Quarter Million Jobs Lost In July

The latest jobs report came out today. 247,000 jobs where lost in July; this number could be upwardly revised in the coming months. Economists had expected 320,000 job cuts.

The civilian labor force participation rate declined by .2 percentage points in July to 65.5%. People who drop out of the labor force because they can't find work are not included in the unemployment number.

A normal U.S. economy would be producing at least 125,000 per month. Australia, with a population about 7% as large as the U.S. added 32,200 jobs last month. That would be the equivalent of the United States adding over 400,000 jobs in a month. However, 247,000 jobs were lost in July. This is an improvement in the rate of decline from June when 443,000 jobs were lost. So things are still getting worse in the U.S. just at a slower rate.

Some good news in the report, "In July, the average workweek of production and nonsupervisory workers on private nonfarm payrolls edged up by 0.1 hour to 33.1 hours."

By sector in July:

Construction -76,000 jobs
Manufacturing -52,000 jobs
Retail Trade -44,000 jobs
Professor and Business Services -38,000 jobs
Transportation and Warehousing -22,000 jobs
Financial Activities -13,000 jobs
Health Care +20,000 jobs (only segment that gained).

Brown Manure, Not Green Shots

Economist Nouriel Roubini sees unemployment rising to close to 11% by the end of the year and that this will have a knock-on effect for the rest of the economy. He also says that job losses are even worse than what's being reported.

He also had this to say about the housing market:

It's already estimated that by the end of this year, there will be about 8.4 million people with a mortgage who have lost jobs, and therefore have little income. Therefore, the number of people who will have difficulties servicing their mortgages is going to rise very sharply.

Home prices have already fallen from their peak by about 30%. Based on my analysis, they are going to fall by at least 40% from their peak, and more likely 45%, before they bottom out. They are still falling at an annualized rate of over 18%. That fall of at least 40%-45% percent of home prices from their peak is going to imply that about half of all households that have a mortgage--about 25 million of the 51 million that have mortgages--are going to be underwater with negative equity and will have a significant incentive to walk away from their homes.

He had this to say on the budget deficits:

...deflationary pressures are going to be dominant this year and next year.

But eventually, large budget deficits and their monetization are going to lead--toward the end of next year and in 2011--to an increase in expected inflation that may lead to a further increase in 10-year treasuries and other long-term government bond yields, and thus mortgage and private-market rates. Together with higher oil prices driven up by this wall of liquidity rather than fundamentals alone, this could be the double whammy that could push the economy into a double-dip or W-shaped recession by late 2010 or 2011.

Read the whole article here.

How High Will the Unemployment Rate Go?

Definitely over 10% and must likely over 11%. The current “official” unemployment rate stands at 9.4%. This is quite high and will go higher for quite some time. Initial jobless claims rose by 15,000 to 627,000 in the week ended June 20, from a revised 612,000 the week before. This was higher than expected. With recently graduated college and high schools students not finding jobs, the unemployment rate should take another large jump in June probably to 9.8% or higher. Unemployment has been trending higher since Jan 2007 (see figure below).

This recession we are currently in will likely be the worst of the post-WWII era in the United States. The worst economic downturn of the post-WWII era before this one was the recession of the late-1970s and early 1980s when the Federal Reserve drastically increased interest rates to stop the double-digit inflation. I thought it would be interesting to compare unemployment trends of this recession to the recession of the early 1980s (see figure below).

During the early 1980s recession the unemployment rate peaked at 10.8%. I have a feeling the peak unemployment rate will be higher than the peak of the early 1980s recession. Call it an educated guess.

Links:

Today’s Initial Jobless Claims Number:
http://www.bloomberg.com/apps/news?pid=20601087&sid=a2FSfQKl0pnQ

Department of Labor Unemployment Statistics:
http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?series_id=LNS14000000

College Grads Not Finding Jobs:
http://wcco.com/consumer/College.Graduates.Face.2.1039686.html

U.S. News and World Report on Obama Stimulus:
http://www.usnews.com/blogs/peter-roff/2009/06/08/unemployment-numbers-show-obamas-stimulus-is-sinking-with-the-economy.html