Employment Report Indigestion

Ladies, have you heard this pickup line yet? "Hi, I'm Jobless."

I remember the old days when I would throw my own collateral around, proclaiming to superficial takers, "I'm a Wall Street Analyst" (stressing Wall Street). Nowadays, you would omit the term "Wall Street," as it would return a smirk or a slap to the face, alongside a comment about how you ruined someone's life. Today, you are more likely to hear the jobless line in a bar, since about one out of every ten of you is now unemployed, and even more of you are under-employed.

This past Friday, the Labor Department reported what is known as the granddaddy of all employment reports -- some say, of economic reports. The data stymied traders, who first sent stock index futures climbing, only to retrench, before finally ending mixed. The confused trading was perfectly matched against a confusing Employment Situation Report that offered a bit of good news and a bit of bad.

The bad news: The unemployment rate moved to 9.4%, versus the economists' consensus forecast for 9.2%. It marked a half of a percentage point jump since April’s 8.9% rate was reported. In isolation, the unemployment rate offered more than enough reason for concern. However, it was not reported in isolation.

The good news: In the eyes of the market, the jump in unemployment was more than offset by a sharp drop in the rate of nonfarm payroll decline. Nonfarm payrolls showed the job market lost a net of 345,000 positions in May, where economists had forecast a greater loss of 530K. Furthermore, the lighter number was also well off the monthly average loss of 643K reported over the prior six month span. In contrast with the unemployment rate, nonfarm payrolls, when held in isolation, offered reason to celebrate.

The market was enthused, since the unemployment rate is a lagging indicator that will eventually follow the economy into recovery. However, the nonfarm payroll trend seemed to offer greater insight. Remember, even before directional change makes its impact, the rate of change is noticed by the market. So, once again, a less bad, bad number was greeted favorably. After all, it offers another sign that better times lie ahead.

Before the first hour of trading had even concluded, market gurus began to question the sudden and drastic improvement. Rumors spread that the government had misreported the nonfarm payroll figure, and stocks moved lower. Skeptical economists pointed toward a heavy birth/death rate adjustment in this month’s report that acted to subdue the payrolls amount.

Even if there was no mistake in May’s reporting, we know there will be a significant negative impact in June’s numbers, due to the bankruptcy of General Motors (GMGMQ.PK). This also gave investors pause, since the reorganization of GM will allow management to greatly consolidate operations, including its workforce. Furthermore, the fallout extends well beyond GM, to its dealerships and suppliers.

Finally, just because fewer of us are being let go, does not mean we are finding new work (seen again in the unemployment rate). Also, the under-employed, which include folks working part-time who would rather be working full-time jobs, now sum to 9.1 million. Add those stressed souls with the depressed unemployed, and you have an unhappy group that number in the mid-teens. That underemployment has economic repercussions of its own in decreased tax revenues and personal spending. So given the mix of sweet and sour news, the market had cause for indigestion.

Disclosure: No Positions

Comments

[Chandragupta:]

There is no mix of good and bad news, it is just bad news all the way. I write here again what I have written elsewhere on this site: Comparisons with 'estimates' are meaningless - those who 'estimate' are just extrapolating from the recent past with minor tinkering here and there. One has to look at the absolute number of unemployed and see whether this number is going up or down. By that measure, I don't see any improvement.

Jun 06 12:17 PM

[Markos Kaminis:]

Chandra,
I'm sorry, but you are missing an even more important point. While the number of unemployed is large and troublesome in absolute terms, the fact remains that the rate of flow into unemployment is easing up. Also, unemployment is a lagging indicator. For the trend to change from flow out of the workforce to flow into the workforce, first we must see a slowing of flow out of. While economic data points have continued poor, they have been less poor. Therefore, for those looking at second and third derivatives, we can see the light. This is why the stock market has recovered so much ground over the last few months. How can you ignore that fact? Of course, much of that improvement has come as investors have turned their sentiment from one of Apocalyptic nature to a more normalized outlook. I hope this helps those who were concerned about the unemployment rate to see through the noise. Thank you for your comment and God bless.
Markos Kaminis - Wall Street Greek

Jun 06 02:16 PM

[Chandragupta:]

Thanks for your reply. But I am still not convinced. How can you say unemployment is a lagging indicator? Every loss of job will mean loss of future consumption, future default on debt repayment an so on...


On Jun 06 02:16 PM Markos Kaminis wrote:

> Chandra,
> I'm sorry, but you are missing an even more important point. While
> the number of unemployed is large and troublesome in absolute terms,
> the fact remains that the rate of flow into unemployment is easing
> up. Also, unemployment is a lagging indicator. For the trend to change
> from flow out of the workforce to flow into the workforce, first
> we must see a slowing of flow out of. While economic data points
> have continued poor, they have been less poor. Therefore, for those
> looking at second and third derivatives, we can see the light. This
> is why the stock market has recovered so much ground over the last
> few months. How can you ignore that fact? Of course, much of that
> improvement has come as investors have turned their sentiment from
> one of Apocalyptic nature to a more normalized outlook. I hope this
> helps those who were concerned about the unemployment rate to see
> through the noise. Thank you for your comment and God bless.
> Markos Kaminis - Wall Street Greek

Jun 06 02:25 PM

[growser7:]

Markos, to what degree could the government fudge the numbers? The birth-death adjustment comes to mind. How big of a factor is that? Also to what degree was the level of job loss offset by government hiring? The loss of private sector jobs is what we should be looking at as a barometer reading for the state of the economy. Thanks for any insight here.

Jun 06 02:31 PM

[Steven Hansen:]

there is no, nor have there every been, any relationship between what wall street does and economic reality - except in a general sense.

there are too many signs which points to a new normal. if this is true, use of historical markers (such as unemployment being a lagging indicator) may not be true.

if we had a healthy labor market before the recession hit, i would not be so skeptical right now that we can simply ignore unemployment rates in calling an economic bottom.

Jun 06 02:36 PM

[Fighting Yoda:]

You have to look beyond headlines to figure out how bad or good the report was. I think it was bad in all fronts:
- 9.4% a .5% rise is very bad
- U-6 Total unemployed, plus all marginally attached - 16.4%
- U-4 Total unemployed plus discouraged workers – 9.8% -> 0.4% are discouraged (out of work force and unemployment statistics)
- Overt Time: Durable goods overtime 2.4 – change -.1, Manufacturing overtime 2.7 – no change
- Hourly wages stagnant at $18.54
- Long term unemployment ( > 15 weeks) hit new all time peaks – “‘4.5 percent of the work force has been out of work for 15 weeks or more. The worst previously seen — at least since 1948, when the government began counting people that way — was 4.2 percent, in December 1982. Put another way, 21 percent of those who are unemployed have been out of work for at least 15 weeks. That is also a record, exceeding the 19.6 percent proportion seen during the 1958 recession.”
- Private sector jobs are being lost but Govt. jobs are being created- “The number of jobs over all is now down 6 million from the peak, while private-sector employment is off 6.3 million from the high.”
- Job losses from peak highest- “Since employment peaked in 2007, the number of total jobs is down by 4.3 percent, and the number of private-sector jobs is down by 5.4 percent. Those figures exceed the peaks since 1950 of 4.2 percent and 5.2 percent, respectively, set in that 1958 recession.”
- Work week further decreased to by .1 hr – translates into about 310K jobs lost

No green shoots, lots of deadly weeds

Jun 06 04:41 PM

[H Nguyen:]

Quick point: The unemployment (in my opinion is an early indicator) during a recession. When a person is unemployed, is he/she more or less likely to spend money? We all can answer this question without any doubt. What does that say about an economic recovery when 70% of GDP is is base on consumer spending? Not only we will see no recovery in the 2nd half of 2009, consumers will reduce spending significantly from the lost of wealth, deflation (look at the price of technologies), lost of credits, and jobs. Baby boomers will have to work more and save even more since they have lost over 30% of their wealth, can't count on pension, face higher healthcare costs, social security benefit is about to be cut (in fact, medical for dental has been cut for adult over the age of 21 effectively July 2009), and higher taxes.

Jun 06 08:47 PM

[punk_ash:]

Your stupid comments are out of line with the screen name you have chosen. The author has very clearly explained the effect of higher derivatives in the unemployment. Go read your calculus text book, if you know what calculus is.


On Jun 06 02:25 PM Chandragupta wrote:

> Thanks for your reply. But I am still not convinced. How can you
> say unemployment is a lagging indicator? Every loss of job will mean
> loss of future consumption, future default on debt repayment an so
> on...

Jun 06 09:57 PM

[cameroni:]

Unemployed is as unemployed does. Until we see a "sliver" of a reversal in the tide of job losses it only means the monthly increases (at any level) will lead to heavy consequences for the economy as a whole, social upheaval and a drag on government expenses.

Losses are still losses. I don't care to hear another stupid word about green shoots or "less bad" number propaganda. The economy is still in decline. We are shedding jobs every single month. We are also shedding quality jobs at an unprecedented rate. Every new job loss places a heavier burden on those still employed to cover the costs of everyone else.

And what happens when benefits end? We are almost there now with the first group of workers who lost their jobs 9 months back.....

I just talked to a friend of mine who has been living in the automobile heartland of Ontario, Canada. He relates that there is no work to be found whatsoever. Even Macdonalds and 7-11 positions are being sought after and competed for. The want ads in the papers are wanting. The high-paid manufacturing positions have evaporated and now the workers are running out of unemployment benefits. Their one year payments are nearing an end.

So what now. Well, it is welfare and food-banks I suppose.

A crisis is brewing in the job markets. These people who are living on benefits now have homes and car payments and children to educate. They have families to support and no prospect for alternate employment. My friend, a blue collar worker, has been idle for over 6 months. And he is a talented individual.

So what happens when social benefits run out? When large numbers of skilled workers get food vouchers and handouts instead of paychecks and dental benefits. When families are suddenly homeless and resort to selling their belongings at pawn shops to make ends meet?

Where are the green shoots then as employment numbers, despite their "reduced" numbers are not met by jobs growth? We need to prepare now for the outcome of social unrest and upheaval that always follows extended periods of layoff and reduced employment in recessionary times.

When employment benefits run out the real trouble will begin.

Cam

Jun 06 11:15 PM