• Home ::
• Fundamental ::
• Analysis Reports ::
• Daily Global Commentary

• Send
• Print
• Add To
• Rss

Daily Global Commentary

95e538db-a3fd-4818-a852-4f9d7e935699

0

0

August Employment Situation: Pronounced Weakness Confirms Recession Is Underway

Sun, Sep 7 2008, 23:41 GMT
by Asha Bangalore

Northern Trust

August Employment Situation: Pronounced Weakness Confirms Recession Is Underway

Civilian Unemployment Rate: 6.1% in August vs. 5.7% in July; cycle low is 4.4% in March 2007

Payroll Employment: -84,000 in July vs. -60,000 in July, net loss of 58,000 jobs after revisions of payroll estimates for June and July.

Hourly earnings: +7 cents to $18.14, 3.6% yoy change vs. 3.4% yoy change in July; cycle high is 4.28% yoy change in Dec. 2006.

Household Survey – The civilian unemployment rate rose to 6.1% during August from 5.7% in July. The unemployment rate of adult males moved up to 5.6% from 5.3% in July and that of adult women increased to 5.3% from 4.6%, while the teenage unemployment rate fell to 18.9% vs. 20.3% in July.

The jobless rate has risen 1.3 percentage points in a six-month span. Similar gains in a short time period last occurred in the 1982-82 recession (see chart 2). The recessions of 1990-91 and 2001 registered smaller increases in a six-month period. The question is how long before it is widely acceptable to use the “R” word?

Establishment Survey – Nonfarm payrolls fell 84,000 in August, following revised declines of 100,000 and 60,000 during June and July, respectively. The revisions resulted in a net job loss of 58,000. Most major categories of employment showed a loss of jobs with the exception of government payrolls (+17,000) and health care employment (+27,000) which continued to grow. In the first eight months of 2008, on average, 76,000 jobs have been lost each month.

The 39,000 drop in auto sector jobs accounted for a large part of the 61,000 jobs lost in the factory sector. Wood products and furniture related industries reported losses of 7,000 jobs each. Temporary help fell by 37,000 and 20,000 retail jobs were lost. On average, construction payrolls fell 14,000 in the July-August period which is a noteworthy deceleration following an average loss of 42,500 jobs in the first six months of the year.

The manufacturing man-hours index dropped 0.9% in August, implying a sharp drop in industrial production in August. Average hourly earnings rose 7 cents to $18.14, putting the year-to-year gain at 3.6%, a tad higher than the 3.4% reading of July. The earnings and payroll number indicate a small increase in personal income during August.

Conclusion – At first blush, a sharp increase in the unemployment rate points to the possibility/necessity of a lower federal funds rate. However, the unemployment rate is a lagging indicator (see table 1 and chart 5) and historically a large part of easing of monetary policy is done prior to the establishment of a peak for the jobless rate (see chart 5), which the current FOMC has carried out between September 2007 and April 2008 by lowering the federal funds rate 375 bps. The complete lagged impact of this action will be evident by year-end.

The recent rally of the dollar and reduction in energy prices have allowed the Fed to watch and wait. That said, the federal funds rate at 2.00% may have to be reconsidered in the near term if a turnaround is not visible. The September 16 FOMC meeting will most likely end with the federal funds rate left unchanged at 2.00%.

• Download Full Daily Global Commentary

Published on  Sun, Sep 7 2008, 23:52 GMT