U.S. stocks held in very well on Friday considering the weakness of the September jobs report, and specifically the increase in long-term unemployment. Those jobless for at least 27 weeks (as a percentage of the total number of unemployed) jumped to another new record of 35.6% last month. The average duration of unemployment rose to 26.2 weeks – a record since this data began in 1948. The jobs report shouts the damage done to small businesses and their lack of credit availability – firms with less than 50 employees are the major job creator for our economy.
One would think stocks to sell off by at least 2% on this data, but after a 1% move to the downside right from the get go the broad market pared those losses, down just ½ percent by the close.
Still, the market has declined for four-straight sessions, and down for back-to-back weeks. The last time we fell for two weeks in a row was the beginning of July, which preceded another 20% jump to the highest levels in a year. Will this move exhibit the same move, or are we headed lower. It appears traders are unwilling to send stocks much lower right now, but we get some key data on the consumer this week and it all depends on how that goes; the market is probably the closest to cracking a bit since this surge from the March lows began.
The dollar came under additional pressure on Friday – strange since the only thing going for it right now is the safety trade, so one would think the greenback to have found a little support on the jobs data. I don’t know what to think about the dollar frankly, other than it’s going to be in a very tough spot. The only thing to keep it from plunging to new lows is the fact that foreign governments have to keep buying it otherwise their domestic currencies will strengthen to a point that hurts their export markets. The price of gold rose back above $1,000 per oz. as a result of the dollar weakness.
Market Activity for October 2, 2009
September Jobs Report
The Labor Department reported that payrolls declined 263,000 in September, which was a good deal worse than the 175,000 drop that was expected. The prior two months of data were revised down to show 13,000 more jobs lost that previously reported.
So over the past six months monthly job losses have averaged 307,000 per month, this is a big improvement from the previous six months in which losses averaged a super-high of 645,000 per month. Problem is, the latest month failed to show continued improvement, and in fact deteriorated, and this level of jobs losses remains above peak six-month average declines of every post-WWII recession except the 1974 contraction in which the six-month decline averaged 327K per month.
We have improved and yet we remain at or near the worst average levels of the past seven recessions/downturns. This cannot be ignored; those expecting consumer activity to begin a sustained rebound are living on another planet.
This is important to understand and I’m not sure the market has come to grips with it. We have lost 7.2 million jobs since December 2007 and that means we’ll need 1.5 million in job creation per year (beginning right now) to get these jobs back by 2015. Roughly 1.5 million in annual job creation is what we averaged over the past 25 years – a quarter century of amazing prosperity. If we don’t get a shift to pro-growth policies a couple of years from now (completely out of the question before then), total employment repair will take even longer.
(Heads up on the chart above came from Annaly Capital)
In terms of specifics, the goods-producing industries shed 116,000, an improvement from the 132,000 lost in August and a bit better than the three-month average of -121K. The construction segment cut 64,000, a bit more than the 60,000 in August and smack dab on top of the three-month average decline. Manufacturers cut 51,000 positions, up from the 66,000 subtraction in August and a mild improvement relative to the three-month average of -53K.
The service-providing industries shed 147,000 positions, vastly worse than the 69,000 cut in the previous month and lower than the three-month average of -135K. The trade and transportation segment cut 60,000 positions, worse than the 22,000 decline in August that seemed to show big improvement was upon us – three-month average is -55K. Retail slashed 39,000, much worse than the 9,000 cut in August – three-month average is -31K. The business services component did show nice improvement, down 8,000 vs. the -19,000 in August – three-month average is -19K per month.
Again, health-care and education remains the only segment that has yet to show a decline, supported by a 19,000 increase in health-care jobs as state and local governments cut teacher positions in September – which resulted in a 53,000 reduction in total government employment.
State and local governments are in terrible shape and the problems are being masked by the first leg of the stimulus spending injections. When the next leg of the stimulus spending goes from Medicaid and unemployment benefit supplements to infrastructure spending, state and local budgets will worsen. (We’ll see if the federal government extends jobless benefits, again, which we are hearing is gaining support in Congress. Right now unemployment benefits extend to 59 weeks, if we increase this number I might begin to wonder whether I’m living in the USA or Western Europe – and it’s even worse since we don’t have an autobahn.)
The unemployment rate rose from 9.7% to 9.8% as we’re headed for 10% plus and we’ll test that post-WWII record of 10.8% – the current jobless rate is the highest since June 1983.
The number that really shows the degree of labor market trouble is the U6 unemployment rate, the duration of long-term unemployment and hours worked
The U6 jobless rate continued it record-setting march, rising to 17.0% from 16.8% in August. This reading goes back to 1994 in its current form. In terms of the former way U6 was calculated this reading would sit at 13.5%, which remains below the peak hit in 1982 of 14.3%.
As many readers may remember, this U6 unemployment figure is defined as the regular unemployment rate, plus “discouraged workers” (those that didn’t look for a job during the survey period -- which the regular unemployment rate excludes), plus those working part-time because they can’t find full-time work.
The duration of long-term unemployment (the percentage of the unemployed that have been out of work for over 27 weeks) jumped to a new high of 35.6% after showing mild improvement in August (falling to 33.3% from 33.8% in July). This spells additional trouble for credit quality – consumer delinquency rates.
The average weekly hours worked data fell back to the record low (postwar) of 33.0 -- first hit in June -- from 33.1 in August. This is unfortunate as we need to see this reading move back to the high 33s on its way to 34 hours a week before we even think about expecting jobs to rise again. Firms will increase the hours worked of current employees for several months at least before adding to payrolls.
So that’s it, anywhere you look in this report it was ugly.
You know what this jobs report and the pretty much guaranteed march to the post-WWII record high jobless rate of 10.8% has me thinking? More government intrusion. Oh, sorry; I mean “stimulus.”
If the economy fails to create just some jobs over the next several months, which is highly unlikely since the largest jobs creator (small business) remains in a world of hurt, we will see Congress/Obama begin to freak out about the 2010 elections coming up and offer some new “fixes.” I have no idea what they’ll come up with but whatever it happens to be will be damaging. If they choose to extend unemployment benefits, this will only keep the jobless rate elevated and continue to mask the state and local government fiscal troubles. If they do something like increasing spending on infrastructure, it may very well help GDP in the near term, but there will be a price to pay in weaker growth a few quarters thereafter. And all of this spells higher tax rates, which already has the business community uneasy and they’ll continue to hold back on investment (both equipment and labor) as a result.
The Administration’s economists believe in an economic “escape velocity” – current government stimulus resulting in a sufficiently high and sustained level of growth so to enable it to withstand the coming tax hikes, higher interest rates and increased regulations. What I’m worried about is failing to escape the evils of Pandora’s Box. Intense government intervention is prying it open.
Have a great day!
Brent Vondera, Senior Analyst
One would think stocks to sell off by at least 2% on this data, but after a 1% move to the downside right from the get go the broad market pared those losses, down just ½ percent by the close.
Still, the market has declined for four-straight sessions, and down for back-to-back weeks. The last time we fell for two weeks in a row was the beginning of July, which preceded another 20% jump to the highest levels in a year. Will this move exhibit the same move, or are we headed lower. It appears traders are unwilling to send stocks much lower right now, but we get some key data on the consumer this week and it all depends on how that goes; the market is probably the closest to cracking a bit since this surge from the March lows began.
The dollar came under additional pressure on Friday – strange since the only thing going for it right now is the safety trade, so one would think the greenback to have found a little support on the jobs data. I don’t know what to think about the dollar frankly, other than it’s going to be in a very tough spot. The only thing to keep it from plunging to new lows is the fact that foreign governments have to keep buying it otherwise their domestic currencies will strengthen to a point that hurts their export markets. The price of gold rose back above $1,000 per oz. as a result of the dollar weakness.
Market Activity for October 2, 2009
September Jobs ReportThe Labor Department reported that payrolls declined 263,000 in September, which was a good deal worse than the 175,000 drop that was expected. The prior two months of data were revised down to show 13,000 more jobs lost that previously reported.
So over the past six months monthly job losses have averaged 307,000 per month, this is a big improvement from the previous six months in which losses averaged a super-high of 645,000 per month. Problem is, the latest month failed to show continued improvement, and in fact deteriorated, and this level of jobs losses remains above peak six-month average declines of every post-WWII recession except the 1974 contraction in which the six-month decline averaged 327K per month.We have improved and yet we remain at or near the worst average levels of the past seven recessions/downturns. This cannot be ignored; those expecting consumer activity to begin a sustained rebound are living on another planet.
This is important to understand and I’m not sure the market has come to grips with it. We have lost 7.2 million jobs since December 2007 and that means we’ll need 1.5 million in job creation per year (beginning right now) to get these jobs back by 2015. Roughly 1.5 million in annual job creation is what we averaged over the past 25 years – a quarter century of amazing prosperity. If we don’t get a shift to pro-growth policies a couple of years from now (completely out of the question before then), total employment repair will take even longer.
(Heads up on the chart above came from Annaly Capital)In terms of specifics, the goods-producing industries shed 116,000, an improvement from the 132,000 lost in August and a bit better than the three-month average of -121K. The construction segment cut 64,000, a bit more than the 60,000 in August and smack dab on top of the three-month average decline. Manufacturers cut 51,000 positions, up from the 66,000 subtraction in August and a mild improvement relative to the three-month average of -53K.
The service-providing industries shed 147,000 positions, vastly worse than the 69,000 cut in the previous month and lower than the three-month average of -135K. The trade and transportation segment cut 60,000 positions, worse than the 22,000 decline in August that seemed to show big improvement was upon us – three-month average is -55K. Retail slashed 39,000, much worse than the 9,000 cut in August – three-month average is -31K. The business services component did show nice improvement, down 8,000 vs. the -19,000 in August – three-month average is -19K per month.
Again, health-care and education remains the only segment that has yet to show a decline, supported by a 19,000 increase in health-care jobs as state and local governments cut teacher positions in September – which resulted in a 53,000 reduction in total government employment.
State and local governments are in terrible shape and the problems are being masked by the first leg of the stimulus spending injections. When the next leg of the stimulus spending goes from Medicaid and unemployment benefit supplements to infrastructure spending, state and local budgets will worsen. (We’ll see if the federal government extends jobless benefits, again, which we are hearing is gaining support in Congress. Right now unemployment benefits extend to 59 weeks, if we increase this number I might begin to wonder whether I’m living in the USA or Western Europe – and it’s even worse since we don’t have an autobahn.)
The unemployment rate rose from 9.7% to 9.8% as we’re headed for 10% plus and we’ll test that post-WWII record of 10.8% – the current jobless rate is the highest since June 1983.
The number that really shows the degree of labor market trouble is the U6 unemployment rate, the duration of long-term unemployment and hours workedThe U6 jobless rate continued it record-setting march, rising to 17.0% from 16.8% in August. This reading goes back to 1994 in its current form. In terms of the former way U6 was calculated this reading would sit at 13.5%, which remains below the peak hit in 1982 of 14.3%.
As many readers may remember, this U6 unemployment figure is defined as the regular unemployment rate, plus “discouraged workers” (those that didn’t look for a job during the survey period -- which the regular unemployment rate excludes), plus those working part-time because they can’t find full-time work.
The duration of long-term unemployment (the percentage of the unemployed that have been out of work for over 27 weeks) jumped to a new high of 35.6% after showing mild improvement in August (falling to 33.3% from 33.8% in July). This spells additional trouble for credit quality – consumer delinquency rates.The average weekly hours worked data fell back to the record low (postwar) of 33.0 -- first hit in June -- from 33.1 in August. This is unfortunate as we need to see this reading move back to the high 33s on its way to 34 hours a week before we even think about expecting jobs to rise again. Firms will increase the hours worked of current employees for several months at least before adding to payrolls.So that’s it, anywhere you look in this report it was ugly.
You know what this jobs report and the pretty much guaranteed march to the post-WWII record high jobless rate of 10.8% has me thinking? More government intrusion. Oh, sorry; I mean “stimulus.”
If the economy fails to create just some jobs over the next several months, which is highly unlikely since the largest jobs creator (small business) remains in a world of hurt, we will see Congress/Obama begin to freak out about the 2010 elections coming up and offer some new “fixes.” I have no idea what they’ll come up with but whatever it happens to be will be damaging. If they choose to extend unemployment benefits, this will only keep the jobless rate elevated and continue to mask the state and local government fiscal troubles. If they do something like increasing spending on infrastructure, it may very well help GDP in the near term, but there will be a price to pay in weaker growth a few quarters thereafter. And all of this spells higher tax rates, which already has the business community uneasy and they’ll continue to hold back on investment (both equipment and labor) as a result.
The Administration’s economists believe in an economic “escape velocity” – current government stimulus resulting in a sufficiently high and sustained level of growth so to enable it to withstand the coming tax hikes, higher interest rates and increased regulations. What I’m worried about is failing to escape the evils of Pandora’s Box. Intense government intervention is prying it open.
Have a great day!
Brent Vondera, Senior Analyst
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