Saturday, 6 December 2008

US Job Losses Worst in 34 Years

US job losses in November were the worst since December 1974 according to the bureau of labor statistics report today. US non-farm payrolls fell -533,000 in November, whilst September and October numbers were revised down by an additional -199,000. Details in brief were as follows:

construction -82,000
manufacturing -85,000
service providing -370,000
retail trade -91,000
professional and business services -136,000
education and health services +52,000
leisure and hospitality -76,000
government +7,000

In total -163k goods producing jobs were lost whilst -370k were lost in service providing industries. That is important as service providing jobs had been holding up relatively well. So we can safely say that job losses are now across the board and the recession has infected just about every sector of the economy.

Adding November job losses and the revisions to prior months together, an additional -732k more jobs were lost from last month. So why then did the unemployment rate only rise to 6.7%? The unemployment number is calculated from a different survey. This survey, the household survey, showed the ranks of the unemployed rose by just 252k whilst 422k job seekers left the labor force.

The differences between the household survey and the establishment survey (used to calculate the non-farm payrolls number) tend to get ironed out over time. So don't be surprised to see a jump in the unemployment rate to more than 7% next month.

The stock market action following the report was bullish from the glass half full perspective. Over the last couple of weeks, the economic data has been getting sharply worse, however the stock market has managed to rally despite such news.

The glass half full perspective would cite this as a sign that the bottom is in for the stock market. When the market no longer goes down on bad news but continues to go up, it's a sign that the market has discounted the worst. The other idea gaining credence is as follows; because the US economy is already a year into the recession, then we are closer to the end of the recession than the beginning, and because historically stocks turn up on average, 5 months before the end of the recession, stocks are primed to take off.

The severe recessions of 1973 - 75 and 1981 - 82 both lasted about 16 months, so if we thought the current recession was similar to those then we might buy into the reasoning outlined above. However I believe the recession will be longer than any of those in the post WWII era, probably lasting most if not all of 2009. Thus any rally in the next couple of months will ultimately fail.