Friday, 7 September 2007

More on Employment

While everyone will be watching the non-farm payrolls tomorrow, an interesting number came out of the Institute for Supply Management index for August.

The ISM non-manufacturing index was unchanged at 55.8% in August, slightly stronger than the 55.0% expected by economists and indicates expansion in the non-manufacturing sectors of the economy.

The interesting part was the The ISM employment index which dropped to 47.9% from 51.7%, the lowest since February 2003 and the first decline in hiring since July 2004. Only 3 of 18 industries were hiring whilst 8 industries were reducing their workforce.

Any correlation between this number and the news that layoffs jumped 85% in August? I think there could be.

Announced lay-offs surged 85 percent to 79,459 in August from 42,897 in July, according to Challenger, Gray & Christmas Inc, an employment consulting firm. August's job cuts were the highest since February, when they totaled 84,014.

"Nearly half of the August cuts came from the financial sector, as dozens of mortgage and subprime lenders caved under the pressure of a sinking housing market," Challenger, Gray & Christmas said in a statement.

Financial job cuts totaled 35,752 in August, the highest monthly total for the industry since Challenger, Gray & Christmas began tracking in 1993, the firm said.

Now remember what Bernanke said about the Fed looking at the 'timeliest indicators.'
First-time claims for state unemployment benefits fell by 19,000 to 318,000 for the week ending Sept. 1. The drop in claims is down from a revised 337,000 in the prior week, the Labor Department said.

This was the first drop in jobless claims after five straight weeks of increases. Initial claims are at the lowest since the week ended Aug. 4.

Sounds reassuring, or if you aren't convinced that employment growth is not under threat maybe the Fed PR department can help ease your mind.

Federal Reserve officials said Thursday that current economic conditions are good and the financial turmoil hasn't hurt Main Street.

In a luncheon speech to the Atlanta Press Club, Atlanta Federal Reserve President Dennis Lockhart said there are no signs of spillover from the housing and mortgage market woes into other sectors of the economy such as consumer spending.

Lockhart said his comment relied on real-time information from business contacts around the South because much of the new government indicators are "backward looking."

"So far, I have not seen hard or soft data that provide conclusive signs that housing problems are spilling over into the broad economy," Lockhart said.

His remarks echo the sentiment in the Fed's Beige Book report on current economic conditions that found that growth continued across the country at a moderate pace through August with little sign that the credit crunch and financial turmoil have slowed activity.

But in an earlier statement to reporters following a speech in London, St. Louis Fed President William Poole said the risks of recession have risen as a result of the market turmoil. But Poole said, "I don't think we should take for granted that the economy is going to nosedive."
Later in the afternoon, Dallas Fed President Richard Fisher was upbeat about current conditions.

In answer to a question after a speech in El Paso, Fisher said recent economic data has been "rather positive," and pointed specifically to the August ISM services index, which was unchanged at 55.8%.

Fisher said anecdotal reports from throughout his district and across the country point to "a labor shortage." "People are having trouble finding everything from day workers to bank tellers," he said. "The good news is the financial turmoil that we have recently seen came against a background of a very strong economy. I don't see the dynamics of that growth changing overnight."
Well if there is a shortage of mortgage origination specialists maybe they could give Lehman Bros. a call since they have now cut over 2,000 jobs in past two weeks.

Lehman Brothers Holdings Inc. (LEH) announced a restructuring in its residential mortgage operations that will entail cutting 850 jobs and shuttering its Korean operations.

The move comes as the Wall Street brokerage - along with numerous other mortgage lenders, underwriters and investors - adjusts to the ongoing turmoil in the credit markets, caused by sharp climbs in subprime mortgage delinquencies and foreclosures. That has caused a sharp curtailment in investor demand for mortgages and mortgage-backed securities.

Lehman, a leader in Wall Street firms' push to have their own home-lending business, said it is cutting back its U.S. and U.K. operations "due to market conditions and product revisions." Two weeks ago, Lehman shut down its subprime-lending division, resulting in a loss of 1,200 jobs, or 4.2% of the company's total work force.
Whatever the BLS plucks out of the air for it's birth death adjustment tomorrow I doubt it will be enough to disguise the downward growth trend in employment.