Employment Preview: Will Hope Morph into Fear?

As the calendar shifts from September to October, we face a three day focus on the job market. Wednesday will bring employment into focus with the ADP report showing the economy lost an additional 200,000 jobs in September. This would register as the smallest decline since June 2008 and is well below the 736,000 jobs lost in March. Thursday brings the weekly report with initial claims slightly increasing to 535,000 and continuing claims increasing to 6.17 million. Friday ends the week with the September employment report.

As reported Friday, the economy is forecast to have lost an additional 180,000 jobs with the unemployment rate increasing to 9.8%. While the unemployment rate continues its eventual rise above 10%, many will highlight the fact that 180,000 lost jobs is the fewest in over a year and well below the peak of 741,000 jobs lost in January.

Never a believer in second derivative ideas such as a declining rate of change, I would rather focus on longer trends. In that regard, the picture is extremely bleak. We are now in the 21st consecutive month of losing jobs, have seen over 7.1 million jobs disappear, and are at total jobs lost levels that are well beyond those of any prior recession. Many argue that this prolonged slump will lead to an equally dramatic boom, but I am wary. We are in uncharted territory, and those making such bullish prognoses have nothing but hope to support their view. Hope that consumers will spend, deficits will shrink, and unprecedented printing of money can only yield positive results. Hope that government plutocrats know more than market forces. Hope that the vast unknown will only yield positive results. The stark truth is that hope may be a belief system that helps people cope with the unknown, but it is not an investment strategy.

In EPIC Insights, I have been a vocal believer that the recession has ended and stock prices will continue higher over coming weeks. However, considering how some economic reports have blindsided the market and badly missed consensus estimates (examples are consumer confidence and existing home sales), investors should closely watch the jobs reports over coming days. A market resting on hope does not possess a steady base. Were any of these reports to badly miss the mark, we will see just how quickly hope morphs into fear.

Comments

[markfl:]

Briefing.com's forecast is for 9.9% headline unemployment but a lower that expected number for continuing claims. I have heard a "whisper" number from some analysts of a possible downward q2 gdp revision to -1.4 as well as that 9.9 for U6 is distinctly possible. These macro reports have been good news/bad news. Markets stumbled yesterday but futures up as I write this. If we get lucky on gdp beware the unemployment data. We had a good Shiller number yesterday but not enough to offset Consumer Confidence, even though ABC's report came out after hours with a good trend.

Everybody's knows it is coming, but the day we hit 10% U6 will be a heavy psychological blow to the country, especially if it hits the first week of November or December. If anyone else hears any "buzz" about that -1.4% I'd like to hear it.

Sep 30 06:58 AM

[Roger Knights:]

"We are in uncharted territory, and those making such bullish prognoses have nothing but hope to support their view."

Not really. They have the precedent / template of post-war recessions to guide them. Going by that playbook, once second derivatives and leading indicators turned up, the economy had turned around and there was light at the end of the tunnel. But "it's different now," because of the enormous overhanging debt that has to be wrung out, and because the current upturn in indicators is the result of unprecedented Federal stimulus and liquidity injections. So those indicators are giving optimists a head-fake. They will turn down again by year-end.

Sep 30 07:38 AM

[jeremiah74:]

you mean U3 ?
U6 is already 16% or sg like that..

Sep 30 07:40 AM

[markfl:]

You are right. I meant U3. U6 is already in the stratosphere. Q2 GDP was great on the revision, but ADP was worse than forecast. Such wobbliness is not unexpected in recoveries, but there is still a great deal of dangerous territory ahead.


On Sep 30 07:40 AM jeremiah74 wrote:

> you mean U3 ?
> U6 is already 16% or sg like that..

Sep 30 09:06 AM

[MikeD71:]

"many will highlight the fact that 180,000 lost jobs is the fewest in over a year and well below the peak of 741,000 jobs lost"

That say's it all right there. It is what this ENTIRE "recovery" is built on. Like falling off a cliff, but your speed on the way to the ground slowed from 90mph to 50mph. Does that mean that the outcome of that fall will be different. Obviously not. Yet their continues to be an almost ridiculous belief that everything is going to be just fine. This is going to produce a huge number of totally unprepared people. Folks that have bought into what the media has been selling. Just like they did in November. Why is it that we can't be told something? We don't learn until we're hit with a hammer.

Sep 30 09:41 AM

[TeresaE:]

Oops, ADP just released numbers and they are higher than expected, but still "less bad."

What the experts are missing with employment is threefold.

1. We lost nearly 6 million, good paying, family supporting, house purchasing, debt carrying, tax paying, manufacturing jobs BEFORE the crash. Another 7.2 million (grossly underestimated I fear) have been lost since the crash. Over 13 millions jobs that used to feed American consumerism. Gone. Bye-bye. Additionally, the banks & government are slaughtering small business and their employment & purchasing power too. What a recipe for success.

2. There were hundreds of thousands of people that were "discouraged" and not counted long before anyone recognized this problem coming. Now thousands fall off the insurance and into apathy and despondency daily.

3. We continue to import nearly 160,000 foreigners a MONTH that are taking our jobs or competing with us for new jobs. Why? Major corporations, and our government, are laying off Americans and retaining the jobs by employing foreigners. Driving down our wages and increasing our social burdens.

This train wreck has been long in the making and I found that 99% of my fellow citizens would rather stick their heads in the sand and ignore these earth-shattering problems. They have no idea as to the pain that is very likely coming and they apparently could not care less about the fact that the next generations will lead a very hard life in order to pay for today.

Sadly, the only way to make people care is for some of the worst case scenarios to happen. Then it will be too late.

Sep 30 10:37 AM

[TeresaE:]

Oops, ADP just released numbers and they are higher than expected, but still "less bad."

What the experts are missing with employment is threefold.

1. We lost nearly 6 million, good paying, family supporting, house purchasing, debt carrying, tax paying, manufacturing jobs BEFORE the crash. Another 7.2 million (grossly underestimated I fear) have been lost since the crash. Over 13 millions jobs that used to feed American consumerism. Gone. Bye-bye. Additionally, the banks & government are slaughtering small business and their employment & purchasing power too. What a recipe for success.

2. There were hundreds of thousands of people that were "discouraged" and not counted long before anyone recognized this problem coming. Now thousands fall off the insurance and into apathy and despondency daily.

3. We continue to import nearly 160,000 foreigners a MONTH that are taking our jobs or competing with us for new jobs. Why? Major corporations, and our government, are laying off Americans and retaining the jobs by employing foreigners. Driving down our wages and increasing our social burdens.

This train wreck has been long in the making and I found that 99% of my fellow citizens would rather stick their heads in the sand and ignore these earth-shattering problems. They have no idea as to the pain that is very likely coming and they apparently could not care less about the fact that the next generations will lead a very hard life in order to pay for today.

Sadly, the only way to make people care is for some of the worst case scenarios to happen. Then it will be too late.

Sep 30 10:37 AM