Saturday, 5 April 2008

US NFP's Fall For Second Straight Month

Last month I said that the February NFP report confirmed a recession. The March report lends more credence to that conclusion. US non-farm payrolls declined -80k in March. In addition, January's decline was revised down to -76 from -22 previously whilst February was revised to -63k from -76k. From the Department of Labour:


The unemployment rate rose from 4.8 to 5.1 percent in March, and nonfarmpayroll employment continued to trend down (-80,000), the Bureau of LaborStatistics of the U.S. Department of Labor reported today. Over the past3 months, payroll employment has declined by 232,000. In March, employmentcontinued to fall in construction, manufacturing, and employment services,while health care, food services, and mining added jobs. Average hourlyearnings rose by 5 cents, or 0.3 percent, over the month.

Unemployment (Household Survey Data)

The number of unemployed persons increased by 434,000 to 7.8 million inMarch, and the unemployment rate rose by 0.3 percentage point to 5.1 per-cent. Since March 2007, the number of unemployed persons has increased by1.1 million, and the unemployment rate has risen by 0.7 percentage point.

Highlights from the March report:

51,000 construction jobs were lost
48,000 manufacturing jobs were lost
12,000 retail trade jobs were lost
35,000 professional services jobs were lost

18,000 government jobs were added

The employment rate reversed sharply to 5.1% after dipping to 4.8% in February. That was widely anticipated as more workers returned to the workforce after 374k dropped out the previous month.

The debate has shifted from, if there will be a recession to how deep and protracted it will be. Mainstream economists seem convinced that it will be short and shallow and I have to admit that the economic data whilst negative is at this stage commensurate with the mainstream view.

However the mainstream, as usual, has completely missed this turning point in the economic cycle. Lets look at how badly the mainstream has been at predicting the course of events over the past 9 -12 months.

First we were told, the housing downturn and credit crunch was contained and would not spill over to the broader economy and there would be no slowdown in economic growth let alone recession. Then of course it did spill over to the broader economy, corporate earnings turned negative and growth slowed.

Then they conceeded that there would be a slowdown but a recession would be avoided. Now some (amazingly many Wall Street lemmings believe there is still no recession) are conceeding recession but that it will be short and shallow.

Is it time to believe them? Sooner or later they will be right about something of course but I suspect it will be a while yet. The Fed and the US government seem ready to throw everything but the kitchen sink at the economy to prop it up. The non-stimulus package is expected to give a kicker to growth in the second half of 2008.

However I'm not buying it, at least not yet, a one-off stimulus package is not a long term solution to a consumer buffeted by higher food and energy costs, with their housing ATM having been removed from their front lawn, credit harder to access, mortgage rates resetting higher and more people losing their jobs.