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Expect Non−Farm Payrolls to Double Dip
Thu, Nov 20 2008, 14:25 GMT
by Kathy Lien
Every single day we have more reason to believe that the US unemployment rate will break 8 percent next year. Jobless claims rose to a 16 year high last week of 542k, driving the US dollar lower against the Japanese Yen. Continuing claims rose to 4.012 million, the highest level in close to 26 years. The most powerful aspect of today's report is the fact that the Veteran's Day Holiday usually pushes jobless claims down which suggests that if there wasn't a holiday, jobless claims could easily surpass 550k.
There is no question that the US labor market is in trouble and non-farm payrolls will continue to drop. However, with major layoffs from companies like Citigroup, there is a decent chance that we may see non-farm payrolls double dip like it has in past recessions. In analyzing non-farm payrolls data during the last 3 recessions, we see that at the beginning of an official recession, as defined by the National Bureau of Economic Research, non-farm payrolls start to decline rapidly. However after falling between 200k and 300k, job cuts stall and then pick up once again. We saw this trend in the 1981 to 1982 recession, the 1990 to 1991 recession and during the 2001 recession (charts shown at bottom of email)
Therefore don't expect the labor market to stabilize anytime soon - non-farm payrolls should top -300k, stabilize and then revisit that level once again in the first half of 2009.
For the Federal Reserve, this is yet another piece of growing evidence that the US economy is deteriorating and they may need to serious consider taking interest rates to zero. Oil prices dropped below $50 a barrel today for the first time since May 2005. With inflation pressures easing and the economy deteriorating, there is no reason to stop easing. For the currency market, repatriation and risk aversion should continue to lift the US dollar and Japanese Yen.
The following chart illustrates the double dip trend of non-farm payrolls during the 2001 and recession.
Published on Thu, Nov 20 2008, 14:26 GMT
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This forum and the information provided here should not be relied on as a substitute for extensive independent research before making your investment decisions. Global Forex Trading is merely providing this column for your general information. The views of the author are not necessarily those of Global Forex Trading, its owners, officers, agents or employees. In addition, any projections or views of the market provided by the author may not prove to be accurate. Global Forex Trading and Cornelius Luca will not be responsible for any losses incurred on investments made by readers and clients as a result of any information contained in this column. Global Forex Trading and Cornelius Luca do not render investment, legal, accounting, tax, or other professional advice. If investment, legal, tax, or other expert assistance is required, the services of a competent professional should be sought.Related reports
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