Thursday, July 2, 2009

Job losses don't rule out recession end

The market is disappointed today, presumably because job losses were reported to be about 100,000 more than expected. But today's jobs number (-467K) was almost exactly what you would have expected given the ADP employment report (-473K) released yesterday. These are all pretty minor things, actually, since the payroll number that everyone focuses on can be and most likely will be changed by hundreds of thousands several times over the next few years, as better data come in. In other words, a "miss" relative to expectations of 100K is nothing to get excited about.

The thing to focus on instead is the context of the number and the trends in other numbers. Unemployment claims haven't risen for the past 5 months, so we know that the job situation is not deteriorating. The Challenger data (see yesterday's post) shows tremendous improvement in one segment of the jobs market. Job losses have clearly decelerated no matter what number you look at—we've seen the worst, and now the issue is how fast things will improve.

As this chart shows, jobs don't usually turn positive until well after the end of a recession. So today's numbers are not at all inconsistent with the end of the recession having been in, say, May. In any event, given the non-stimulating nature of the Obama "stimulus" plan (which explicitly rejected the stimulus most likely to stimulate the economy, i.e., tax cuts), this recovery is likely to be quite modest. It's going to be another "jobless recovery" for awhile. But I still think the economy is on the mend. It will probably take a year or so before we start seeing meaningful gains in employment.

Interesting factoid: based on the household survey, 95.4% of the jobs that existed at the peak of the business cycle in early 2008 are still around today. There's been a lot of shuffling going on beneath the surface, but on net, job losses have been less than 5%.


Anonymous said...

Hey Scott,

Wanted to give you a quick heads up on the real reason why the market sold off so heavily today. While barely skin deep journalism says it was due to the job loss report, in truth Sen. John Kerry announced today that he expected the ruinous cap and tax legislation to pass. An increasing likelihood of passing would diminish all future cash flows of the nation and the market is discounting that to present value.


Scott Grannis said...

Allen: You could be right about the cause of the market selloff (though I would hate to have to be the journalist who writes the story every day about why the market went up or down--it's a ridiculous exercise most of the time). But what kind of authority is John Kerry? And in any event, the House cap and trade bill doesn't do much at all for many years except waste a lot of money. Lots of horse trading at the Senate could further water down the final bill, if indeed it passes. But the emission caps are going to be phased in very slowly over many years. By the time they get serious about capping emissions we might find that the world is cooling instead of warming.

In the end, however, today's 2% drop is not a very big deal in the great scheme of things. I didn't detect any significant changes in the fundamentals.