Unemployment Hits 6.1%

Wow. And remember, the prior release’s ncrease, to 5.7%, was hoped to be due to anomalies. There was discussion at that time that it might fall back with the next month’s announcement. This may put a nail in the coffin as far as rate increase talk at the Fed is concerned.

From the Wall Street Journal:

The U.S. jobless rate unexpectedly jumped in August to a nearly five-year high as employment fell for an eighth-straight month, raising the risk of recession as households face a struggling labor market and high inflation….

Nonfarm payrolls, which are calculated by a survey of establishments, declined 84,000 in August, the Labor Department said Friday. The pullback was broad-based, including manufacturing, construction and service industries. June and July were revised to show bigger declines. June’s revision was particularly large, to a 100,000 loss in jobs from a prior estimate of just 51,000….

Wall Street economists had expected a 75,000 decline in payrolls last month and only a 5.8% unemployment rate, according to a Dow Jones Newswires survey.

From Bloomberg:

“It certainly increases the probability that we really are in a recession,” William Poole, former president of the Federal Reserve Bank of St. Louis, said in an interview with Bloomberg Television. “It is a weak number, including the revisions.”…

The average work week remained at 33.7 hours. Average weekly hours worked by production workers fell to 40.9 hours from 41 hours, while overtime decreased to 3.7 hours from 3.8 hours.

Workers’ average hourly wages rose 7 cents, or 0.4 percent, to $18.14 from the prior month. Hourly earnings were 3.6 percent higher than August 2007. Economists surveyed by Bloomberg had forecast a 0.3 percent increase from July and a 3.4 percent gain for the 12-month period. Average weekly earnings increased to $611.32 from $608.96.

The market reaction thus far isn’t as extreme as it might be, but the day is young, but after ad pummeling like yesterday, a lot of investors probably wanted to dust themselves off and regroup. That isn’t in the offing with a result like this. As the Journal’s MarketBeat noted:

Stocks fell. Futures tanked on the news, with Dow futures falling by more than 100 points. Some of the bad news may already have been baked in after Thursday’s grim jobless claims and ADP reports, but the dramatic rise in the unemployment rate still had the power to rattle equity investors.

The dollar diverged. The greenback continued to climb against the euro as most traders seem to view Europe’s economic prospects as even worse than the U.S.’s. But the yen rose against the U.S. currency.

Yields slumped. In recent trade, the two-year note was up 4/32 yielding 2.12%. Earlier in the global session it slipped below 2%, falling as low as 1.99%. The 10-year note was 22/32 higher yielding 3.56%, having earlier hit 3.55%.

The Dow is behaving a tad less badly than futures suggested, but we’ll see how things progress.

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  1. PCLE

    The U.S. jobless rate unexpectedly jumped in August to a nearly five-year high as employment fell for an eighth-straight month, raising the risk of recession.
    Raising the risk of recession…
    The award for blithe unawareness
    goes to…

  2. Matt Dubuque

    Unemployment figures are NOT a leading indicator and they are NOT a coincident indicator.

    They are a LAGGING indicator of future economic activity.

    There is MUCH more to come on this front.

    Matt Dubuque

  3. Anonymous

    They are a LAGGING indicator of future economic activity.

    Most folks would call an indicator of FUTURE activity a LEADING indicator. But whatever.

  4. Matt Dubuque


    There are three types of economic indicators, leading, coincident and lagging. Each category has several within it.

    Unemployment data is a lagging indicator, not a leading one, nor a coincident one.

    I know of no economist of any stripe that disputes this.

    Matt Dubuque

  5. a

    Matt – I think Anonymous was simply questioning your phrasing. Unemployment is a lagging indicator of economic activity. To put “future” in there makes the sentence sound a bit incoherent.

  6. S

    Unemployment is only a lagging indicator if you think it has peaked. So if you basically took the hsitorically lowe rates for the past few years, you owuld be constantly telling yourself well it has one way to go in view of natural rate. If the rate is 6.1% and heading to 20%, well then a rear view mirror look might cost you oh say 30% in the P/L. As always, perspective depends on where you are in the Q and what collateral data is saying. In this instance focusing on unemployment is an utter distraction dare I say treating the cold as the cancer mestastizes.

  7. donna

    Of course unemployment lags. You don’t lay people off til your business is already down.

    The real story is in record unemployment or underemployment of teens and twenty somethings. You’ll note the over 25s are most of the new unemployed — the under 25s either never had jobs or were laid off first.

  8. Mara

    For an alternative view of the inflation and jobless numbers, I'd suggest checking out John Williams site http://www.shadowstats.com. You'll see that both figures are really more like 12-13%, which is scary but at least will vindicate your perceptions that all hasn't been nearly as well as stats might suggest (i.e. should you really be counted as "employed" if you worked 1 hr last week?). Inflation being "down" because your "food basket" is being redefined from steak, to hamburger, to tubers, to tree bark. Of course, Phil Gramm would tag me as a 'whiner'…
    Another bit on Donna's post above: just what is the criteria for counting unemployment among those who haven't had a job (teens up to twenty-somethings) and who aren't in school (or need to work & go to school)? If you're over 18, not in school, haven't officially worked before, but can't find a job, are you even counted in the "unemployed" stat? I don't think they can qualify for unemployment benefits, so I suspect they don't exist as far as the govt's concerned.

  9. Francois

    “The U.S. jobless rate unexpectedly jumped in August to a nearly five-year high”


    Yeah riiiiight!

  10. Matt Dubuque

    Thanks a and anonymous-

    I clearly could have phrased it more aptly.

    You’d be hard pressed to find any economist of any political stripe who would call unemployment figures anything other than a lagging indicator.

    Pretty basic. Check out “Fundamentals of the Securities Markets” by Pessin (New York Institute of Finance) if you need an authoritative cite….

    Matt Dubuque

  11. John in Boulder

    Eight straight months of negative employment figures and quarterly GDP growth of 3.3 percent? Is this divergence in our “resilient” economy or just a miscommunication in the bureaucracy that “makes up” these numbers? Will Cheney be heard to proclaim “Employment doesn’t matter!”.

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