Ugly Jobs Report Puts a Dent in V-Shaped Recovery Scenario 17 comments
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The trend of less bad payroll reports was interrupted in September with a net -263,000 non-farm payrolls lost. July was revised from a loss of -276k to a loss of -304k, whilst August was revised from a loss of -216k to a loss of -201k. Details of the report in brief were as follows:
Goods-producing -116
Construction -64
Manufacturing -51
Service-providing -147
Retail trade -39
Professional and business services -8
Education and health services +3
Leisure and hospitality -9
Government -53
The unemployment rate rose to a 26 year high of 9.8%, however that number is actually flattered by the drop in the labor force participation rate from 65.5% to 65.2%. If we get a bounce back in the participation rate next month the unemployment rate will most certainly punch through 10%. Add in so-called discouraged workers and those working part-time for economic reasons, the unemployment rate rises to 17%.
Average Weekly Hours worked fell to an equal record low of 33.0 hours down from 33.1 in August.
The chart above tells the story of how deep the decline in payrolls has been during the great recession. In total, 7.2 million jobs have been lost since December 2007 representing 5.2% of the labor force from the peak, equaled in percentage terms only by the 1948-50 experience in the post WWII era.
However another number that should receive a lot of attention in Friday’s report is the preliminary benchmark revision which estimates non-farm payroll revisions of approximately -824k., That would put total job losses over the 8 million mark, representing 5.8% of the workforce, easily the worst in the post WWII era and with at least a few more months of negative payrolls to come, we could easily get to 6% plus before the economy starts to add jobs.
After dipping in August the duration of unemployment continues to set new records with now more than 35% of the unemployed being without a job for more than 27 weeks whilst the number of unemployed for more than 15 weeks hit a new record of 54.9% . All in all, a very ugly employment report that puts a dent in the V-shaped recovery scenario of the optimists.
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Here's an excerpt from the NYT story on this:
"October 2, 2009, 12:25 pm Jobs Vanish
"The recession took a much larger toll on employment than was previously reported, the government said today. The Labor Department said that it planned to revise the job figures by subtracting more than 800,000 jobs that it had wrongly estimated were filled by workers.
...............
"The culprit is probably the much maligned birth-death model .... That model adds in jobs assumed to have been created by employers who are too new to have been added to the survey, and subtracts jobs from employers assumed to have failed and therefore not responded to the bureau’s survey.
"It is based on what actually happened in the previous five years — a period that included a strong economy that, in 2006, created many more jobs than the bureau initially estimated.
"For the 12 months through last March — the period covered by the benchmark revision — the birth-death model added 717,000 jobs
................
" the benchmark revisions are based on reports from states of unemployment taxes paid. Those numbers take longer to be available, but are considered to be more reliable. The benchmark revisions numbers announced today will not be incorporated into the published numbers until next February, ...."
norris.blogs.nytimes.c...
Data in recoveries is volatile. Even in expansions, the workweek bounces around up and down. We therefore react to any postive or negative monthly number more strongly than reality mandates. The economy could simply be trying to get traction, but it could--and there is a risk--be stumbling. The preliminary drop in September average work hours was very negative. By the end of the year, revisions will show whether June was the bottom. July through Sept. may get revised upward, and Q3 GDP may exceed expectations. You never know. But, if Q3 is weak there is always that danger that you could get a downward revision to 29.9 weekly hours: a new bottom. I could not imagine worse news for the economy and the labor market.
The other rule is that a steep contraction should have a steep rebound. Problem: the steepness of the job losses isn't following the rule. The whole core of the "V" debate is that if employment and GDP losses aren't following the historical rules and theories then we won't get a proportional "V" rebound. Who's right? Nobody knows. One reason is that this is a global financial panic recession and not a three quarter business cycle adjustment. The big downturns aren't guaranteed to follow the rules, partly because we haven't had one since the Big D, and partly because the BLS numbers only started in '48.
On Oct 04 05:27 AM Roger Knights wrote:
> "However another number that should receive a lot of attention in
> Friday’s report is the preliminary benchmark revision which estimates
> non-farm payroll revisions of approximately -824k.,"
>
> Here's an excerpt from the NYT story on this:
>
> "October 2, 2009, 12:25 pm Jobs Vanish
>
> "The recession took a much larger toll on employment than was previously
> reported, the government said today. The Labor Department said that
> it planned to revise the job figures by subtracting more than 800,000
> jobs that it had wrongly estimated were filled by workers.
> ...............
> "The culprit is probably the much maligned birth-death model ....
> That model adds in jobs assumed to have been created by employers
> who are too new to have been added to the survey, and subtracts jobs
> from employers assumed to have failed and therefore not responded
> to the bureau’s survey.
>
> "It is based on what actually happened in the previous five years
> — a period that included a strong economy that, in 2006, created
> many more jobs than the bureau initially estimated.
>
> "For the 12 months through last March — the period covered by the
> benchmark revision — the birth-death model added 717,000 jobs <br/>..............
>
> " the benchmark revisions are based on reports from states of unemployment
> taxes paid. Those numbers take longer to be available, but are considered
> to be more reliable. The benchmark revisions numbers announced today
> will not be incorporated into the published numbers until next February,
> ...."
>
> norris.blogs.nytimes.c...
On Oct 04 07:29 AM markfl wrote:
> Good article. People get preoccupied witht the notion that employment
> is a lagging indicator. Unemployment is, but a number of stats in
> the monthly report aren't. Your chart shows that a general uptrend
> in the average workweek marks the end of recessions. One reason the
> markets lack direction is that it won't be until December that more
> monthly data come in to show whether 3 mo. trends a actually moving
> forward or retreating.
>
> Data in recoveries is volatile. Even in expansions, the workweek
> bounces around up and down. We therefore react to any postive or
> negative monthly number more strongly than reality mandates. The
> economy could simply be trying to get traction, but it could--and
> there is a risk--be stumbling. The preliminary drop in September
> average work hours was very negative. By the end of the year, revisions
> will show whether June was the bottom. July through Sept. may get
> revised upward, and Q3 GDP may exceed expectations. You never know.
> But, if Q3 is weak there is always that danger that you could get
> a downward revision to 29.9 weekly hours: a new bottom. I could not
> imagine worse news for the economy and the labor market.
www.seekingalpha.com/a...
Hand in hand with the dismal unemployment numbers is that the consumer slashed their borrowing in July by the largest amount on record. Consumers cut back their credit by $21.6 billion from June, the most since 1943 (66 years) shocking most economists who expected just a drop of $4 billion! Green shoots anyone?
Sorry for the sarcasm. And, yes, there is still some cash flow out there. Capital availability is only a small part of the problem. It's not available to those who would use it to create new jobs in the amounts it has been in the past. And those to which it is available to just aren;t using to create jobs or growth in the economy, much to the chagrin of the Administration. Mostly, cash is being either horded to shore up toxic balance sheets, being invested in bonds (and to a lesser extent in equities), and being held in anticipation of better opportunities.
On Oct 04 04:12 PM bbro wrote:
> To all you doom and gloomers cash flow still exists....
No surprise. What better investment can anyone make than to pay off a credit card charging 15-30% interest. Guaranteed hugh return with zero risk. We would expect debt to continue to contract and get repaid by anyone who can as fast as they can. Alternatively, those who can't will default and walk away wherever possible further ramping up loan losses for the banks.
On Oct 04 11:56 AM Donald Ingram wrote:
> Charles Hugh Smith posted an excellent article here entitled "Unemployment:
> The Gathering Storm". here
> www.seekingalpha.com/a...
>
>
> Hand in hand with the dismal unemployment numbers is that the consumer
> slashed their borrowing in July by the largest amount on record.
> Consumers cut back their credit by $21.6 billion from June, the most
> since 1943 (66 years) shocking most economists who expected just
> a drop of $4 billion! Green shoots anyone?
In the meantime the author is right in pointing out the poor unemployment scenario. Although, people are right that employment doesn't pick up until a recovery is underway (making it a lagging indicator), you also must consider the fact we are still concerned with a deflationary feedback loop since people have less and less income to spend. Furthermore, we are not talking about a volatile month to month unemployment issue where we have job growth some months and losses the next. Everything is still rather deep in the red in terms of net job losses.
Personally, I don't see a real recovery unless it is export driven. That's not to say we haven't come to the end of the recession on the back of 2010 mass government stimulus. An end to the recession on inflated GDP numbers from government spending and inflationary actions by the Federal Reserve may mean the end of a recession but needs not contain the word recovery whatsoever.
Even more worrysome is the fact that the technical end of one recession does not mean another recession can not follow immediately after, which is sort of what happened in the Great Depression.
On Oct 04 10:04 AM Mad Hedge Fund Trader wrote:
> More than a dent! For the last six months there has been a great
> big whopping contradiction in the markets. The stock market has been
> discounting a return to the “Roaring Twenties,” while the bond market
> has been anticipating another “Great Depression.” After yesterday’s
> publication of the Labor Department’s September nonfarm payroll number
> showing the loss of another 263,000 jobs, it looks like the bond
> market now has the upper hand. This takes the unemployment rate up
> 0.1% to 9.8%, and total job losses for this recession to 7 million.
> The really disturbing aspect of this number is that 57,000 teachers
> were fired, as states chop budgets to the bone. This is really eating
> our seed corn by the bushel full. Of course, I have been banging
> pots and pans, setting off distress flares, and yanking the fire
> alarm, trying to alert readers that this kind of disappointment was
> coming (click here for “Risk Reversals Can Be Such a Bitch” and here
> for “Stocks Offer No Value”). Shares have dropped 5% from last week’s
> peak, as the bond market soared, the ten year yield reaching nosebleed
> territory of 3.05%. The dollar maintained its flight to safety status,
> which to me is one of the great ironies of all time. It’s like that
> reprobate, alcoholic uncle with the bad teeth, who, when your car
> breaks down in the middle of a downpour in a bad neighborhood, will
> always let you crash on his sofa. Let’s call him your Uncle Sam.
> You have to hand it to PIMCO’s inveterate card counter, Bill Gross,
> who says this is all about transitioning to a “new” normal of 1%-2%
> real GDP growth. That’s why he was loading the boat with bond yields
> at 4%, a “ballsey” move at the time, which now smells like roses.
> I guess that’s why they call him the “Bond King.”
Unfortunately, when people are afraid they start jumping at the sight of their own shadow; I fear the same thing could happen here.
I read somewhere that Friday's unemployment figure included 59000 teachers who lost their job due to government cutbacks. I don't know if this is true, but it would certainly help to explain the anomalous figure.
Look at the July 09 and August 09 silver clearing numbers and level them against the numbers going back to 96. Also, look at the July 09 and Aug 09 Gold numbers. Did they totally mess up these numbers or is there something else to it? Thanks for your help.