The Joblessness of August: 9.7 Percent

OK, it’s the first Friday of the month, time for the unemployment numbers.

The headline number was an increase in the unemployment rate to 9.7% from 9.4% in July. The number of jobs lost was 216,000 which marks a continuing improvement in that area but the number of jobs lost in June and July was revised upwards by 49,000, so that tempers things a bit. U-6 the broader measure of unemployment increased from 16.3% to 16.8% which is a bigger jump then in the base rate — not a particularly good sign.

The bottom line is things are just getting worse more slowly, but you do have to stop the bleeding before you can recover. There was some talk that the increase in the rate was brought about by more workers coming back into the market as they perceive conditions improving. The labor force participation rate held steady last month so this wouldn’t appear to actually be occurring.

From the WSJ Real Time Economics blog, some economists views:

• Arguably the most disheartening feature of this employment report was the 0.3% jump in the unemployment rate to a 26-year high of 9.7%. That essentially confirmed suspicions that surprising decline in July was largely a statistical aberration. On a slightly more encouraging note, the average and median duration of unemployment improved, largely the result of back-to-back declines totaling some 624k in the number of people unemployed for 15 to 26 weeks. This indicates that most of the sharp drop in the number of people continuing to collect weekly jobless pay was the result of workers returning to work rather than running out of benefits. If that develops into a trend, overall employment gains should soon follow. –Nomura Global Economics
• The rising unemployment rate (a lagging indicator) was expected with a sharp rise in teenage unemployment expected after the minimum wage was increased in July. The unemployment rate for college-educated workers remained at 4.7% while the unemployment rate for less than high school diploma workers rose to 15.6%. In a labor market driven by the demand for skilled workers, especially in the service sector, this month’s employment report should not be a surprise to anyone. Cyclical recovery in the economy is faced with structural challenges in the labor market. –John Silvia, Wells Fargo
• The moderation in the pace of job loss during August largely reflected a sharp jump in the health care category and a moderation in the pace of job loss in the retail sector. These positive developments were partially offset by a shaper decline in manufacturing employment… Employment in the motor vehicle assembly plants fell 15,000 in August on the heels of a 28,000 rose in July. Many of the auto factories that are typically shuttered for retooling during the July survey period were actually up and running this year. The seasonal adjustment factors anticipate that the auto employees who are usually out of work in the July survey will return in August. But since many of these people remained on the job in July, there wasn’t nearly as much of an incremental rise in the raw number of workers in August of this year. We believe there was an artificial boost of 30,000 or so to July payrolls from seasonal factors trying to account for temporarily laid off workers who weren’t in fact laid off this year, and this effect was fully unwound in August. –David Greenlaw, Morgan Stanley
• The continued moderation in the pace of job losses does offer some encouragement on the state of the U.S. labor market. Nevertheless, with the soft economic backdrop, we are likely to see further job losses in the coming months as U.S. businesses continue to adjust their payrolls in the face of weak demand, which will likely limit the extent to which consumer spending can be depended upon to power the eventual recovery. It is important to note, however, that the labor market is generally a lagging indicator of economic activity –Millan L. B. Mulraine, TD Securities
• Job losses continued in August but the good news is that the cut backs are on a clearly declining trajectory. After peaking at over 740,000 in January, the rush to restructure workforces has slowed just about every month. Also, the percentage of industries posting job increases was the highest in a year. One note of caution, though: Previous declines were revised upward by nearly 50,000, which raises the question what this drop will look like once the next round of data are released. –Naroff Economic Advisors
• The report shows the divergence between the ‘haves’ and the ‘have nots’ in this economy—with average hourly earnings rising 0.3% in each of the last two months, labor income is rising at a solid pace for those with jobs while the near 25-week average duration of unemployment underscores how long it takes to find a new job for those who are unemployed. –RDQ Economics
• One slight fly-in-the-ointment for this jobs report was the household survey, which is an alternative, and some would argue, more reliable measure of employment than the non-farm payrolls numbers. This showed a 392 thousand decrease in employment, worsening from a 155 decline in July. But even here, the trend in job losses seems to be abating. We do not expect to see positive jobs growth before next year, and it will probably be another 2 quarters before the unemployment rate peaks. An unemployment rate of 11 or more is likely to be seen before it finally heads slowly down starting the second half of 2010.–Rob Carnell, ING Bank
• Whether or not today’s and other recent reports overstate the case, the improving trend of the labor market after the autumn/winter carnage cannot be denied. What is still very much open to question is how fast the move will be to stabilization of payrolls and eventually to job growth. We continue to believe that the process will be a slow one, and that households will be contending with weak income growth and balance sheet issues for some time. –Joshua Shapiro, MFR Inc.
• An interesting side note to the August data is the loss in government jobs. While the Federal government is trying to its part it is being more than offset by job losses in the Post Office and in state & local governments. By most measures, the pace of layoffs in the private sector is declining. –Steven Blitz, Pangea Market Advisory

more: here

Comments

[thiazole:]

I love all the contradictory headlines out there right now: "Unemployement worst since 1983; How could the recession be over?" Yet, we weren't in a recession in 1983 either.

Sep 04 02:55 PM

[Pat C:]

You sure about this: "largely the result of back-to-back declines totaling some 624k in the number of people unemployed for 15 to 26 weeks. This indicates that most of the sharp drop in the number of people continuing to collect weekly jobless pay was the result of workers returning to work rather than running out of benefits."??
This is not what I'm seeing but I sure hope you are right.

Sep 04 03:28 PM

[Mike Kane:]

lots of contradictory opinions out there...but you can't compare 1982 to 2009. A 9.7% unemployment rate in 2009 is much worse than 1982...how does anyone expect companies to hire? There is no credit available, so they can only hire people with cash. But their sales are down...this is why this talk about the end of the recessions is foolish

Sep 04 05:22 PM

[been there:]

1980s ue 10% interest rates 15% inflation 13%
today ue 10% interest rates 1% deflation 2%
what does this tell you about the course of the economy and what needs to be done?

Sep 04 08:06 PM

[i'mwithher:]

U6? that's what you're looking at? All those economists said it's a v shaped recovery. krugman isn't worried. I'm going to the mall.

Sep 04 08:45 PM

[PastTense:]

"largely reflected a sharp jump in the health care category.... These positive developments"

Some of us are worried that exploding health care costs are going to bankrupt this country. So a sharp jump in the health care category is not positive news.

Sep 05 12:19 AM

[Dirtnap:]

I understand that we are going through significant dollar depreciation, but seriously, is the equity market going to keep up this ridiculous run in the face of bad news like this?

Apparently so. I have been making the "smart moves" by looking at the fundamentals and doing some profit taking. I had this crazy idea that equity prices would reflect these fundamentals. I guess I am a fool.

Sep 05 02:07 AM

[manya05:]

I liked this sentence: "Cyclical recovery in the economy is faced with structural challenges in the labor market. –John Silvia, Wells Fargo"

My translation: After each recession (especially big ones), between age, and the extinction of entire industries, there are millions of people that NEVER recover from the recession, no matter how many green shoots come around, or how "V" the recovery is. The economy will leave them behind for good, replaced by younger workers, or those with skills better matching the new landscape.

This savage darwinism in the US economy is usually hailed as a good thing and held up as an example of what other economies should imitate. Now that we know the US economy was mostly smoke and mirrors and is now running Argentina-scale deficits, we understand why other countries have been reticent in embracing the US model. Time to rethink our priorities.

Sep 05 07:55 AM

[Joe Shareho...:]

Scary part of all of this is that when we were at 9.7% in the 80's, Fed was contracting the economy to reduce inflation. Right now,we're at 9.7%, and we're flooding the markets with Fed dollars and Treasury bills. Once the Fed gets the berries to contract and save the US dollar we could be in for some rough months. (Assuming they ever try to curb inflation.....which is questionable)

Sep 05 08:22 AM

[Wayne A. Co...:]

The markets are really poking holes in the 'economic recovery' theory. Commodites were slammed this past week in spite of a stable, range bound dollar. There was strong buying in precious metals as their appeal as a safe haven is on the rise.

If we are on the road to recovery, why are base metals, energy, and grains heading south? The markets are more truthful than the government officials and pundits who are trotted out to praise the Fed and tell us that our circimstances are better than we understand.

Sep 05 10:17 AM

[Bjarne Jensen:]

If the number of people laid off went down a little but the unemployment rate went up a lot, can I conclude that "hiring" fell off a cliff?

Sep 05 10:33 AM

[manya05:]

Bjarne Jensen: "If the number of people laid off went down a little but the unemployment rate went up a lot, can I conclude that "hiring" fell off a cliff? "

Not quite, see this statement from the article:

"There was some talk that the increase in the rate was brought about by more workers coming back into the market as they perceive conditions improving."

In other words, as we all know, the government unemployment number is rather deceiving because it does not include the unemployed that have given up and are not looking for a job (which also includes those that never even tried looking for a job because they were so crappy to begin with that they are making almost as much on unemployment as they would make working). In a Third World economy this is called "underemployment". The US economy is no longer able to generate high-quality jobs, so we have tons of underemployment, and there is a huge "shadow inventory" of workers trying to come back to full employments (same thing as with the "shadow inventory" of houses).

The conclusion is that all that massive stimulus has managed to shove a great number of dirt under the rug, but the so called recovery, will be slow and protracted as there will be plenty of people looking for jobs for years to come, plenty of empty houses to sell, and plenty of toxic assets to clean up. We just put some paper and paint over the hole in the wall...but the hole is still there.

Sep 05 11:00 AM

[The-Stock-M...:]

These numbers are really tough. I really hope and pray that unemployment falls back to 5% range. God bless America.

Sep 05 01:10 PM

[MayankN:]

Yes the rate of worsening has slowed, but nobody talks about the quality of the jobs, which is the fundamental for revival of the retail sector. I am still bearish based on following in FT.com
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Article in FT
www.ft.com/cms/s/0/c1e...

The number of working Americans turning to free government food stamps has surged as their hours and wages erode, in a stark sign that the recession is inflicting pain on the employed as well as the newly jobless.

"While the increase in take-up is often attributed to the sharp rise in unemployment – which on Friday hit 9.7 per cent – the Financial Times has learnt that some 40 per cent of the families now on food stamps have “earned income”, up from 25 per cent two years ago.
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Personally I think we need to be less capitalistic, and ensure that wealth is more spread around than being gobbled up by the Wall Street.

Sep 05 04:37 PM