Friday's Job Loss Report: As Bad as It Gets?

Banks across the country on life support, America's manufacturing backbone teetering on the edge of bankruptcy, and on Friday, 533,000 net jobs reported lost in November. The job losses marked the greatest monthly decline since 1974! With things seemingly bleak already, it leaves one to wonder, is this as bad as it gets? The stock market indicated it might just be, as it took the tough blow and turned in a rally to close up 3.0% on the Dow Friday.

The Tough Blow

Friday's employment situation report noted further deterioration in unemployment, as the jobless rate expanded to 6.7%, from 6.5% in October. We shed 1.7 percentage points and 2.7 million jobs since last December. However, employment is a lagging indicator. Therefore, it will be back-end loaded, and so it won't take as long to shed the next 2 percentage points. The pace of job cutting is alarming, and whole sectors of the economy have only just begun shedding. As those groups join the hard-luck ranks, we should get to 8.4% unemployment easily, and whether we go further depends on a few wildcards.

The consensus expectation for November, according to Bloomberg, was for a net of 300,000 lost jobs. The holiday season started looking bleaker earlier in the week though, when ADP noted private sector losses at 250K and Goldman Sachs (NYSE: GS) revised its Labor Department estimate to 400K. Challenger, Gray & Christmas also noted November's planned layoffs up 61%, to 181,671. Friday's report still knocked the socks off every forecast.

Unemployment Spreading

According to Challenger and the Labor Department, job losses were "large and widespread" in November. John Challenger said that while high profile losses continued in the financial and auto sectors, slowing consumer spending was beginning to drive consolidation in other businesses. This means that retailers, hanging on for dear life, will shed significant jobs and consolidate stores post the holidays.

Besides retail, Silicon Valley has been late in swallowing its medicine. Last week though, both Advanced Micro Devices (NYSE: AMD) and Research in Motion (Nasdaq: RIMM) revised their outlooks. AMD has already shed 2,100 jobs this year. This hit is broad reaching, so both consumer and business investment spending should see impact. Even energy is not safe from recession, because as commodity prices decline, the feasibility of exploration and production decrease.

Counting the Dead

A sense of hopelessness may be setting in for a large number of the unemployed. Folks who say they do not expect to be rehired by their firms rose by 298K last month. The number of part-time workers currently employed less than they would like has increased as the economy has slackened (up 2.8 million over twelve months). The first place employers look to trim jobs though is part-timers.

Manufacturing lost 85,000 jobs in November. December looks about the same, give or take 3 million auto workers. Construction lost 82,000, and as commercial real estate gets worse, this trade group has no place to hide.

Retail trade lost 91,000 jobs in November, after seasonal adjustment. Working in retail now is like being on death row, and your execution is set for January 1st. Professional and business services lost 101K jobs.

Now the good news... Health care employment grew by 34,000. Still, job losses are mounting, and where they are not yet, they will be. This is not as bad as the economy gets folks, but at least the stock market seems to have priced most of it in. Two things it hasn't priced in yet though threaten ominously before us, bankruptcy in the auto sector and war with Iran. No matter how bad things seem, they can always get worse.

Comments

[Dave Wrixon:]

The problem is that every bad figure produced by the government this year has been an under-estimate that has subsequently been revised upwards. The real figure for November is far more likely to in excess of three quarters of a million. And what about those 400k plus that mysteriously just disappeared from the workforce at the stroke of a pen?

As for the stock-market, they didn't really see any of this coming in the first place, so the fact they are now able to see ahead and discount all this bad news is cold comfort.

The thing that worries me most is the idea that Bernanke is going to be buying Treasuries. Just when the dollar is peaking on technicalities prior to a deep swoon, it seems that the World is about to be overtly shown that the whole game is just one big Ponzi trick.

The ultimate problem and one that will limit Obama ability to act is that of the financial credentials of the US government. Other governments and sovereign wealth funds are getting twitchy. If they fail to underwrite the rescue then the dollar could nose dive. Some depreciation is essential. Collapse of the currency, however, would be catastrophic.

2008 Dec 07 07:52 AM

[well:]

that's just the start... and the fact that greedy US corps outsource all of our jobs is really gunna help put people back to work

2008 Dec 07 08:26 AM

[John Lounsbury:]

Markos - - -

Good article with some logical conclusions. You are off base in one area, though.

You wrote: "However, employment is a lagging indicator."

This is a commonly quoted adage, but the reality is not that simple. Employment is a lagging indicator, a coincident indicator and a leading indicator.

There are two labor statistics in in the Index of Leading Economic indicators:
1. Average weekly hours of production workers (manufacturing)
2. Average weekly initial claims for unemployment insurance (inverted)

There are two labor statistics in the Index of Coincident Economic Indicators:
1. Employees on nonagricultural payrolls
2. Personal income minus transfer payments

There are three labor related statistics in the Index of Lagging Economic Indicators:
1. Average duration of unemployment (inverted)
2. Change in index of labor cost per unit of output
3. Ratio of consumer installment credit outstanding to personal income

These indexes are maintained by the U.S. Department of Commerce:
bea.gov

Two employment measures headlined this week (initial unemployment claims and weekly hours worked) are the two leading indicators.

2008 Dec 07 10:00 AM

[Moon Kil Woong:]

LOL to start a war in Iran would be total madness, might as well worry about war with Russia too. As for the market pricing the jobs loss in, I think they are just eager to see another government givaway. As for me, I think a drop in the market is better than silly market jumps led by bigger losses later. It's best to price it all end and then we can work off the lows. The slow erosion is painful and will hurt the market worse in the long run.

If you look at Keynes closely, you will see, stimulous helps the market once it has hit a low and can't find a catalyst to start up again. It was never meant to stop a de-leveraging. So I share the author's sentiment. But I'm more likely to say, it's inevitable to get worse with government intervention.

2008 Dec 07 12:42 PM

[VSD:]

The worst financial crisis since great depression and the unemployment rate went up by .02% from 6.5 to 6.7.

US economy is very resilient, it says...

2008 Dec 07 11:09 PM

[VSD:]

The worst financial crisis since great depression and the unemployment rate went up by .02% from 6.5 to 6.7.

US economy is very resilient, it says...

2008 Dec 07 11:09 PM