Employment Report Preview

With Wednesday's ADP Employment report, we begin a three day process of examining the employment picture. While recognizing that employment is a lagging indicator that will bottom well after the recession has already ended, we do not underestimate the effect that disappearing jobs has in a consumer-driven recession. When jobs are lost, debt cannot be serviced, defaults spike higher and the economy suffer. Given the persistence and direction of the data, questions arise as to when we will cross the threshold which triggers the next economic crisis.

The ADP report is expected to show a loss of 530,000 jobs. That will be followed by Thursday's report when initial claims are expected to decline slightly and the continuing claims to approach 6.9 million. During the recession, fiscal spending has been the one source of strength. As continuing claims increase, I wonder how long the government can handle the financial stress. Friday ends the week with the report we are all anxious to see-the monthly employment data.

The consensus calls for a loss of 530,000 jobs and an increase in the unemployment rate to 9.2%. I continue to believe unemployment will peak when it exceeds 10% and the only question that remains is how long will it take for us to reach that moment. When we examine the trend and duration of the current numbers of jobs lost during the recession, we have few historical comparisons. The past 17 consecutive months of job loss is matched in duration only by the 1981-1982 period. Total number of jobs lost and its percentage of the population exceed any post-World War II comparisons. While optimists will highlight the fact that the rate of decline is slowing, a loss of 530,000 is still a massive number. Examine the monthly data from 1960 to October 2008 and you will only find one month where jobs lost exceeded 530,000. Therefore, relying on the falling rate of decline to justify economic recovery is premature. In fact, we have now reached the point where the only historical comparison to draw is that of the Great Depression. Suffice it to say, that is not a comparison any of us long to make.

Comments

[ciel:]

"Jobless Recovery" is one of the silliest, most oxymoronic phrases ever uttered. But to top even that gem from the early 90s is the new and improved version: the "JobLOSS Recovery"

Recessions are not merely about declining GDP. If that's all a recession is and was, even the "eggheads over at the NBER" (h/t Jeff Frankel) would have a pretty easy time of it... until GDP gets revised... oh, and then revised again... and again... and again..

Recessions are vicious downward cycles primarily because they cause real pain and suffering, and this is usually noticeable in the nonfarm payroll numbers, real hourly earnings, hours worked, etc.

On a monthly basis, GDP may have turned in a positive month during May, but for most folks, where the rubber hits the road -jobs- if we lost jobs during May, the only "recovery" so far has in many ways merely mimicked the actual recessions before we started calling any upturn a "recovery," virtually regardless of the jobs data (this practice began with the recession in the early 90s and continued again with the recession at the start of the current decade).

I suggest that this recent approach to identifying bottoms of recessions with such relative disregard for nonfarm payrolls (aka: JOBS, PAY, INCOME, DISCRETIONARY INCOME, etc.) is really something that ought to be reconsidered by those who get to create the bookends in the historical record.

To quote some experts who are way above my paygrade on this matter:

Martin Feldstein: "There's No Such Thing As a 'Jobless' Recovery"
www.nber.org/feldstein...

Lakshman Achuthan:
(From money.cnn.com/2004/01/...)
Achuthan of ECRI said he worried that focusing on GDP could give less importance to a critical sector of the economy -- the job market. Moore and other founding members of the NBER committee focused on jobs, he said, because they often influence the other indicators -- if unemployment is rising, then incomes, output and sales typically fall, as well.

"That vicious cycle is the definition of a recession, and that's why it's important that the definition of a recession captures that cycle, "Achuthan said. "GDP alone doesn't do that."

----
To reiterate this point in another way. Yes, the unemployment rate often goes up even after a recession has ended. But over the past two recessions, "unemployment rate" has been conflated with "job loss" -- by very definition, recoveries used to be accompanied by job GAINS. The reason the unemployment *rate* is a lagging indicator, is because as more people feel encouraged to start seeking work (now that they have been convinced that some kind of recovery is at hand) those that fell off the rolls are now back on the rolls - what this often means is that U6 levels off, while U3 pushes higher for a while.

Changes to the weekly initial unemployment claims and monthly non-farm payrolls are far more a coincident indicator, than especially lagging.

Commercial economists, stock pushes, the mass media, and others, need to stop confusing the lagging indicator of unemployment rate, with the more coincident indicator of non-farm payrolls.

Jun 03 04:06 AM

[Fulcanelli:]

I will rely on John Williams analysis at shadowstats opposed to the rigged numbers released by the propaganda machine. True unemployment right now is upwards of 15%+ right now.

P.S. Doesn't the kool-aid taste a bit off?

Jun 03 06:34 AM

[doubleguns:]

Not drinking it.


On Jun 03 06:34 AM Fulcanelli wrote:

> I will rely on John Williams analysis at shadowstats opposed to the
> rigged numbers released by the propaganda machine. True unemployment
> right now is upwards of 15%+ right now.
>
> P.S. Doesn't the kool-aid taste a bit off?

Jun 03 06:45 AM

[TeresaE:]

Since the number crunchers and experts absolutely refuse to see that gutting our country's manufacturing removed vast amounts of non-farm payrolls and wealth, the "jobless" recovery becomes an even bigger joke.

Glad they think claims are dropping. As the shove down of debt from GM & Chrysler (not to mention Lear, Delphi, Visteon and many other Tier 1 suppliers) to the smaller (and less capable of absorbing, with no government safety net) suppliers will eliminate huge swaths of our jobs, I'm so glad the experts are getting a temporary reprieve.

What comes next is going to be brutal. While the media mourns for the lost UAW jobs, the millions without the UAW (their suppliers) will be stepped on while every state sends gifts to the former UAW.

Fools. Every major company in America is firing their best customers. Every one.

See how well recovery works when you have no customers.

Jun 03 08:57 AM