No Signs of a Booming Economy Here

Despite happy propaganda out of the Bureau of Economic Analysis yesterday on the GDP, there remained little good news for the economy in the latest employment report. Year-to-year change in the July 2008 payrolls showed a second month of a deepening contraction in the unadjusted numbers, any event never seen outside of a recession. The reported seventh consecutive decline in monthly payrolls, as of July, also continued to indicate a recession in place, as likely will be recognized eventually (post-election) by the National Bureau of Economic Research (official arbiter of recessions). The continued deterioration in the unemployment rate — particularly the surge in the broadest official unemployment measure (U.6) — also signaled intensifying business difficulties.

Of particularly note for SGS readers, the concurrent seasonal factor bias I have been writing about in recent months reversed in the July reporting, suggesting a less-negative headline payroll jobs change number than officially was reported. The reversal of the pattern seen previously in 11 out of 12 months of reporting was subsequent to a request from within the BLS for my calculations (the worksheet is available to anyone upon request).

Nonetheless, unusual revision patterns still were seen in the July report, where the unadjusted June payrolls was revised upward by 70,000, but that only translated into a 26,000 upward revision to the adjusted numbers. While such raised the level of the previously reported payroll employment, it resulted in a relatively weaker base against which the June to July adjusted change was calculated.

The deterioration in July’s employment environment continued running in the right direction, but still was shy of reality per trends indicated by some of the better-quality employment-environment indicators: June help-wanted advertising bottom-bounced near the prior month’s historic low; new claims for unemployment insurance have continued to surge sharply in terms of annual growth; and a recession-level employment reading was seen in both the June manufacturing and nonmanufacturing purchasing managers survey (leading indicators of July employment). The just-released July manufacturing survey showed the employment component moving into positive territory. Those numbers would suggest an ongoing jobs loss running in excess of 100,000 jobs per month.

The employment and unemployment indicators tend to be coincident markers of broad economic activity and thus are signaling an ongoing recession in place.

Payroll Survey. The Bureau of Labor Statistics (BLS) reported a statistically-insignificant, seasonally-adjusted jobs loss of 51,000 (down 25,000 net of revisions) +/- 129,000 for July, following a revised 51,000 (previously 62,000) jobs loss in June. Annual change (unadjusted) in total nonfarm payrolls was negative, down 0.13% in July versus a revised 0.07% (was 0.12%) decline in June. The seasonally-adjusted series also turned negative year-to-year, down 0.05% in July, versus a 0.14% gain in June.

Concurrent Seasonal Factor Bias. The pattern of impossible biases (see the Reporting/Market Focus in the latest SGS Newsletter) being built into the headline payroll employment changes reversed with the July reporting. Instead of the headline jobs loss of 51,000, consistent application of seasonal-adjustment factors — net of what we are calling the concurrent seasonal adjustment bias — would have shown a less-severe monthly jobs loss of about 17,000.

Birth-Death/Bias Factor Adjustment. Another element that usually adds upside pressure to the numbers, but was muted in July, as it has been in recent years, was the monthly bias factor (birth-death model). Such never was designed to handle the downside pressures from a recession. The July 2008 bias was a net addition of 4,000 jobs (versus the prior July’s 3,000 upside bias), following a net addition of 177,000 jobs in June 2008. 

Household Survey. The usually statistically-sounder household survey, which counts the number of people with jobs, as opposed to the payroll survey that counts the number of jobs (including those of multiple job holders), showed household employment fell by 72,000 in July following a 155,000 decline in June.

The July 2008 seasonally-adjusted U.3 unemployment rate showed a statistically-insignificant increase to 5.68% +/- 0.23% from 5.50% in June. Unadjusted, U.3 increased to 6.0% in July versus 5.7% in June. The broader U.6 unemployment rate jumped to an adjusted 10.3% (10.8% unadjusted) in July versus 9.9% (10.3% unadjusted) in June. Refigured for the bulk of the "discouraged workers" defined away during the Clinton Administration, actual unemployment, as estimated by the SGS-Alternate Unemployment measure, rose to 14.3% in July from 13.9% in June (the Alternate Data tab at www.shadowstats.com will be updated over the weekend).

Further detail will follow in the upcoming newsletter.

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