FLASH UPDATE - June 30, 2009

JOHN WILLIAMS’ SHADOW GOVERNMENT STATISTICS

FLASH UPDATE

June 30, 2009

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Leading Employment Indicators Suggest Continued Deterioration

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PLEASE NOTE: The next Flash Update is planned for Thursday (July 2nd), following the release of the June employment/unemployment data. Any other interim Flash Update or Alert would be published as dictated by developing economic or financial-market circumstances.

– Best wishes to all, John Williams

Based on Underlying Indicators, June Employment /Unemployment Should Disappoint Market Expectations.  Due for release on Thursday (July 2nd), the June employment situation report is expected to show moderating deterioration, per Briefing.com, with the monthly payroll loss widening to about 370,000 versus a 345,000 loss reported in May, and further widening in the unemployment rate to 9.6%, versus 9.4% in May. From the standpoint of political and financial-market needs, results near or better-than consensus would be consistent with the current hype that "the economy has turned." The Bureau of Labor Statistics (BLS) can bring in the headline numbers anywhere that it desires, so odds have to favor such reporting, net of any prior-period revisions.

That said, underlying employment indicators continue to show deteriorating circumstances, consistent with a payroll jobs loss of much greater than 500,000 and an unemployment rate increase of more than 0.2%. Complicating this month’s reporting is the end of the school year, which the BLS traditionally has had difficulty with, in terms of adjusting for regular seasonal variations.   

Further, the Birth-Death Model, which adds in a seasonally-adjusted average upside monthly bias of 90,000 jobs, likely will show a monthly upside gain of about 209,000 against 165,000 last year, on an unadjusted basis. With continuing indications of seasonal-factor problems in the BLS reporting, the impact of that adjusted monthly upside bias could be significantly higher than the 90,000 average, moderating the reported level of monthly decline in payrolls. The nature of the Birth-Death Model, and why it tends to mitigate reported jobs losses during recessions, will be detailed in Friday’s update.  

Employment Environment. The better-quality underlying employment series are discussed below. All are leading indicators to the June jobs report, and most are leading indicators to the ensuing July report. All are showing an extremely negative and still-deteriorating employment environment. Keep in mind that the plateauing of annual change at extremely negative levels just reflects the length of the current downturn, where year-ago comparisons are against numbers that already were in a state of rapid deterioration.  

May newspaper help-wanted advertising (Conference Board) returned to its record-low reading of 10, following an upside revision from 10 to 11 in the April index (March remained at its 58-year low reading of 10). May was down by 42.6% year-to-year change on a three-month moving average basis, with the revised annual decline in for April at 43.1%. 

A similar annual fall-off pattern was seen again in the Conference Board’s nascent online help-wanted advertising measure for June, down 36.5% year-to-year, versus a 36.6% annual decline in new online help-wanted ads in May.

Annual growth (positive growth here is an economic negative) in new claims for unemployment insurance has remained near a record level, with the 17-week moving average up by 71.2% as of June 20th, down from the near-term high of 77.0% hit in the period ended May 9th. A year ago, growth was 17.8%. So far, the annual rate of increasing claims has remained just shy of the historical peak growth rate of 78.8% seen in March 1975. 

The June purchasing managers surveys will be published in the week ahead and generally should be weaker than expected by the markets. As reported for May, the employment readings continued deep in recession territory for the manufacturing (May was 34.3 versus 34.4 in April, where readings of 50.0 and above are considered positive) and non-manufacturing (May was 39.0 versus 37.0 in April) purchasing managers surveys.

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