JOHN WILLIAMS’ SHADOW GOVERNMENT STATISTICS

 

COMMENTARY NUMBER 255
Brief Update - Friday’s Employment/Unemployment Release

November 4, 2009

 

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Employment Situation Continues to Deteriorate

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PLEASE NOTE: The next planned Commentary is for Friday, November 6th, following the release of the October employment and unemployment report.
– Best wishes to all, John Williams

Brief Update: Some Risk of Worse-Than-Expected Data for October Employment Conditions.  As discussed in Commentary 254, the U.S. economy remains in a protracted and deep economic contraction, one that will continue to be unresponsive to traditional stimuli. Given the underlying reality of a weaker economy and a more serious inflation problem than generally expected by the financial markets, risks will favor higher-than-expected inflation and weaker-than expected economic reporting in the month ahead.  Such is true especially for economic reporting net of prior-period revisions.

Payroll Employment and Unemployment (October 2009).  Due for release on Friday, November 6th, expectations appear to be for a smaller decline in October payrolls than seen in September and for a minimal notch upwards in unemployment. Briefing.com reports a consensus expectations of a 175,000 (little changed from last week’s consensus of 166,000) jobs loss in October, following a 263,000 jobs decline in September, with the October unemployment rate increasing to 9.9% from September’s 9.8% level. Given that the economy remains much weaker than the consensus outlook, reporting risk here continues to be for worse-than-expected numbers. 

Adjusting for prior-period revisions, an October jobs loss of 300,000 is within reason. Add to that a further 200,000 monthly jobs loss that is not being counted in the survey, and the total jobs loss likely is around 500,000 for the month. While that generally is consistent with the broad weakness in related series, the formal reporting of same is not likely until the benchmark revision publication in February 2010.

September’s headline unemployment rate to the second decimal point was 9.83%, just 0.02% shy of rounding up to 9.9%. As a result, with continued deterioration in official unemployment, 9.9% appears fairly safe for October, and 10.0% is within easy reach. With yesterday’s off-year election having gone generally against the Democrats, a substantial new stimulus package from the federal government — one aimed at helping the economy before next-year’s mid-term election — likely will be proposed shortly. The headlines surrounding the odometer event of the unemployment rate rolling up to 10.0% would help a new stimulus push. Accordingly, that 10.0% (9.95% or a statistically insignificant gain of 0.12% from September would do the trick) might be offered up to the public on Friday, instead of a month from now.

As to related underlying reporting, help-wanted advertising is contracting. The Conference Board’s newspaper help-wanted advertising index for September (a leading indicator to October’s employment report) fell to a new record low of 9, from the prior low of 10 that had held for the preceding four months. This new 58-year low is a very negative signal for background employment conditions. While some of the weakness in this index of recent years has been due to ads shifting from newspapers to the Internet, near-term relative changes remain significant indicators of pending employment activity.

Confirming the declining trend in print advertising, the Conference Board’s online help-wanted advertising also has been in monthly decline, with year-to-year change for new ads down 24.6% in October, versus an annual decline of 25.7% in September. The declining online data are leading indicators of activity to both the October and November employment reports.

The October purchasing managers surveys were negative for Friday’s reporting but mixed in their employment signals for next month. On the manufacturing side, the employment diffusion index (a reading of 50.0 or above is expansion) jumped from 46.2 in September (leading indicator to October employment reporting) to 53.1 in October (leading indicator to November reporting). On the non-manufacturing side, the index fell from 44.3 in September (leading indicator to October employment reporting) to 41.1 in October (leading indicator to November reporting).

The overall strong results for the manufacturing series are suspect and should prove to be fleeting, since consumption is not growing, which means that any production gain is feeding an involuntary but temporary buildup in inventories.

New claims for unemployment insurance have been fluctuating around 530,000 per week for the last six weeks, well off the 650,000 peak average seen back March and April of 2009. The current base level, however, is around where it was in fourth-quarter 2008, when monthly payroll jobs losses were averaging about 550,000. That number, though, was before the first-quarter 2009’s big reporting error developed, per last month’s BLS announcement of the pending major downward revisions to data that will be forthcoming when the March 2009 benchmark revision is published in February 2010. The pending benchmark adjustments suggest a 200,000 shortfall per month in current accounting for monthly jobs loss.

As a point of clarification, the weekly new claims number has only a partial relationship to the reported monthly payroll jobs change. The monthly payroll employment change reflects the prior payroll balance, less jobs lost, plus jobs gained.

These underlying related economic series, again, are leading indicators to the government’s employment and unemployment reports. The employment and unemployment numbers are "coincident" (not the popularly touted "lagging") indicators of broad economic activity. The U.S. economy remains in recession/depression.


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