Payrolls Drop - And You Ain't Seen Nothin' Yet

US corporations cut 80k jobs in March, marking the third consecutive month of job losses. The unemployment rate rose to 5.1 percent, the worse since September 2005. This drop was greater than the market expected, but will only be the beginning of even steeper losses. The March payrolls number does not include the latest jump in jobless claims, which have hit recessionary levels. With the US economy deteriorating and ATA Airlines and Aloha Airlines cutting another 4000 jobs, the labor market will get worse. Therefore a 100k drop over the next few months is not only realistic but practically guaranteed.

Characteristic of the markets post non-farm payrolls, there has been a lot of volatility in currencies. The US dollar first sold off, but then recovered back to pre-NFP levels. Although the number may not be bad enough to force the Fed to cut by 50bp instead of 25bp at the end of this month, it will encourage them to take interest rates down to 1.50 percent.

As indicated by my non-farm payrolls preview:

Over the past 3 decades, the US economy has gone through 3 recessions. During these contractions, there were a string of job losses that lasted for a minimum of 10 months. We are already beginning to see this trend unfold and it will be months before we will actually see job growth. The largest single month job loss in each of the recessions was more than 300k. We wouldn’t be surprise to see the same degree of job losses in this business cycle. Click to enlarge:

For the first time in over 2 years, jobless claims have breached the 400k mark. If we exclude the 2 weeks after Hurricane Katrina, these are actually the worst levels since the last recession. Taking a look back at time when there was a string of consecutive job losses, on average jobless claims were well in excess of 400k. This confirms that April will be an even worse month for the labor market.

And even if you look at the Technical correlation between the employment component of ISM and Non-Farm Payrolls, it is clear that non-farm payrolls could fall by at least 200k.

Comments

[mike mohr]

For once, would you please say something positive. Creating fear and financial terrorism is going out of style.

[phdinsuntanning]

manooch, is very positive if you are shorting other peoples mistakes!

[flatman]

Hey manooch - you want pollyanna watch CNBC.

[Phil G.]

Hey, Kathy is bearish... there are plenty of optimists out there, but she's just putting her view out there alongside them. Bulls should take this into account.

[jayz]

Enter your comment hereFrom Trimlab's most recent piece on Forbes.com titled "Economy has turned corner" -

"We estimate that the U.S. economy added roughly 100,000 jobs in March, based on withholdings.."

Very accurate indeed..Nice work, Trimlab, keep on trimming, the economy will sizzle in a couple months, right?

[sammyg123]

Perhaps it is best to be realistic, taking into account what the data means. If indeed we are in a recession, it would be realistic to expect about 14 months of job losses reported, as that was the average for all of the recessions that Kathy mentions in her article. Given that economies go through boom and bust cycles, the numbers suggest to me that we are in a bust cycle. Judging by the size of the dotcom bubble compared to subprime crisis, it is not illogical to suppose that a bear market will follow.

So, it shouldn't be a surprise, or even a disappointment, when job numbers are negative. It should be expected. There are ways to hedge your portfolio during times like these, from mutual funds, to ETFs. They work.

I appreciate this article because it allows me to judge where we are in this market. It takes a certain amount of intellectual bravery to tell people what they don't want to hear. It takes more bravery to confront the things that you don't want to believe, and then accept them. The facts are what they are, so caveat emptor.

As for me, I am long SIJ, BEARX, GDX, and V, and am mostly in a cash position. I'll be adding to my SIJ and BEARX on rallies. I'll be selling them on the dips.

[hollowman]

The data is what it is, nothing more nothing less. It's time to stop being either bull or bear, and take a hard look at what is going on.

Despite the CC, this seems to be progressing like a very normal recession. It may take a bit longer to come out of, but it isn't anything we haven't seen before. The only real question is how long will the down turn take? 2Qtrs? 4?

Seems you need to plan your trading strategy with this in mind.

[Chuck]

Mommy, Mommy,
Is there REALLY a Santa Claus?

Mom: Ya want the Truth, Kid ?

Kid: Nope.

Mom: OK, everything is fine. George is doing a fantastic job. etc..

[dectra]

Something Positive?

Why would you want sugar coating on the S@#$ bush and company (with their non-regulation mindset) have foisted on this country?

Face it manooch, we are NOT in a good place, and it really doesn't show signs of getting better soon. Until we get a handle on exactly where the write offs by the mega banks and other foreclosure related expenses are to end up, it's no use saying "gee it's nice in our financial markets", cause it aint.

p.s. I will leave you with one positive thought, just to make your day: 290 days, 11 hours and 47 minuets until that GOP disaster is gone.

[BriceTimmons]

This isn't the result of a Bush project. This is the result of a midnight-before Christmas-in-DC deregulation of derivatives that resulted in the sub-prime mortgage-backed AAA securities that we've all come to know and love, the SIV in all it's on-the-book-when-it's-... glory, and the absolutely bizarre belief that any sector could continue to grow completely out of proportion to population growth and median income growth. Let's not turn all cheerleader for over-regulation here and end up on the other side of this stupid coin. Let's just demand some transparency and accountability and maybe require that derivatives fully disclose their structure. Is that naive?

Thanks, Kathy, for doing a great job of explaining the data objectively.

[Rob Dupea]

Hmm, Hollowman, I don't know about "normal recession.

dectra and Chuck seem a bit put out about something, but there is this matter of dubious sub-prime paper floating around in other nations that caused everyone to wonder for a while. Might have been easier to corral this critter, whether bull or bear, if Dubya & Co. had stepped in early, offered assurances that somehow, someday all that paper would be made good. Instead, Bernanke et al have been on their own while Dubya, Cox & Co. look for the water bucket to cool heated remarks and send out for cheerleaders.

[phdinsuntanning]

I am going to the "confort zone" now, and i am using some greenbacks as paper

[algoa456]

It always surprises me how naive pundits are regarding the power of the president to effect economic reality. It is dubya this and the &*(^ Bush that when in actual fact we would be in this place even if Kerry or Obooma was in power.

It is the sub-prime crisis which came about when Clinton put pressure on financial organizations to come up with creative ways of increasing home ownership amongst the poor. Did anyone anticipate this - no! although Bill Gross began calling it early. Clinton was being sensible in what he proposed. It is not his fault either. (Although.... 'The Road to Hell is paved with good intentions")

My only question to Ms Lien is whether this is a classic recession or is something else what with China funding American excesses and the media helping by talking down the economy to get a Dem elected and is the improvement in stock prices over the last while a sucker's rally or does the market know something

[hollowman]

Rob, it's 'normal' in terms that it will be a recession, and not the Great Depression.

I've been through everything from the 70's stagflation to the 'W' ressesion in the 80's. Even in the 90's I heard some screaming that we were headed back to the 30's.

And I totally agree on your points. Bush has faced several major tests and has failed each one miserably. Do people have to be reminded how long it took for him to realize that New Orleans was actually in trouble.

[VennData]

Financial terrorism? Look, a capitalist economy creates a lemming-like over investment, because people are followers. Those mal-investments need to be corrected, usually with price drops for the asset. We'll be sing that in real estate of the coming years. Price drops.

That's what they mean by a business cycle, but a better term is a self-correction for mal-investment. Those people whose jobs depended on the old system that got to much capital - real estate, finance, auto industry - are losing their jobs and need to go find new ones. That's how you know there was mal-investment, this data is simply proving that. It's not terrorism.

Also not terrorism is the spin job of the Administration unable to even mention the word "Recession." Those are the people who need to learn to speak the truth, not Ms Lien, who is simply delivering the data.

[CM in MA]

"Clinton put pressure on financial organizations to come up with creative ways of increasing home ownership amongst the poor..."

Really? See below. Bush not only instigated the subprime crises, he and his lieutenants stood by while the very dangers he identified took hold. He's led his home ownership initiative about as well as every other thing this administration has touched. Which is to say he has been asleep at the wheel. And some folks seem to think more government regulation of the financial sector will fix things. Frankly, we need more regulation on government!

Source: www.whitehouse.gov/new...

For Immediate Release
Office of the Press Secretary
June 18, 2002

President Reiterates Goal on Homeownership
Remarks by the President on Homeownership
Department of Housing and Urban Development
Washington, D.C.

.................We are here in Washington, D.C. to address problems. So I've set this goal for the country. We want 5.5 million more homeowners by 2010 -- million more minority homeowners by 2010. (Applause.) Five-and-a-half million families by 2010 will own a home. That is our goal. It is a realistic goal. But it's going to mean we're going to have to work hard to achieve the goal, all of us. And by all of us, I mean not only the federal government, but the private sector, as well.

And so I want to, one, encourage you to do everything you can to work in a realistic, smart way to get this done. I repeat, we're here for a reason. And part of the reason is to make this dream extend everywhere.

I'm going to do my part by setting the goal, by reminding people of the goal, by heralding the goal, and by calling people into action, both the federal level, state level, local level, and in the private sector. (Applause.)

And so what are the barriers that we can deal with here in Washington? Well, probably the single barrier to first-time homeownership is high down payments. People take a look at the down payment, they say that's too high, I'm not buying. They may have the desire to buy, but they don't have the wherewithal to handle the down payment. We can deal with that. And so I've asked Congress to fully fund an American Dream down payment fund which will help a low-income family to qualify to buy, to buy. (Applause.)

We believe when this fund is fully funded and properly administered, which it will be under the Bush administration, that over 40,000 families a year -- 40,000 families a year -- will be able to realize the dream we want them to be able to realize, and that's owning their own home. (Applause.)

The second barrier to ownership is the lack of affordable housing. There are neighborhoods in America where you just can't find a house that's affordable to purchase, and we need to deal with that problem. The best way to do so, I think, is to set up a single family affordable housing tax credit to the tune of $2.4 billion over the next five years to encourage affordable single family housing in inner-city America. (Applause.)

The third problem is the fact that the rules are too complex. People get discouraged by the fine print on the contracts. They take a look and say, well, I'm not so sure I want to sign this. There's too many words. (Laughter.) There's too many pitfalls. So one of the things that the Secretary is going to do is he's going to simplify the closing documents and all the documents that have to deal with homeownership.

It is essential that we make it easier for people to buy a home, not harder. And in order to do so, we've got to educate folks. Some of us take homeownership for granted, but there are people -- obviously, the home purchase is a significant, significant decision by our fellow Americans. We've got people who have newly arrived to our country, don't know the customs. We've got people in certain neighborhoods that just aren't really sure what it means to buy a home. And it seems like to us that it makes sense to have a outreach program, an education program that explains the whys and wherefores of buying a house, to make it easier for people to not only understand the legal implications and ramifications, but to make it easier to understand how to get a good loan.

There's some people out there that can fall prey to unscrupulous lenders, and we have an obligation to educate and to use our resource base to help people understand how to purchase a home and what -- where the good opportunities might exist for home purchasing..........

[steveballmer]

I'd love it at 1.5%! It would almost make me want to run around and scream like a total baffoon going out of my mind!

[Maniac inMotion]

It's the reality of the economy. It's easier to embrace it, and choose stocks accordingly.

Why buy GRMN when you know everyone needs to buy groceries from WMT before they buy an overpriced electronic map.

[User 173188]

the 600 per tax payer and the help the college legislation and the 7000 credit to foreclosed home buyers of live in home and the saving of a brokerage are only aimed at pr window dressing hopeing to slow the fall of sentiment and stocks. us baby boomers can't loose 20% of our real estate value going into retirement and be excited. we have no time to gain significant job growth and income growth from here so who is going to replace our massive spending the same people who are currently ( to be ending soon ) supporting our social security and some income tax receipts ( ever wonder why the irs can't find so many people to send them a refund ), the amigos ? just another reason to be cash for a while longer . i tried tech stocks and lost, flipping and lost, strike three better be a fast ball down the middle or a little outside.

[The Dude]

"The March payrolls number does not include the latest jump in jobless claims, which have hit recessionary levels."

Say what? Let's take a deep breath. IF jobless claims are sustained above 400K for a few months, then I would agree. A single month spiking to just over 400K is not 'recessionary levels'.

[honestly_think]

Congress has never tried to fix the total unemployed number statistic and data. Normally, government assumes that unemployed fall off the unemployment bucket after six months. Even they do not think about the under-employed or doing odd jobs just to survive! In current computer tools it is not hard to keep track of such statistics. May be politicians do not want to know.

[curious cat]

i loved the quote from bush' speech. when you really think about it though, it seems that creating a housing bubble, by encouraging people to rush in, then collapsing the bubble, should still accomplish the american dream of home ownership for the poor, since we'll all be much poorer.

once the price of homes collapses from oversupply and under demand, the poorest people should be ready to rush in and buy all those like new foreclosed homes. all they'll need is a $300-$1200 rebate check for the down payment.

hmm, maybe we could just have invited all those poor mexicans to come into our country legally and have half of them pick our produce and work in our canning factories. meanwhile, the other half could have been building homes for their families to live in. seems like there could've been an easier way to do this, maybe with a marshall plan or something. oh well, all roads lead to mexico city.

i vote we offer annexation to the mexicans. what the heck. they have oil, we need oil. they have no law and order, we have law and order. they don't have to learn a new language. we don't have to change our recordings.

[cyberman]

Reading the above comments: healthy cynicism, uncertainty, fear, governmental incompetence caused by its leadership, spinning Lien, not feeling anybody else's pain except your own. all sorts of negative emotions. Any wonder over 81% of us think we are headed in the wrong direction? And one wonders. Can elation that bushboy is gone turn to more cynicism when it is discovered that the kindly democrats have no magic machine to spit out all the right answers to what we should do next on so many inherited and prospective problems?

[notsosmart]

is this important? who will win the final 4? can tiger win another million $? can the bosox repeat? etc. & if things really go wrong blame clinton & ben laden. sleep on americans

[BHAKTA]

Thanks for good information, which is not in the least surprising knowing how the bank industry has ripped off the world for the past years selling all their poison kool-aid loans. I do not see this as an "ordinary recession", rather it is the reaction to overt and criminal greed on the part of an industry, and the whole world will pay, but especially the USA. If, the US Govt stopped wars of aggression, and stopped maintaining bases in 144 countries, and kept this money in use nationally building our own infrastructure and education and health, it would make huge difference.

[Will Rahal]

I agree that the worse is yet to come.
I posted a chart illustrating how employment in services ex health & education, is falling off a cliff.
See "The Precipice"
www.wrahal.blogspot.co.../

[vaduz]

i agree, jobless will encrease for some time

[frflyer]

I find it interesting that no one seems to make the connection between the disparity of wealth in this country, and people's inability to afford to own a home.

www.faculty.fairfield....

"These data suggest that wealth is concentrated in the hands of a small number of families. The wealthiest 1 percent of families owns roughly 34.3% of the nation's net worth, the top 10% of families owns over 71%, and the bottom 40% of the population owns way less than 1%."

"The distribution of wealth is much more unequal than the distribution of income, especially when focussing on the bottom 60% of all households. The bottom 60% of households possess only 4% of the nation's wealth while it earns 26.8% of all income."

www.levy.org/pubs/wp_5...

"Real wages rose very slowly from 2001 to 2004, with the BLS real mean hourly earnings
up by only 1.6 percent and median family income dropped in real terms by 2.1 percent. On the
other hand, housing prices rose steeply. The median sales price of existing one-family homes
rose by 17.9 percent in real terms nationwide."

This is trickle down economics at work. More like Niagra falls flowing uphill.

"The only segment of the population that experienced
large gains in wealth since 1983 is the richest 20 percent of households."

In 2004 the top 10% had 71% of net worth
The same 10% owned 81% of non-home wealth.

The top 20% had 84.7% of net worth
Same 20% owned 92.5% of non-home wealth

The top 1% had 34.8% of net worth and owned 42.2% of non-home wealth

"In contrast, the bottom 40% had 0.2% of net worth and owned a minus 1.1% of non-home weatlth, meaning their debt exceeded their wealth."

"Table 4 shows the absolute changes in wealth and income between 1983 and 2004. The
results are even more striking. Over this period, the largest gains in relative terms were made
by the wealthiest households. The top 1 percent saw their average wealth (in 2004 dollars) rise
by over 6 million dollars or by 78 percent. The remaining part of the top quintile experienced
increases from 78 to 92 percent and the fourth quintile by 57 percent. While the middle quintile
gained 27 percent, the poorest 40 percent lost 59 percent! By 2004, their average wealth had fallen to $2,200."

"The results indicate that the richest 1 percent received over one-third of the total gain in
marketable wealth over the period from 1983 to 2004. The next 4 percent received over a
quarter of the total gain, as did the next 15 percent, so that the top quintile collectively
accounted for 89 percent of the total growth in wealth, while the bottom 80 percent accounted
for 11 percent."

"The pattern of results is similar for nonhome wealth. The average nonhome wealth of
the richest 1 percent almost doubled, that of the next richest 4 percent more than doubled, and
that of the next richest 15 percent by about 90 percent. Altogether, the nonhome wealth of the
top quintile gained 94 percent. However, in the case of nonhome wealth, the fourth and third
quintiles also showed substantial gains of 77 and 40 percent, respectively, though the bottom
40 percent showed negative growth. Of the total growth in nonhome wealth between 1983 and
2004, 42 percent accrued to the top 1 percent and 94 percent to the top quintile, while the
bottom 80 percent collectively accounted for only 6 percent."

"Of the total growth in real income between 1982 and 2003, almost a third accrued to
the top 1 percent and 80 percent by the top quintile, with remaining 20 percent distributed
among the bottom 80 percent.
These results indicate rather dramatically that despite the relative stability of inequality
of net worth and the decrease of nonhome wealth inequality during the 1990s and early 2000s,
the growth in the economy during the period from 1983 to 2004 was concentrated in a
surprisingly small part of the population—the top 20 percent and particularly the top 1 percent."

"In 2004, the top 1% owned 44.8% of stocks and mutual funds, the top 10% owned 85.4% of stocks and funds.

More tax cuts for the rich is just what the doctor ordered, don't you think?

[DickM]

Reading above - all the ranting, the politics of envy, politics of greed, the recriminations. All the people who know better, all the people who can finger who failed, but have no solutions themselves - but they could obviously do better. Because they are all knowing, have infinite wisdom, and are eternally unhappy with things.

Pathetic and disgusting.

Really, the best way forward is to level the playing field. The government should nationalize all industry, everybody work for the government, and the government run everything. And the government will decide who runs the government and decides what laws there will be. Of course. Been done before, and most of you above seem to want this again.

And, this way there will no longer be anti-Americanism anywhere, no militants out there to tear us down. Because we are now dead. Stabbed ourselves through the heart.

[Voice ofReason]

Anybody know were Kathy bought her crystal ball?

[Kiisu]

ummm... a failing of mine is that I like to tack generalities to specific examples... sometimes relationships pop up.

For example, my extended family can be divided into 3 groups based on education. Those same groupings have, as best as I can determine, a 100% positive correlation with both household income and household wealth.

The first group for the most part did not finish HS. Most of the group (there are 2 counter examples) engage in what I consider risky behavior (drunkenness, smoking, drug use, minor drug dealing, cons, petty theft, & casual sex). For the most part they live from paycheck to paycheck... when there is a paycheck (the majority of the group have never held a full time job for a year... and as a SWAG the group averages a paycheck perhaps 30% of the year). For the remainder of the year they live on charity, con, theft and hand-outs. Their assets consist of junk cars, a long gun and whatever else they've been able to steal or scrounge. All have been in jail, some have been in prison.

The second group graduated from HS, and perhaps attended a bit of college or tech school. They hold steady, but minimal paying jobs, have little if any financial reserves, retirement is a fantasy, most have rented for years before finally scraping together enough cash to finally afford a house (though I suspect most here, if they could see the dwellings would scoff and label them shanties). They survive via hard work, diligence and perseverance. I was born into this group.

The third group graduated from college, some have advanced technical degrees, usually engineering. Most have pensions, health benefits, cash reserves, and multiple investments. Some own their own businesses, others consult part-time as well as work full-time.

In cataloging and reviewing the members of my family, the one determining factor seems to be attitude. In my family, attitude determines:
* If the individual can defer immediate gratification.
* If the individual takes advantage of available education.
* How the individual manages financial decisions.

Being able to defer immediate gratification means the family member mortgages the present to secure a better future, improves his education and learns to make better financial decisions.

However, education and wealth say nothing about the “quality” of an individual… for example, one of our best educated family members is self-righteous arrogant scoundrel who my wife and I avoid when ever possible. While her brother, a member of the first group, is a real pleasure to be around… despite his brushes with the law.

Your family may be different, but the above describes mine.