Friday, November 7, 2008

Job losses now confirm a recession

I finally have to drop my skepticism about this being a recession. Job losses reported today were the tipping point. Still, we're not any where near a depression. So far, this recession looks a lot like the last one as far as job losses, and the last one was the mildest on record.

If we just look at private sector jobs (ignoring government jobs because they can be created by politicians without regard to whether they are needed or not), so far we've lost between 1.5 and 2 million jobs since the peak of employment last year. (This second chart shows two different measures of jobs based on two different types of surveys, neither of which is perfect.) In the 2001 recession we lost a total of 2-3 million jobs.

Interestingly, despite the much weaker than expected jobs report this morning, the market is up. That can only mean that the market was priced to very, very bad news (I still hear lots of people talking depression). The good news is that markets are clearing, companies are restructuring, most of the subprime losses have been taken, the Fed is super-accommodative, and swap and credit spreads are coming down. Oh, and also it's good to see oil at $60/bbl rather than $150, gasoline prices down by almost half from their summer peak, the dollar up 20% from its summer lows, and industrial commodity prices down 30%. Prices in general are back to more reasonable levels, and that includes housing prices. That's exactly the sort of thing you want to see. Finally, Baltic freight rates, which had been in free-fall since May, have ticked up in the past few days. There is definitely light at the end of this tunnel.

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