The growth rate of government payrolls is now poised to exceed the growth rate of private sector nonfarm payrolls. The last six time this happened there was a recession.
I wrote about the April 2007 job numbers in Birth Death Model Fatally Flawed.
- April Nonfarm payrolls were +88,000
- 25,000 of those 88,000 jobs were government jobs
- 28,000 goods producing jobs were lost
- The Birth/Death model added 317,000 jobs
- Since the beginning of the year, the birth/death model has accounted for a net 388,000 jobs
Nonfarm Post Mortem
David Rosenberg of Merrill Lynch is also commented on the jobs report in Nonfarm post mortem: This glass wasn’t just half empty. Highlights:
The headline came in light at +88,000 – not only below the 100,000 consensus estimate, but the lowest print since November/04 – and there were downward revisions to the prior two months totaling 26,000. We haven’t seen downward adjustments to the prior data in nearly a year, and these tends to be a “pro-cyclical” development in the sense that they tend to foreshadow further weakness in payrolls in coming months.
Other leading indicators such as the 0.4% month-over month decline in aggregate hours worked (hours lead bodies) and the 6,000 slippage in temp employment reinforce the view that the April payroll tally was not the last in the line of soft numbers coming down the pike.
The unemployment rate, to be sure, only ticked up from 4.4% to 4.5% and that was fully expected by the consensus. But that up-move was understated because of a huge slide in the labor force – in fact, any time you see a 0.2 percentage point slide in the participation rate, as we did in April (a decline not seen in 27 months), to 66.3% from 66.0% in March, you know that some tectonic shifts are taking place in the labor market. [Mish note: That last sentence is a typo. The line should read to 66.0% from 66.2%. I have a chart below that shows the trend] Not only that, but the key “employment rate” – the employment-to-population ratio – sagged to 63% from 63.3% and this we can assure you is not lost on the central bank.
The last time the employment/population ratio fell this much in one month was back in October 2002 when the Fed was consumed with deflation fear and was on the precipice of cutting the funds rate two more times. Bottom line is that if the labor force had not contracted in April as much as it did (-392,000), employment tally from the Household Survey was so weak (-468,000) that the unemployment rate would have actually risen just a smidgen above 4.7%.
The grim reality for Ma and Pa Kettle is that the combination of the drop in the workweek and the soft wage number left average weekly income down 0.1% on the month; dragging the year-onyear trend down to 3.4% from 4.3% – the weakest pace since December 2005 (and less than 1% growth in “real” terms) when the funds rate was sitting at 4.25% and the 10-year T-note hovering below 4.5%.
As we sifted through the details of the report, it became increasingly difficult to
sugar-coat it. Full-time jobs, the key generator of personal income growth, plunged 687,000 in April which is the largest slide since the economy was knee-deep in recession back in August 2001 and such a decline has only occurred three other times in the history of the Household Survey (back to 1968). Those working part-time “for economic reasons” jumped 2.2% or a 31% annual rate to stand at the highest level since September 2005. Those individuals not counted in the labor force but would like to have a job rose 262,000 or a huge 5.8% last month; and the median duration of unemployment rose to 8.7 months from 8.5 in March and 8.1 in February.
Steady Decline in the Participation Rate
Following is a chart from the BLS showing the dropoff in the participation rate.
Were it not for that decline in participation rate, unemployment would now be at 4.7% (assuming of course one believes the data and the methodology). If we counted unemployment the way they do in Europe it would be closer to 8.2% as shown in Table A12 in the above link.
By the way, none of those figures include real estate agents who are still self employed but have not had a sale for 6 months but they do count every person selling trinkets on Ebay attempting to make a living at it. Some will, but most the vast majority will not.
The weakness in this latest set of job numbers goes far beyond the insanity of the 317,000 birth death adjustment that everyone is talking about. We can now add jobs to the long list of items signaling a recession. For cash strapped and deep in debt consumers this trend could not be happening at a worse time.
China and India continue to be buyers of the yellow metal and even with tightening measures in China this does not seem to put a damper on demand. Money supplies are surging and while inflation numbers appear under control we cannot ignore the fact that 18 of the top 20 central banks have double-digit increases in their money supplies.
One inhibiting factor to the price of gold has been persistent legacy central bank selling. This has been a consistent theme where the legacy banks agree on an amount to be sold within a given year. As of the end of April 2007 the tonnage remaining of the announced sales will be down to 617.5 tonnes. Julian Philips of the Gold Forecaster writes that this may be ending soon. He emphasizes, “If sales continue at the rate we have seen over the last two months at around an average of 10 tonnes, these sales will last just over a year before they are complete and will terminate.”
Finally, the technical picture looks healthy with gold consolidating above $675 and unable to go below $670 during April’s break. As you can see on the chart below the trend remains up and corrections are becoming smaller.
Mike Shedlock / Mish/