Unemployment datapoint of the day

By Felix Salmon
April 11, 2009

Justin Fox revisits the January payrolls report, and finds some scary numbers most of us missed the first time around:

January 2009 was a truly, spectacularly bad month for non-farm payrolls. It was bad enough in seasonally adjusted terms: 741,000 jobs lost. But when you look at the raw data it is truly staggering: 3.6 million jobs gone. There’s always a big decline in employment in January as all those Christmas-season jobs disappear—that’s why the Bureau of Labor Statistics adjusts the data for seasonal factors. But in normal times it’s a decline of 1 million jobs or so. This January accounts for about three-quarters of the total job loss since the fall financial panic.

I find it hard to believe that any economy which managed to shed more than three and a half million jobs in one month is anywhere near recovery. Most of the time, job losses are a lagging indicator. But they’re also, when they approach this kind of magnitude, an important driver of economic activity: people who have just been laid off simply don’t spend money. And a marginal extra 3.6 million people not spending money amounts to a pretty unstoppable force in exactly the wrong direction. If each of those people reduces spending by $1,500 a month, then that’s $65 billion a year right there being sucked from the economy. And that’s just the job losses from January this year.

What’s worse is that you have to get quite a long way into a recovery before businesses feel so upbeat that they start hiring again. New job creation is an incredibly powerful force, but it’s also something which works over the long term, not the short term. In the short term, mass layoffs have a much larger effect. And they’re not over yet.


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And that’s why we do seasonal adjustment. The macroeconomic effect of millions of people losing jobs they knew or suspected were temporary, following an annual rotation out of retail that is typically reversed over the rest of the year, is a lot less and less meaningful than the same number of jobs lost when we’re used to things going the other direction. I’m not seeing these “shoots of green” or whatever that some people are talking about — like you, I’m “still unconvinced by the rally” — but I’m also going to be unconvinced when some seasonal hiring surge pushes the raw number positive, while the adjusted data keep telling us we’re still losing ground. This is exactly like those reports about the total notional value of CDS outstanding; it’s a misleading number designed to shock people. I’m only shocked that you would fall for it.


Just a note to let you know that I won’t be visiting your blog anymore. The reason I’m dropping you is that your site’s habit of reloading every five minutes is unbelievably annoying. Imagine sitting down to read a newspaper and having someone snatch the paper away from you every five minutes and then hand it back to you a minute later. That’s exactly what reading your main page is like.

I enjoy your commentary, but not enough to put up with this reloading. I read lots of econoblogs and I presume that when you have something especially interesting to say, some other blogger will post a permalink to that post. And I will follow that link because at least your permalinked posts do not reload.

Posted by anon | Report as abusive

anon with the re-load problem – maybe you should check your browser settings. I use firefox, and haven’t noticed that problem (there is the latest news ticker at the top, but that isn’t causing a re-load). What version of IE are you using?

Posted by KenG | Report as abusive

“I find it hard to believe that any economy which managed to shed more than three and a half million jobs in one month is anywhere near recovery.”

Exactly, dude. You and I totally agree.

Posted by John | Report as abusive