Friday's Unemployment Numbers Mark an Inflection Point for Economy

According to the most-watched establishment survey of jobs, there were fewer layoffs than expected in April (539K vs. 600K). But according to the household survey, which often does a much better job of reflecting reality at turning points in the economy, only 14,000 jobs were lost. The reality might be somewhere in the middle of these two surveys; either way, Friday's news marks a significant inflection point for the economy. The labor market is nowhere near as bad today as it has been in recent months. This is one more in a long and growing list of signs that we've seen the bottom of this recession and the economy is probably growing.

Unemployment and the Misery Index

Unemployment is painfully high, but it's been worse. Using conservation assumptions--that job losses add up to another 2 million over the next 6-12 months and the labor force grows at its long-term average rate of 1%--I come up with an unemployment rate of about 10%. I think that will prove to be the peak, and there is a decent chance, based on the slowdown in the rate of losses in the household survey of jobs and the slowdown in weekly unemployment claims, that the peak rate of unemployment will be a bit less than 10%.

The second chart is the Misery Index, made famous in the late 1970s, which is the sum of the unemployment and inflation rates. As the second chart shows, the Misery Index is much lower today than it was two decades ago. This has been a painful recession, but nothing like what we lived through back then, when inflation was in the double digits.

Comments

[athena]

Somehow I doubt we'll ever know the real unemployment numbers, just like they massage the CPI and interest rates through bond purchases. I also doubt that the stimulus will do anything but line more political pockets. Almost 1 out of three houses are listed where I live, a resort/ retirement area. No one can afford the real estate taxes that have zoomed up.
It is too late now, but they should have cut all the taxes to stimulate, not raise them and spend more on pet projects and paybacks.

2009 May 10 08:54 AM

[John Lounsbury]

Pundit - - -

You wrote: "But according to the household survey, which often does a much better job of reflecting reality at turning points in the economy, only 14,000 jobs were lost."

Can you provide a reference? I have read the BLS report www.bls.gov/news.relea...
and in Table A on page 2 it gives a gain of 120,000 for April.

Before you start cheering about the gain, page 5 of the same report states: "...the threshold for a statistically significant change in
the household survey is about 400,000."

In other words, it takes more than one month of changes below 400,000 occurring in the same direction (up or down) to establish a direction of change.
This number has no significance. According to the BLS report

2009 May 10 10:10 AM

[J-Bird]

The measurement of unemployment and inflation have changed over this period and under report the past index. Can you adjust for this change over time? One of the factors in the Misery Index looks like it is going up substantially. The other has gone down due to recent deflation after a loss of credit markets. The US Government is now our only lender and is flooding markets with currency. The market may go higher because the dilution of our currency. Fear has put much money in the US Governments pocket at miserly T -Bill rates. Will this last when the market moves up? Unemployment was lower for last month but will likely jump around July. Stimulus money is now flowing and inflation and dollar devaluation will follow. I would wager the Misery Index will be much higher in the next few years.

2009 May 10 10:14 AM

[cynewulf]

I believe,at least for now. If a person always waits for statistical significance, then a person will always be waiting.

2009 May 10 11:13 AM

[MarkitWacha]

I agree. The bond market is losing its buyers at a rapid pace and is poised to have a sharply increasing yield.

The big banks are partial owners of the Federal Reserve, which explains why they want a loose and irresponsible monetary fiscal policy that will inflate their problems away, turning them into bigger problems. This trend will continue as well.

The inflection point of the commodities index suggests a flat period of economic growth, and those numbers can't be faked. However, this indicator is useless once inflation picks up.


On May 10 10:14 AM J-Bird wrote:

> The measurement of unemployment and inflation have changed over this
> period and under report the past index. Can you adjust for this change
> over time? One of the factors in the Misery Index looks like it
> is going up substantially. The other has gone down due to recent
> deflation after a loss of credit markets. The US Government is now
> our only lender and is flooding markets with currency. The market
> may go higher because the dilution of our currency. Fear has put
> much money in the US Governments pocket at miserly T -Bill rates.
> Will this last when the market moves up? Unemployment was lower
> for last month but will likely jump around July. Stimulus money
> is now flowing and inflation and dollar devaluation will follow.
> I would wager the Misery Index will be much higher in the next few
> years.

2009 May 10 11:25 AM

[mikesa69]

Mr. Pundit,

Ok, whatever, you just keep telling yourself that this 'minor recession' is over if that's what helps you sleep at night. So you're a buyer at these lofty heights? Pardon me for a moment.... Hahahahahahahaha! I'll be more than happy to take your money when this unnatural pump & dump comes to its logical conclusion. I give all you perma-bulls a week at most before the glass begins to shatter anew.

In case you hadn't noticed, regardless of clever accounting tricks there is still more than $423 Trillion in off-balance toxic waste (which last time I checked exceeded the GDP of the entire planet), the taxpayer is about to get the most royal screwing in history courtesy of the PPIP, the boomers have just recently started retiring and CONgress will finally have to start paying its unfunded liabilities rather than spending the annual surplus, our fiat monetary system has finally been exposed for the sham that it is (what's the historical failure rate for fiat currencies again? Oh yeah, I remember now, it's 100%!), China has stopped buying our debt, our own government has become the buyer of last resort for its own debt (never a good sign), the taxpayer is tapped out and cannot be further raped and pillaged in any substantial way to provide the amounts our banana republic would need just to stay afloat, and that's assuming NO new spending. Doesn't anybody listen to the CBO?

Hmmm, let's see, what else could possibly put a nail in this overbought and relentless bounce? Have you bothered to check out commercial real estate trends lately? How about consumer credit default rates? Maybe you've not seen the long-term housing chart indexed to inflation going back to the 1890's, and the exponential acceleration that occurred earlier this decade? If not then I suppose you are also unaware that we're only a little more than a third of the way down towards natural reversion-to-mean levels. Real estate bottom my foot! How about the Alt-A and Prime recast schedules, are you familiar with those? If everything's so rosy, then why have yields started to rise so quickly again despite the governments best efforts to contain them? And oh yeah, I almost forgot, now oil has started heading back to over $100/bbl again, and once we get a breakout w/ successful retest at $100 support, that'll likely signify the final time we'll ever see double digit oil prices ever again, no matter how much deleveraging-caused deflation occurs before the inevitable hyperinflation kicks in. And what's this I've been hearing about Chrysler and GM lately? B.K.'s??? Say it ain't so! I thought the government had their backs? How the fools in this administration propose to appease both the auto makers and the union pigs simultaneously still escapes me... oh wait, I forgot their modus operandum: screw the taxpayer. I suppose you're not familiar with the auto makers' failed business models (massive unfunded liabilities, astronomical labor rates, etc.), or the scope of the contagion that their supplier chains and distribution channels represent? Perhaps you think there'll be no collateral damage at all? Then again, my government tells me that the Chrysler BK will be 'surgical' and over in 60 days. Pardon me again... Hahahahahahahaha! Oh to be so ignorant! Such bliss.

Fundamentals aside, May OX is Friday, we're into major resistance after unsustainable percentage gains, and money flows and mkt volume have been largely driven by the retail johnny-come-lately types for more than a month now. I would have liked to have seen more than a single touch of the 20dMA on the way up but it never came. Now the market will have to pay a very steep price for such 'irrational exuberance'. Do we fail the March lows on the first re-test? Highly unlikely due to the manipulation. But PPT and Tax-cheatin' Timmy can only blow so much hot air into this rapidly deflating balloon for a short while longer. S&P will most likely see sub-500 before this time next year, after at most a quick touch of 1000 this week. This bear market rally, while truly impressive, is not the start of a new bull just because you see a slight downtick in the (government-supplied) job numbers. Once the March lows fail, we'll look back and see that this 2-month run produced a 'generational high', to loosely distort Kass' take on mkt action.

So if you truly still believe the bull case after simply digesting these cooked employment numbers, and that the recent market bounce from extremely oversold levels has been anything more than a carefully orchestrated final grab by the same perpetual robbers before the inevitable finally occurs, well then like I said I'll be happy to take the other side of that trade. I sure wish the koolaid could dumb me down too, 'cause then I could be so happy-happy joy-joy like you and all the other cheerleaders who've been more than happy to give obama-the-Usurper a 68% approval rating. What a fuckin' joke.

2009 May 10 12:12 PM

[gordon]

Yea, you're a PUNDIT, allright, you are in with the CNBC Crudlow Goldilocks Cheerleaders! More specifically, CON-ARTISTS. The BLS is now revising previous months TWICE, Feb & March were revised down another 66,000 jobs. Census added 60,000 TEMP jobs, and they aren't even all hired at once. The BLS corrupt BIRTH/DEATH model created 226,000 PHANTOM "newly created" jobs: link>
www.bls.gov/web/cesbd.htm
wow! Even 38,000 CONSTRUCTION jobs created out of thin air. It's
more than the 176,000 they added in April 2008! And you're boasting about the household survey? Where they telephone the same 60,000 people(not businesses) (actually they only call half that many!)?You're a con-artist, this blog is full of cheerleaders who need to separate out the FACTS.

2009 May 10 01:22 PM

[Old Trader]

Dear Pundit,

I wish that I could share your optimism, but unfortunately, I can't. As mentioned in numerous places, there's the 65-66K jobs included by counting the "census takers", which would a temporary bump, as I don't think "census taker" constitutes a "career track". Additionally, there's the whole issue of the birth/death component, which is a very fuzzy number that's often revised (resulting in greater job loss than initially reported).

As also mentioned above, it takes more than a single statistically insignificant data point to constitute a change in trend. It'll be interesting what the Chrysler BK will do to the numbers, after which there'll be a likely GM BK to be dealt with

2009 May 10 01:32 PM

[gordon]

The surprising increase in employment shown in the household survey was concentrated among older women. The number of employed women between the ages of 45 to 54 increased by 106,000, or 0.7 percent. The number of employed women over the age of 55 increased by 99,000, or 0.8 percent. This is a striking rate of employment growth in a steep downturn, if it holds up in subsequent months.
My take: Over 55 women? Anyone here believe that? This is bogus.
What? They took cashiers jobs at Walmart in desperation?
Even Dean Baker is skeptical www.truthout.org/050909Z


On May 10 01:22 PM gordon wrote:

> Yea, you're a PUNDIT, allright, you are in with the CNBC Crudlow
> Goldilocks Cheerleaders! More specifically, CON-ARTISTS. The BLS
> is now revising previous months TWICE, Feb & March were revised
> down another 66,000 jobs. Census added 60,000 TEMP jobs, and they
> aren't even all hired at once. The BLS corrupt BIRTH/DEATH model
> created 226,000 PHANTOM "newly created" jobs: link>
> www.bls.gov/web/cesbd.htm
> wow! Even 38,000 CONSTRUCTION jobs created out of thin air. It's
>
> more than the 176,000 they added in April 2008! And you're boasting
> about the household survey? Where they telephone the same 60,000
> people(not businesses) (actually they only call half that many!)?You're
> a con-artist, this blog is full of cheerleaders who need to separate
> out the FACTS.

2009 May 10 01:34 PM

[highwaytoserfdom]

You are nuts? You need to see John Williams shadowstats for a realistic number excluding the changes that the banking and media cartel release.. What kind of moral mindset do you have by writing this article without reading the report? There were 17,000 health care workers added (half government) and 66,000 government workers added. Temporary jobs are at 8.8 million. March was revised up 36,000 and Feb revised up 30,000. This is a big government evil of two lesser political parties report that some how justifies the government created bubble of risk less investments in GSE, (Fannie, Freddie, Sallie) and FDIC. As derivatives bubble blew up 91% of Americans were against the tarp. The government just pumped 190K per person on the planet and fed there buddies through the FED discount window.. The government now has AIG as a boogie man as they paid 100% for CDO's that the discount window paid 80% and open market was priced at 8-20%. Why don't you cut the nonsense and use your first amendment rights to report news instead of statist propaganda. The problem is by not letting the markets correct you will do exactly what FDR did in the thirties. Did you ever hear of the depression on 1920? This warfare (religious, oil, drug) state has created the welfare state (including banking cartel, military industrial, medical and education) of corporate and government fascism. Report the numbers and don't spin.. Morally you are committing treason on humanity.

2009 May 10 01:41 PM

[gordon]

Notice the corrupt (criminal, in my mind, requiring an investigation) BLS went from adding 114,000 B/D jobs in March to ALMOST DOUBLE 226,000 phantom jobs "birthed" last month. Whey the big leap? I'll tell you why. Because someone told them to stop the increased pace of lost jobs each month, the number was surely more than 750,000, and they knew it, someone told them to pump the Birth/Death number to offset it, and this April number will be revised later, TWICE, that's what an Obama official told them."You can revise it down later... break the string... it's my 100 days..."
bls.gov/web/cesbd.htm

2009 May 10 01:49 PM

[gordon]

To: highway... here is the entire rally conjob explained, how Goldman got paid from AIG, and funneled the money to their programed trading desk to pump the market for Obama's 100th day, Goldman Sachs aka PLUNGE PROTECTION, contolling 60-90% OF ALL NYSE TRADES in the last 3 months, with a 85% success rate, also the "OPERATING P/E conjob is here , the GAAP S&P p/e is 58 now ( FIFTY EIGHT) read this, folks. www.financialsense.com...

2009 May 10 01:55 PM

[TheReaper!]

I personally don't believe any of the government numbers . The truth is things are getting worse , not better . You would be much better off looking at actual tax receipts , to see how the economy is doing . If you look at those numbers then you will see that the economy is in free fall .

Hope for the best , but plan for the worst !

TheReaper!

2009 May 10 02:00 PM

[gordon]

According to author F. William Engdahl:

"Five US banks, according to data in the just-released Federal Office of Comptroller of the Currency's Quarterly Report on Bank Trading and Derivatives Activity, hold 96 per cent of all US Bank derivatives positions in terms of nominal values, and an eye-popping 81 per cent of the total net credit risk exposure in event of default.

“The top three are, in declining order of importance: JPMorgan Chase, which holds a staggering $88 trillion in derivatives; Bank of America with $38 trillion, and Citibank with $32 trillion. Number four in the derivatives sweepstakes is Goldman Sachs, with a mere $30 trillion in derivatives; number five, the merged Wells Fargo-Wachovia Bank, drops dramatically in size to $5 trillion. Number six, Britain's HSBC Bank USA, has $3.7 trillion." (Geithner's Dirty Little Secret, F. William Engdahl, Asia Times)

The derivatives meltdown could have been avoided if Glass Steagall had not been repealed. Instead, the biggest banks have become the most reckless speculators creating trillions of dollars in poison assets which will eventually be dumped the taxpayer. Even worse, the banks have used their political influence to transform the FDIC (the agency which guarantees bank deposits) into the primary funding-mechanism for the purchase of toxic assets through the Treasury's Public Private Investment Program (PPIP) Bernanke helped Geithner launch the PPIP and was part of the Greenspan-led deregulatory movement which created the very problems he's now trying to resolve. Neither Bernanke nor Geithner have made any effort to restore the regulatory regime that preceded the crisis.

2009 May 10 09:29 PM