Jobs Contract as 2007 Job Growth Revised Away

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Includes: DIA, QQQ, SPY
by: Michael Shedlock

The jobs data for January is now in. In Jobless Claims Spike, Spending Slows, More Rate Cuts Coming I called for jobs contraction to start the year.

None of the 80 economists surveyed by Bloomberg News predicted a decline.

The drop in payrolls in January was the first since August 2003. The median forecast was for a payrolls gain of 70,000, compared with an initially reported increase of 18,000 in December. Forecasts ranged from gains of 5,000 to 160,000.
Jobs did contract and here is the report as noted by this report: U.S. Payrolls contracted by 17,000 jobs in January.
Nonfarm payrolls fell by an estimated 17,000 in January, the Labor Department said. This is the first decline since August 2003. The decline in payrolls was much weaker than the 85,000 increase that had been expected by Wall Street economists surveyed by MarketWatch.

The labor market has clearly deteriorated. Job growth has averaged 41,000 over the past three months, compared with an average of 109,000 in the first quarter of 2007. The report contradicts the January employment survey released on Wednesday by ADP that estimated that 130,000 private sector jobs were created in January.
2007 Data Revised Much Lower

As I expected 2007 job growth revised lower.
U.S. nonfarm payrolls grew 95,000 per month in 2007, a slower pace than the 110,000 previously reported. The job market started 2008 on the wrong foot, with 17,000 jobs destroyed, the government said in the release. For all of 2007, employment rose by 1.137 million, the slowest job growth since 2003, when hiring picked up again after a "jobless recovery."

The level of employment in December 2007 was revised lower by 376,000 on a seasonally adjusted basis to 138.1 million, based on more up-to-date information from quarterly tax returns by businesses.
Revision Highlights
  • Goods-producing industries were revised down by 233,000 to 22 million.
  • Construction payrolls were revised down by 63,000 to 7.5 million.
  • Factory payrolls were revised down by 176,000 to 13.7 million.
  • Services producing industries were revised down by 125,000 to 116.1 million
Birth Death Adjustments For 2007

The new CES Net Birth/Death Model table lops of the first quarter of 2007. So let's have one last look at the 2007 table as shown in my December 2007 Jobs post Unemployment Soars as Private Sector Jobs Contract. Also shown below are a few of my comments at the time.
Birth Death Adjustments For 2007



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The BLS birth/death model has added jobs 11 consecutive months now. This includes financial activities in an environment where business capex spending has been weak, housing has been horrid, and over to 210 lenders have gone out of business or stopped writing loans according to Implode-O-Meter. In spite of horrible housing conditions, the BLS has assumed there have been more business births than deaths in 9 of the last 11 months in construction.

The BLS birth/death model has now added 1,305,000 jobs to the economy since February. That model remains somewhere in outer space.
January 2008 Birth Death Adjustments



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Poof. In one fell swoop 378,000 of 1,305,000 birth/death added jobs were revised away. That amounts to 29% of the total jobs assumed to be created by the model in 2007. The number is not high enough. It will either be revised lower or differences will be "worked in" by the BLS over time. This economy is far weaker than most economists think.

The Employment Situation Report January 2008


Here is the official BLS Employment Situation Report.
Both nonfarm payroll employment, at 138.1 million, and the unemployment rate, at 4.9 percent, were essentially unchanged in January, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. The small January movement in nonfarm payroll employment (-17,000) reflected declines in construction and manufacturing and job growth in health care.
Notice how the BLS purposely trys and put a positive spin on things by calling jobs "essentially unchanged". Losing 17,000 jobs is an actual disaster.

Nonfarm Payrolls February 2005-January 2008



Job growth has clearly stalled. I expect it to contract. Even a flatline of jobs going forward is a disaster. It takes 150,000 new jobs a month just to keep up with birth rates.

Establishment Data January 2008



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The details show the only bright spots were health services and service providing. Looking forward, I expect service providing to start showing weakness. Nursing and health care jobs are likely to remain in demand with the aging of the baby boomers.

Revisions in total nonfarm employment for 2007, seasonally adjusted



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Although I did not find it worthwhile, Interested parties can read the BLS Report On Revision Methodology.

Table A-12 Alternative Measures Of Unemployment


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Table A-12 is where the rubber meets the road when it comes to unemployment. In order to keep the "official" unemployment rates low, the folks at the BLS dreamed up new categories of workers such as "marginally attached".
Marginally attached workers are persons who currently are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the recent past. Discouraged workers, a subset of the marginally attached, have given a job-market related reason for not looking currently for a job. Persons employed part time for economic reasons are those who want and are available for full-time work but have had to settle for a part-time schedule.
Classification U-6 is how unemployment actually feels to the average Joe on the street. On a seasonally unadjusted basis, that figure is close to 10%.

By the time the reported unemployment numbers get to 6.5% or higher, I am looking for line U-6 to head towards 14%

The recession of 2008 is going to be both long and nasty. In order to shore up falling profits as consumer spending declines, look for increasing numbers of mass layoffs in 2008. Also keep in mind that Countrywide And Chase Have Shut Off The Cash Spigot.

With this backdrop, bank balance sheets are going to get hammered with more REOs and credit card defaults as consumers will have no means of paying bills. There is no way "Fiscal Stimulus" of $800-$1200 per household can possibly overcome this set of factors.
Things That "Can't" Happen are about to.