Unemployment Data Less Upbeat than It Appears - Deutsche Bank

Here is a piece written by Deutsche Bank economists on the labor report this morning. They have some interesting and instructive observations on the hours worked section of the report which I think has been glossed over elsewhere in the media (if this be media). I publish with the permission of Deutsche Bank and their thoughts begin immediately following the colon:

The -345k decline in May nonfarm payrolls was significantly better than expected, and the prior two months were revised higher by 82k. However, the details of the report were not anywhere near as upbeat as the headline suggests. In particular, the weakness in hours and earnings are reason for concern. The length of the workweek declined by 0.1 hour to 33.1 hours, which is the aggregate hour equivalent of an additional loss of about 350k jobs. More importantly, the manufacturing workweek also declined (39.3 hrs vs. 39.5 previously) - this is a negative sign for inventory restocking in the current quarter, because inventory rebuilds have historically been accompanied by a rise in manufacturing hours worked. Average hourly earnings rose 0.1% in the month, lowering the 3- and 6-month rates of change to 1.7% and 2.2%, respectively. In short, wages are rolling over and this is likely to continue in light of another large jump in the unemployment rate to 9.4% from 8.9% previously. The unemployment rate is now at a 25-year high.

Comments

[doubleguns:]

So we are cutting hours now, not jobs.

Wonder what the underemployment rate is now.

Jun 05 11:05 AM

[CautiousInv...:]

When part-time workers who can't find full-time jobs and laid-off workers who've simply stopped looking for employment are factored in, the unemployment rate soars to 16.4 percent.

Also, some of the losses were offset by employment gains in quasi-public areas like education and health care. And lastly, this data will give the Fed less space to pursue TALF and other facilitites that will expand its balance sheet.

Jun 05 11:48 AM

[Windsun33:]

Yes, even some local governments are cutting hours, or even up to 1 day a week.

Jun 05 11:48 AM

[Moon Kil Woong:]

The point is theis is not a good sign for green shoots as the analyst points out. A company will fully employ all their workers before hiring. Thus a drop in hours worked shows no sign of a recovery as green shootists argue for. Much rather it shows further hidden deterioration. With rising mortgage rates stauching the spend as you waste away your home equity, things don't look too cheery.

Don't give up your part time job expecting a full time one anytime soon.

Jun 05 12:23 PM

[Fighting Yoda:]

In addition to drop in hours worked- the overtime hours worked are also an indicator of potential work - they decreased:
Manufacturing overtime 2.7 – no change
Durable goods overtime 2.4 – change -.1

Slight uptick in part time workers over last 3 months:
26,963 27,066 27,195 - good sign

So definitely no green shoots at least.

Jun 05 12:45 PM

[Stone Fox C...:]

Oh brother, guess I better go back to the bomb shelter. Did we really expect hours worked to move up while jobs were being cut?

Why is the market up?

Jun 05 02:04 PM

[whidbey:]

Great chip. Thanks.

As near as I can tell it is on point: ECRI came out today saying the growth rate was less negative than last month. Nothing about the length or depth of the remaining recession. I think it is not likely we grow positively this year.

Jun 05 03:02 PM

[Tony Petroski:]

-600k becomes -300k becomes -100k becomes...

Yeah, we know, employers are tight on the hours they are employing people.

It does continue the "less bad" theme, but how else could it go?

I'm waiting for the +300k number for some sourpuss to write "yeah but there are still 25 million people out there who aren't accounted for and have given up trying to find work."

You can't please everyone.

Jun 05 03:37 PM

[htex:]

Thank goodness the kind folks at DB still read the whole report. IMHO Stone Fox, I would say yes. I have seen folks willing and able to work more hours if they are available. So, if they are not...maybe we really are in a deeeeeeeeeep recession.

Jun 05 03:38 PM

[Charles Lie...:]

All data are not equal. Some are more important than other. The hours worked data is very rough and rounded. So, the fall in hours worked could have been from 33.051 to 33.049. And it can easily reverse next month and I'd bet that reverses very soon. (The manufacturing hours data is just more detail, since that is one of the components in the total hours worked.) So Deutsch Bank's criticism is actually quite superficial.

What is important is that the pace of job loss has slowed significantly. If you recall, economists pointed out a month ago that the actual job loss was even greater than reported because of the early hiring by the government to conduct the census. So, a worse number was expected this month, because another round of census worker hiring is not scheduled for several months. So I take the actual report of 345,000 job losses as indicating a material slowdown in the pace of decline, particularly since prior data was also revised upwards. Just as supertankers don't turn on a dime, neither does an economy as large and complex as our's. But, this data is another bright green shoot that suggests that turnaround process is now underway.

If you really disagree, you can play your judgment very easily by buying December 2009 eurodollar futures, which got hammered over the now increased risk the Fed might raise rates before the end of the year. Two-year and 10-year Treasuries notes also got hammered.

Jun 05 04:08 PM

[cameroni:]

Exactly Amp. Better numbers were fully anticipated as they always are for the spring season. Plenty of extra hiring is done spring-side in addition to the usual complement of non-seasonal employment.

Tourism is a single good example. We know there is a big boost every year at this time as Summer and tourists approach. I remain wary and bearish though. After digesting the numbers I am suspicious now too (sounds like I am going through a real mind altering emotional roller coaster doesn't it). Yikes.

Green shoots now, Scorched Earth later.

Jun 05 07:24 PM

[cameroni:]

Exactly Amp. Better numbers were fully anticipated as they always are for the spring season. Plenty of extra hiring is done spring-side in addition to the usual complement of non-seasonal employment.

Tourism is a single good example. We know there is a big boost every year at this time as Summer and tourists approach. I remain wary and bearish though. After digesting the numbers I am suspicious now too (sounds like I am going through a real mind altering emotional roller coaster doesn't it). Yikes.

Green shoots now, Scorched Earth later.

Jun 05 07:24 PM

[John Galt:]

I see people quote shaddowstats and other alternatives but I am positive that the 9.4% number is a sham. I don't know what the real unemployment number is, and I don't know what the real underemployment number is but I'd love to see that number for a real historical comparison.

I think that the decline in "hours worked" would play along with that WSJ article that highlighted all of the furloughed employees at Union Pacific Railroad and how the company would rather keep them employed with cut back hours than suffer the transition costs of firing/hiring in the event of a turn around. I seem to recall reading about furloughs in state governments ( even CA).

So where is the new growth going to come from? It seems that education and health care posted the best results, will they lead us out of this or will it be other sectors that haven't bottomed yet?

Jun 06 06:48 AM

[onebir:]

@ Charles Lieberman
" So, the fall in hours worked could have been from 33.051 to 33.049. And it can easily reverse next month and I'd bet that reverses very soon. "
A good point.

"(The manufacturing hours data is just more detail, since that is one of the components in the total hours worked.) So Deutsch Bank's criticism is actually quite superficial."
Taken as a simple comment on the labour market, yes. But the fall in manu hours rounded to 0.2 hours, it can't have been as tiny as the overall fall might have been (it must have been >0.1 hours before rounding). If DB's observation about man hours and stockbuilding is correct, this doesn't bode well for the stockbuilding. & many people are expecting a stockbuilding GDP rebound in Q2 after a couple of quarters of pretty marked destocking.

Jun 06 09:52 AM

[MudEngineer:]

I am in the same boat as the steelworker above. I have only worked a total of 25 days since the middle of January. I am existing on base pay only which is a 60% cut from my normal income when working full time. I am just like four more employees of my company in this small town who are subsisting on base pay only. We are still counted statistically as being fully employed. We sure don't spend money anymore like we are employed, but purchase only the necessities. Still beats unemployment, but also puts you into limbo land where you have to be available to work at a moments notice and cannot have much of a normal life.

Our country will pay for my lack of employment in the form of much higher gas and oil prices in the future since there is very little drilling going on. This, even while existing oil wells are now depleting at the rate of 9% per year which is twice what it was just two years ago. I am a drilling fluids engineer who normally works in the Gulf of Mexico.

Jun 06 10:32 PM

[John Jansen:]

I think we crossed paths at the Open Market Desk in 1981. I think you were there or had just left. And I always remember that the piece which you co authored with Paul Meeks was the single best expositon on Desk operating procedure in the post October 1979 world.


On Jun 05 04:08 PM Charles Lieberman wrote:

> All data are not equal. Some are more important than other. The
> hours worked data is very rough and rounded. So, the fall in hours
> worked could have been from 33.051 to 33.049. And it can easily
> reverse next month and I'd bet that reverses very soon. (The manufacturing
> hours data is just more detail, since that is one of the components
> in the total hours worked.) So Deutsch Bank's criticism is actually
> quite superficial.
>
> What is important is that the pace of job loss has slowed significantly.
> If you recall, economists pointed out a month ago that the actual
> job loss was even greater than reported because of the early hiring
> by the government to conduct the census. So, a worse number was
> expected this month, because another round of census worker hiring
> is not scheduled for several months. So I take the actual report
> of 345,000 job losses as indicating a material slowdown in the pace
> of decline, particularly since prior data was also revised upwards.
> Just as supertankers don't turn on a dime, neither does an economy
> as large and complex as our's. But, this data is another bright
> green shoot that suggests that turnaround process is now underway.
>
>
> If you really disagree, you can play your judgment very easily by
> buying December 2009 eurodollar futures, which got hammered over
> the now increased risk the Fed might raise rates before the end of
> the year. Two-year and 10-year Treasuries notes also got hammered.

Jun 07 08:15 AM