Yet Another Gruesome Employment Report

For most of the past decade, I've happily ignored the payroll report on the first Friday of every month. The market often got very excited about it, but the headline payrolls number was generally unreliable and full of more noise than signal.

The unemployment number, however, wasn't. And the 7.2% unemployment rate -- which rises to a whopping 13.5% if you use the broader figure which includes the underemployed as well -- is very, very scary. We knew we would almost certainly see these numbers at some point in 2009, but the fact that we got there by the end of 2008 really underlines just how bad this recession is becoming.

The fact that unemployment is rising fast has no silver linings. Does it mean that companies are reacting fast and decisively to the recession, laying off workers in good time to avoid closing their doors entirely? There's not much evidence of that. Instead, it means higher unemployment payments, lower consumer sentiment and spending, and the continuation of a vicious spiral which is reaching Charybdis-like proportions.

If you're desperate for good news, you can cling to the 5-cents-an-hour increase in wages, but don't expect earnings to rise in 2009 by anything like the 3.7% they went up in 2008. Or maybe you can take solace in the fact that the headline payrolls figure (if you ignore the unemployment figure) was at least in line with expectations. But for me, that just means that economists and forecasters have finally woken up to grim reality.

Maybe the only real upside to this report is that it should light a fire under Congress to pass a stimulus package sooner rather than later -- including the release of the second tranche of TARP funds. Let's start getting money out the door now: that's more important than haggling over what goes where.

Comments

[herbert hoover:]

It's the "hour's worked" number that causes some real concern. Many companies (to reduce their unemployment benefit fund payments) have reverted to job-sharing and reduced work weeks to avoid layoffs. It still results in lower incomes but without the increase in official unemployment.

Jan 09 10:45 AM

[bosun.j:]

That 8.5 TRILLION gift to the Banksters and corporations has worked very well don't you think!

Jan 09 10:53 AM

[Smarty_Pants:]

"the only real upside to this report is that it should light a fire under Congress to pass a stimulus package sooner rather than later "

Yep. The debt junkie economy needs another fix to counter the effects of withdrawl.

Let's hope it's not an overdose.

Jan 09 11:01 AM

[Larry House:]

Does anyone think about the long-term consequences of this stimulus madness? More debt will not get us out of out debt-induced problems. There will be hell to pay fo this down the road. Most see '09 as horrible, and is there really any light down the road for the years after that? We are gorging ourselves on money, will have to go on a diet down the road, and will not be the better for it. Eating more will not help us with our eating disorder! Get your house in order. Don't let the government pull you down.

Jan 09 11:14 AM

[Jason Rines...:]

Two thing Mr. Salmon:

1) Why don't you think that investors looked at the unemployment figures when they began to consistently rise in spring of 2008? If jobs spur consumer spending, wouldn't it be obvious what was going to occur considering U.S. 70% consumer spending economy?

2) From article:

"Maybe the only real upside to this report is that it should light a fire under Congress to pass a stimulus package sooner rather than later -- including the release of the second tranche of TARP funds. Let's start getting money out the door now: that's more important than haggling over what goes where."

Sorry Mr. Salmon, I usually love your writings but you have derailed with that bit above.

Jan 09 11:45 AM

[Trinitymaster:]

Virgil and I are on the same page. These unemployment numbers are lagging by some 8-10 percentage points.

I still contend that real under/unemployment is 25%.

I'm a little nervous that we are moving dangerously close to the "Greater" Depression and World War III.

We will HAVE to go to war with China to resolve our debtor status (if we don't pull out of our economic slump within the next ten years). This war will most likely play out in other countries, but it will still be China vs USA.

Jan 09 11:51 AM

[Tony Petroski:]

To Mr. Salmon's loved ones: Please don't let him near any open windows.
To Mr. Salmon: Are we really at the point where you stop haggling and just "get the money out the door"? Helicopter Ben had it right all along and it appears the door is open on the chopper. I'll volunteer to pour it out the door (less a small handling fee).

Jan 09 11:54 AM

[bosun.j:]

America hasn't a chance in a war with China. China won't need to fire a shot either. For all intents and purposes America is debtor in possession and China holds the note.


On Jan 09 11:51 AM Trinitymaster wrote:

> Virgil and I are on the same page. These unemployment numbers are
> lagging by some 8-10 percentage points.
>
> I still contend that real under/unemployment is 25%.
>
> I'm a little nervous that we are moving dangerously close to the
> "Greater" Depression and World War III.
>
> We will HAVE to go to war with China to resolve our debtor status
> (if we don't pull out of our economic slump within the next ten years).
> This war will most likely play out in other countries, but it will
> still be China vs USA.

Jan 09 12:24 PM

[kevinm:]

Hmmm, Felix. Methinks you are drinking the Koolaid...

Why do you think "stimulus" needs to be rushed out the door? Did the "stimulus" package rushed out the door last year do any good?

It would be fine if what Obama calls "stimulus" really was stimulus, and not just big government handouts in drag. Why not just cut marginal tax rates permanently, and let the market decide the best use for the capital? Of course, this is not what Obama is suggesting.

He is creating an aura of panic and false urgency--'the economy is even worse than we thought (look how much Bush and friends messed up!), so you have to pass my stimulus now or the world comes to an end--and if you don't pass it instantly, it is not my fault!' This is what manipulative pols do--create a crisis to ramrod through their pet plans.

This is not, of course, to deny that things are ugly. It is just that the Obama plan, such as it can be discerned, does not look like it will help. And it may well hurt by growing the size of the most unproductive segment of society--government--w... increasing the deficit (and future taxes on the MOST productive segment of society).

So, in order of effectiveness, here are the alternatives:

1) Marginal, permanent, across the board tax cuts for businesses and individuals. This would expand the economy most efficiently, and eventually decrease the deficit as tax receipts increase.

2) Rather than increasing govt spending and waste, CUT government spending.

3) Do nothing. Let the market cleanse itself. At least you avoid the waste and long term harm of....

4) The Obama big government, unproductive, non-stimulus 'stimulus' plan, which is really welfare for those who do not pay taxes, and Chicago-style giveaways to those businesses that would get the infastructure goodies. It will also balloon the deficit.

Jan 09 12:31 PM

[CSM:]

I agree with kevinm, to a degree.

1. Tax cuts for individuals and businesses across the lower tax bands.
2. Review government spending. After 8 years of Republican efforts to eliminate waste, I suspect it is more inefficient than ever.
3. Simulate the economy with a view to mitigating the worst impacts. For example, the US car industry may die but it makes sense for the government to do what it can to extend the death throes so the cascading impacts are minimized.
4. Use tax policies to reward those that do not outsource overseas. Reward further those bringing jobs back from overseas. See how effective it is to use both business taxes and personal taxes to drive this objective (not that the decision makers hold their own wealth above the health of the country). Help diminish the differential in profit between manufacturing in China or coding in India versus doing the same in the US or Canada. The "brightest" business leaders of the age have spent the last quarter century hollowing out the North American economy. The question now is will the structure collapse or can it be fixed. Like any such fix, it will be expensive, messy and take longer than originally expected.

Jan 09 01:22 PM

[Chris Lau:]

I don't get a good sense that getting money into the hands of consumers is the way to go. It is too broad-reaching. Look at the result of when Bush gave rebates. It gave a temporary fix to the economy, but at that time, it had created a false level of demand for housing.

Money should be used to fund infrastructure. Jobs are created, and America will have something nice (better roads, solar power, newer trains) as a result.

Jan 09 03:42 PM

[Conan the B...:]

Tax cuts are Great if they are permanent. The public has to be able to rely on them to be there past the Stimulus period.

Infrastructure projects will take a long time to implement. It is not just Funding. It will take time to vet the money to the corporations which will do the actual work. They may try to get the jobs done without hiring new workers.

The Bidding itself could take months. The lowest bidders will not hire new workers. This could be a morass in the making.

Obama can do something right now. Start the streamlining process which would cut through the mountains of red tape which surround the allocation process.

Give Utilities the money to modernize and increase the capacity of the National Electrical Grid. No strings attached if used within 3 months.

New hires must be part of every contract.

IMO

Jan 10 11:50 AM

[Joyful Alte...:]

There are plenty of good projects ready to roll. Last week, our state university hospital announced it was halting construction on its new children's hospital. The construction contracts were bid out, the contractors are ready to go, and they couldn't find lenders for the next stage.

In the newspaper today, an investor for an office building backed out due to lack of funds, so the construction site will sit, half done, until another investor or lender can be found for that piece of the budget.

All sorts of projects are pending, and the people who'd be working on them are filing for unemployment, or catching little jobs here and there.

Jan 10 01:04 PM

[Kunst:]

One minor little detail. All our debt in dollars. We can just write them a check for their treasury bonds. What are they going to do about it?


On Jan 09 12:24 PM bosun.j wrote:

> America hasn't a chance in a war with China. China won't need to
> fire a shot either. For all intents and purposes America is debtor
> in possession and China holds the note.

Jan 11 04:35 PM