Before taking a look at the monthly jobs data, let’s take a look at Initial Unemployment Insurance Claims from The US Department of Labor.
In the week ending Nov. 29, the advance figure for seasonally adjusted initial claims was 509,000, a decrease of 21,000 from the previous week’s revised figure of 530,000. The 4-week moving average was 524,500, an increase of 6,250 from the previous week’s revised average of 518,250.
The advance number of actual initial claims under state programs, unadjusted, totaled 529,941 in the week ending Nov. 29, a decrease of 78,974 from the previous week. There were 462,902 initial claims in the comparable week in 2007.
Jobs Decline 11th Consecutive Month
This morning, the Bureau of Labor Statistics (BLS) released the November Employment Report. Jobs were negative for a 11th straight month. My target of 6% or higher stated unemployment by the end of the year, made in December 2007 when the unemployment rate was 4.8% was reached three months ago. At the time I made that call it seemed radical. I was way optimistic. In December I also predicted a jobs disaster every month this year. That prediction is now 11 for 11.
Here is a synopsis of the BLS report.
Nonfarm payroll employment fell sharply (-533,000) in November, and the unemployment rate rose from 6.5 to 6.7 percent, the Bureau of Labor Statistics of the U.S. Department of Labor reported today.
November’s drop in payroll employment followed declines of 403,000 in September and 320,000 in October, as revised. Job losses were large and widespread across the major industry sectors in November.
Nonfarm Payroll employment has shrunk to mid-2006 levels.
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- 533,00 jobs were lost in total
- 82,000 construction jobs were lost
- 85,000 manufacturing jobs were lost
- 370,000 service providing jobs were lost
- 91,000 retail trade jobs were lost
- 136,000 professional and business services jobs were lost
- 52,000 education and health services jobs were added
- 76,000 leisure and hospitality jobs were lost
- 7,000 government jobs were added
A total of 163000 goods producing jobs were lost (higher paying jobs), and for the fifth time this year service sector jobs were lost. Government, the last place one wants to see jobs, added 7,000 jobs or the service sector would have contracted more. The rate of change in government jobs is declining sharply, a welcome event, and it will be interesting to watch this category headed forward under Obama.
Note: some of the above categories overlap as shown in the preceding chart, so do not attempt to total them up.
Birth/Death Model In Outer Space
Once again was an extremely weak jobs report. And once again the Birth/Death Model assumptions are absurd. The birth/death adjustments have been in deep outer space every month this year except for January and July.
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For a change this month the Birth Death numbers are approaching our solar system from a hiatus in deep outer space. The BLS has construction jobs contracting for the first time since January and leisure and hospitality jobs declining for the third consecutive month.
A quick check on the Mortgage Lender Implode-O-Meter shows that 306 Major US lending operations have imploded. This number appears to be topping. However, even if fewer lenders are going under, there is still decreasing activity in the sector and many small 1-5 person shops that have to be throwing in the towel. Those small 1-5 person businesses are not properly accounted for in the Birth-Death Model in my estimation.
BLS Black Box
For those unfamiliar with the birth/death model, monthly jobs adjustments are made by the BLS based on economic assumptions about the birth and death of businesses (not individuals). Those assumptions are made according to estimates of where the BLS thinks we are in the economic cycle.
The BLS has admitted however, that their model will be wrong at economic turning points. And there is no doubt we are long past an economic turning point.
Here is the pertinent snip from the BLS on Birth/Death Methodology.
- The net birth/death model component figures are unique to each month and exhibit a seasonal pattern that can result in negative adjustments in some months. These models do not attempt to correct for any other potential error sources in the CES estimates such as sampling error or design limitations.
- Note that the net birth/death figures are not seasonally adjusted, and are applied to not seasonally adjusted monthly employment links to determine the final estimate.
- The most significant potential drawback to this or any model-based approach is that time series modeling assumes a predictable continuation of historical patterns and relationships and therefore is likely to have some difficulty producing reliable estimates at economic turning points or during periods when there are sudden changes in trend.
The important point in this mess is that both the job data and employment data are much worse than appears at first glance (and the first glance looked horrid).
Table A-12 is where one can find a better approximation of what the unemployment rate really is. Let’s take a look
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The official unemployment rate is 6.7%. However, if you start counting all the people that want a job but gave up, all the people with part-time jobs that want a full-time job, all the people who dropped off the unemployment rolls because their unemployment benefits ran out, etc., you get a closer picture of what the unemployment rate is. That number is in the last row labeled U-6.
It reflects how unemployment feels to the average Joe on the street. U-6 is 12.5%. Note that it was 8.4% a year ago. Both U-6 and U-3 (the so called “official” unemployment number) are poised to rise further. And as noted earlier, my 6% target by the end of the year for the official number was reached in August.
Looking ahead, I expect the service sector to continue to weaken. Mall vacancy rates are rising and a huge contraction in commercial real estate is finally started. There is no driver for jobs and states in forced cutback mode are making matters far worse. Expect to see the official unemployment rate hit 9% in 2009.
Given that unemployment is a lagging indicator, it is likely to continue rising in 2010 of course Obama may have different ideas with his job stimulus packages that he will sign within days of being inaugurated.
Small Businesses Have Largest Decline In Seven Years
The ADP Small Business report found that small businesses lost 79,000 jobs in November, the largest decline in more than seven years, and Challenger reports that Mass Layoffs Double from a year ago. See Prepare For Depression Level Unemployment for details.
Economic data continues to suggest the Credit Crunch Has Reached Critical Mass and is picking up steam. There is no driver for jobs, nor will the misguided $700+ billion bailout plan of Paulson provide any. Hopefully Paulson will not ask for the second installment ($350 billion) of that plan. It will waste resources that can be better utilized elsewhere.
Mike “Mish” Shedlock
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