Submitted by Edward Harrison of the site Credit Writedowns
I have just finished looking at the latest employment situation report and there is absolutely no good news there. This report is miles apart from the jobless claims data I reviewed yesterday and does not suggest we are anywhere close to a bottom. The headline number here was 8.5% unemployment, a 26-year high. However, upon digging a little deeper, even that number is relatively benign because of change in methodology. Below is a synopsis of what the further details reveal:
- The headline number of 8.5% unemployment on a seasonally-adjusted (SA) basis is 9.0% on an non-seasonally adjusted (NSA) basis.
- While the number of unemployed increased 700,000 to 13.1 million (SA), there are a further 5.5 million (SA) not in the labor force who want a job if they could have one. Adding these two numbers together gets one to 11.9% unemployment.
- Many workers have been discouraged or are marginally attached, factoring these workers in gets us to 15.6% unemployment, which is certainly a depressionary-statistic.
- While the SA number for unemployed is only 13.1 million, the NSA number is MUCH greater at 13.9 million unemployed. I discount the seasonal-adjustments due to the unusually pronounced nature of the downturn. Therefore, one should expect the SA numbers to still need to play ‘catch-up.’ Translation: upside surprises should be expected (high unemployment numbers).
- My favorite employment related-statistic, the year-on-year change in the unemployment rate, is a coincident or leading indicator. It is still rising. The SA change is 3.5%, up from 3.2% in February. The real NSA number is 3.8% up from 3.7%. As a point of reference, the worst climb since the depression is 4.2% in October 1949. I would expect that is where we are headed. (In 1932 this number reached 10.7% and in 1938 it reached 8.6%).
- Labor force participation rate dropped to 65.4% as more and more workers get discouraged.
- Hours worked (SA and NSA) are at a record-low 33.2 hours per week suggesting even more distress among those currently employed.
Update: the link here to the BLS website shows all the major unemployment numbers from the headline number (U-3) to the most comprehensive number (U-6). My explanation of U-6 doesn’t give the full picture which is: “Total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers.”
The charts below are seasonally adjusted data.
The gray bars above indicate recessions. What you should notice above is that recessions don’t end until the change in the unemployment rate peaks. Whether we peak late this year is a matter of pure speculation at this point.
The long and short: the employment situation report paints a grim picture and it is getting worse.
Sources
Employment Situation Summary – U.S. Department of Labor
30 comments
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Edward –
Agreed, the situation is grim. But despite continued increases in the unemployment rate, “animal spirits” have probably bottomed for this cycle, while the potential for radical change is increased.
See http://animalspiritspage.com for details.
Cheers,
Benign
And it’s worse than it looks. Remarkably, the Birth/Death model added over 100K jobs, including construction jobs, well over a year into the recession.
Looking at the chart of Unemployment Rate Change, it looks to me like the rate of change peaks as a recession ends… so a slightly lagging indicator, no?
A statistical tidbit. If total nonfarm payroll job losses average 276000 for the next 9 months (a reasonable assumption), there will have been no net increase in payroll employment this decade.
vikas, that is probably correct – slightly lagging at times. But, I think the recession areas are shifted slightly on the chart because I have greyed out the turn month and the peak was right on that month in 49, 54, 58, 61, and 80. The peak was a little after or a little before in other recessions.
I agree with your overall thesis but wanted to point out that “marginally attached” workers were split between discouraged (1/3) and those that hadn’t been looking for work because of family or schooling (2/3). So I’d say that both U-5 and U-6 overstate the “unemployed” by about that latter portion of the marginally attached workforce (about 1.4mm people).
jult52
I meant I whited-out those turn months. They appear as non-recessions.
Also, anon, Mish usually has a good blurb on the fictitious birth/death data adds which are revised away later.
By the way the household survey is MUCH worse than the NFP data (5.8 million more unemployed vs. 4.8 million jobs lost).
“”marginally attached” workers were split between discouraged (1/3) and those that hadn’t been looking for work because of family or schooling (2/3).”
right, I should probably re-edit that.
Barry Ritholtz has a good graph on that:
http://www.ritholtz.com/blog/2009/04/broader-unemployment-measure-hits-156/
When do people stop looking at when the jobs losses will turn? Industries and countries in contraction (secular decline) reset lower. Therefore the more profitable thought experiment is not second derivative drivel, rather what is likley to create job growth going forward. Afterall, leverage in the system remains gluttonous, hours keep declining, wages are vastly uncompetitive on a global scale and the prospect for consumer binges have been erased if not by destroyed spirits then by the coming inquidition of the bond market or the rest of the world.
How about this: jobs created since 2001 = 5.5M
Jobs lost since Dec-07: 5.0M
Now, nominal GDP in 2000 was ~$10T and $9T chained. So explain to me if we have had no job createion (in fact net job losses) why should anyone belive that GDP of $14T nominal and $11 real be anything close to reality.
Approaching the analysis of job losses with an ex anti bias is simply unhelpful. Krugman may be a political hack but one can understand his despair when looking at GDP in this light.
The US formula of something for nothing (or a rebate) is a failure. Using the equity markets as a barometer of anything is best left for the fools on CNBC and their patrons.
There is a huge glut of (former) service sector workers in the US, maybe even 30 million. Their jobs were based on easy credit and overconsumption. Now those jobs are melting away at frightening speed.
We are talking about huge misallocation of workforce with little hopes of finding new jobs for years to come, except maybe in homegardening. And that is no joke.
Obviously, government has the true numbers before them after leaking figures to their pals, they wave their magic wand over the columns before public release.
Remember the out of the blue Bush rebate checks? (where you get paid with your own money) Government was/is well aware of the dire situation and can offer but little relief.
After the lull and the storm continues late this year after stimuli and bailouts fail proving you can’t force hiring and consumers spending.
We don’t know what it is in this country to have employment supportive policy. We have finance and MNC supportive policies, and MNC’s make more money if they outsource. Finance will shrink. This employment problem has been decades in the making. Some of our conventional wisdom has been destroyed by the financial crisis, but conventional wisdom as it relates to the decline of American manufacturing and rise of services, climbing the value chain and we outsource lower level jobs, and the like – this conventional wisdom has yet to be demolished. But it will.
I’m also of the opinion that the employment situation is about to get worse. We’re about to hit the second leg down.
Here in California, the negative impact from the current financial situation hasn’t yet been felt in the public sector. The fiscal year doesn’t end for another few months, and public agencies + school districts are still living off of budget plans written last spring. Granted, many have made mid-budget cuts… but only the minimum necessary to meet overly optimistic projections.
It’s only when next year’s budget actually becomes firm reality that we’ll see where things are. I expect tax revenues will come in below even pessimistic projections, and tens of thousands of teachers will lose their jobs in California over the next 6 months.
Some of those listed as leaving the workforce due to family or schooling first became discouraged, and then decided that as long as they aren’t working, they might as well go to college and try to improve their future income. Or to stay at home and try to cut the expenses by ditching daycare and a lot of the other expenses that come with two incomes and try to live on just one. So that’s still about the job market to some extent.
Timo said…
There is a huge glut of (former) service sector workers in the US, maybe even 30 million. Their jobs were based on easy credit and overconsumption. Now those jobs are melting away at frightening speed.
Add to that all the emerging market growth during the past 10 years which has depended on Americans overconsumption combined with commodity driven export economies, clearly the world GDP numbers will revert back to prior times.
“Here in California, the negative impact from the current financial situation hasn’t yet been felt in the public sector. The fiscal year doesn’t end for another few months, and public agencies + school districts are still living off of budget plans written last spring.”
The layoffs have already begun in parts of the public section. I work on a UC campus, and my department just had a 15 percent cut in headcount, with more to come if the appropriate revenue propositions don’t pass in the May special election. Being as this is UC, cuts are happening in an uncoordinated fashion across each campus and across the system. But they’re happening now, and according to preset targets.
Life is not fun right now.
At this rate, what’s to stop the US unemployment rate from hitting 12.1 percent by yearend, GM and Chrysler going bankrupt, many trillions more taxpayer dollars for Wall Street bonuses? The looting of the treasury by the corrupt bankers, their on-the-take politicians, and the corporate TV propaganda media continues (they laugh among themselves and live lavishly), and the people get laid off, so sad!
Considering the PR campaign being conducted by the administration and Treasury to sell this rally, I’m surprised these numbers were released. I expect that all gov’t data’s accuracy will decrease proportionally with true economic health.
Why is it called an employment report?
Wouldn’t ‘slave elimination and exploitation report’ be far more correct?
The plantation masters are eliminating the expensive to maintain, high resource consuming, overseer middle class. The slaves have no say in the matter. That is what enslaves them. Said another way; if they did have a say in the matter — if they lived in a fair democracy with a responsive to their will government — they would not be slaves. There would be opportunity for all, not just a wealthy scum bag controlling few.
The fear inducing deceptive illusions created by the wealthy ruling elite are the chains that bind the slaves. Break the illusions and you break the chains. This is a class war, WW III; it is the wealthy ruling elite against the common person. It will soon be a global two tier social structure of ruler and ruled with the ruled engaged in intentionally created perpetual conflict. If you are reading this you are not in the ruler class.
Deception is the strongest political force on the planet.
i on the ball patriot
More pain to come.
In the past 12 months about 50% of the job losses have come from the goods producing sector (which is only about 20% of the private payrolls). The much larger service sector has only started to feel the pain.
There are now more people working in food and drinking places than production workers in manufacturing (a 12.4% drop in just 12 months for production workers – including an 18% drop in textiles and textile mills – these are huge 12 month changes).
We are only starting to see the trickle down to the service industries. If you go through the breakdown it is apparent that there are several service areas (and possibly government areas) that are still to take their share of the unemployment hits.
You’ll need to pay at shadowstats.com but released this much….
• Seriously Flawed BLS Payroll Reporting • March Payroll Loss Was 750,000 Net of Concurrent Seasonal Factor Bias, 749,000 Net of Reporting Revisions • SGS-Alternate Unemployment Rate at 19.8%…….a bit more realistic it seems, well into depression levels.
Yes, “job growth” and “retraining.” We’re all told to “go back to school” and pay for our training with loans. And then forced to compete with labor educated overseas where their educations cost a fraction of what ours do in the USA. So not only are we in massive debt, but we’re also seeing an ever falling level of salaries/wages.
And even in these overseas outsourcing havens like India, you see that some people are becoming very wealthy (vacations abroad, Jaguars, Rolex watches, Dunhill cigarettes) they then proceed to duck their taxes. They then have the nerve to gripe about the lack of clean water, garbage pick up and building codes. There’s no willingness to pay for training either, and you can see it in the appallingly poor performance of the Indian security forces during the Mumbai attacks.
I have a general question prompted by AR unemployment numbers (not as bad as most we are led to believe). Local reporting recently placed the number of Hispanics in the state at 30 – 50k. Leaving aside the question– is that the best they can do? !–
I know for a fact that with our local construction bubble collapsed and down the drain, alot of these folks have left the state. Does this not bump your unemployment rate down? Wouldn’t the same logic apply nationally?
Appreciate it.
Boomer,
It’s going to get worse. The UCs will probably escape the worst of the next wave, because it should be receiving significant help from the federal stimulus package. But so far, the cuts you’re speaking of are exactly the same-year budget cuts that I referred to earlier.
Today’s news, for example… city of Los Angeles is reportedly planning to fire 400 more immediately in order to survive the current budget year, but will have to lay off 2800 more as part of its 2009-10 budget. And I personally believe the 2800 number will go up even further when the newest budget revision from the state comes in.
This is going to happen for every public agency/government in the state of California over the next 6 months.
The scariest thing in every chart I see of recessions correlated with employment, housing, car sales, etc. is that in the past, those recessions were “solved” by lowering interest rates. For example, the 80-82 recession was exacerbated by Volcker raising interest rates but that gave him the opportunity to boost economic activity by cutting them. This time we are in a recession and interest rates can not really be cut any further. So what exactly is going to get us out of this? What will make the recession end?
Edward:
Living in Michigan were we have lead the nation monthly (almost every month) in unemployment for 8 years, I guess I can understand the nation’s pain and welcome them to our neck of the woods. Eom February, we were at 12%. I can only imagine what it will go to soon.
Spencer does a nice report on Angry Bear that matches cumulative Household to Payroll. Believing Household is a lead indicator, Spencer believe we “may” have close to the bottom. The cumulative for payroll has surpassed hosuehold as shown here: http://2.bp.blogspot.com/_Zh1bveXc8rA/SdYWIefQ7II/AAAAAAAAAuc/De6sUthEcEA/s1600-h/Clipboard04.jpg and here: http://angrybear.blogspot.com/2009/04/employment-report.html
Interesting analysis that is supported by a NBER paper showing Hosuehold as a lead indicator. Thoughts?
run75441,
Great coincidence. I saw that just a minute ago. I haven’t run those numbers so I don’t have a view on it yet but it does seem like an interesting stat.
I have noticed a disparity in the household numbers and the NFP, with the household survey worse than the NFP, but didn’t notice the flip.
If it’s something interesting after I dig deeper I may post.
Cheers.
So run75441, Spencer has a good head on his shoulders and his fingers on the calculator, so I wouldn’t want to dispute his assertion win and ad lib. That said, however, I would tend to think that we may have reached a ‘bottom’ for the first arc of decline, from the Big Hit to Construction, Durable Goods Manufacturing, and the Financial Insustry. But, as mentioned above, the follow-on hit to their Service Industry tails is yet to really come. Furthermore, the impact of the Commercial Re implosion and several more speculative ICBMs tracked as incoming haven’t been felt yet, either. I doubt that we will see a true bottom to increasing unemployment in the US for many quarters to come. At best, we will see a change in the slope of increase this Spring.
There is an opportunity here. Invest in unemployment. It’s going up!
Ed and Richard:
As I said, I live in Michigan. I am pretty confident we “will” see more unemployment given the race to get smaller by GM and Chrysler and the potential for Chrysler to be broken up. It is a given.
I would love to beleive that we will see lower unemployment; but, I am not sure we will yet either. I say so with all due respect to “Spencer’s” knowledge as he is superior in that arena. I kind of agree Richard that there is more to come even though we are long into this recession. Edward, if it is attributable to something; it may make an interesting post.
Thanks!