquiring
> claims against it.
>
> This isn't 1930. It isn't even 1982. Some elements of 1974, at
> the worst, probably not even that bad.
>
> Just be cool, folks, she'll hold. It is just a big ship - these
> things take time.
Low interest rates ----which by the way, got us INTO THIS MESS---have shot their wad, and the time has come for fiscal policy to come to the front.. Thats what voters put Obama in for.
Get the economy back on track, and the FINANCIAL SYSTEM WILL TAKE CARE OF ITSELF.
cyclingscholar
Perhaps this is the natural unwinding of debt that should never have been taken on by people to begin with? Perhaps the government leveraging itself up with debt to "stimulate" the economy is just as bad... Perhaps the government shouldn't go down the same road some failed corporations went down...?
No bailouts, ever. Period. End of story. It's OUR job to save and lend and create jobs... How is government honestly going to stop the bleeding that had to happen with all the "excesses" that worked their way into the system? Why perpetuate this unsustainable mentality of "take on more debt" and "buy more junk you don't need"?
As for cycling scholar, nobody is penalizing you. Go invest at the huge spreads now on offer. If you think interest rates are ridiculously low, borrow at them to carry stuff. If you aren't willing to do so because you consider it risky, then guess what? It isn't ridiculous that they are low.
Present realities have cut, now you choose. You can't be oppressed in the matter because nobody is forcing you to take one side of the trade rather than the other.
THIS IS PORK BARREL SPENDING NOT A SOLUTION.
WE DO NOT NEED TO SPEND ANOTHER TAXPAYER PENNY ON GOV'T PORK BARREL SPENDING.
CALLING PORK BARREL SPENDING A STIMULUS PACKAGE IS ABSURD. WE DO NOT NEED IT.
THE LAST THING ON EARTH WE NEED IS TO SPEND ANY MORE MONEY.
In Europe we have stopped falling at the way data and numbers are presented. They are quite often heavily faked. Its just about selling, consumption, not necessarily the truth.
Eg. calculation of the dow, statistical analysis of population only done in suburbs, my knowldge as Qm auditor at US auto plants.
People i worked with where often so convinced about US leadership, that any argument would not stand or even be considered.
As in the post here, people would call you dummass or something similar.
Many serious post are talking about 12 % unemployment now, due to the fact that many people don't bother to register or just move around.
I think putting money into systems has to be done in a very careful and responsible way. With all the lobbyist etc. and government being sponsored by private companies I see a problem here.
What I read from Obama makes us very fond of him in EU. Putting money into common things, which should have been done the last 20 years does make sense.
Schools, public transport, for the hard thinkers social housing (where is the difference to a missile), training for unemployed etc and investment in green technology like isolation of houses.
Surely these are things that are hard to think through, since they do not offer a major benefit for any single person instantly, which is the major US driver.
But maybe the truth lies somewhere between absolute capitalism and absolute communism