James Pethokoukis

From David Rosenberg of Gluskin Sheff, of course:

While it is abundantly clear that companies are near the end of the job downsizing phase, there is scant evidence of any renewal in the pace of new hiring. In fact, it is quite the contrary. This assertion is underscored by the fact that both the median (20.1 weeks) and the average (28.5 weeks) duration of unemployment hit new record highs last month. The share of the unemployed that has been looking for work without success for six months or longer also reached an unprecedented 59% last month. We are fairly certain that these folks will have a slightly different take on today’s employment number than the mainstream economics community. In addition, also keep in mind that the employment diffusion index, while improving in November, was still unacceptably low at 40.6. In other words, roughly 6 out of 10 businesses are still rationalizing their staff loads, even if at a less dramatic rate than in previous months.

All in, the November employment report was positive relative to expectations, but still quite lackluster in view of the dramatic government stimulus underpinning the pace of economic activity at this time. It’s hard to reconcile such a soft employment decline with anything else we saw in the month and at the same time, a diffusion index of 40, weakening wage growth, a record-high level of time to find a new job within the ranks of the unemployed and the lowest employment-to–population ratio in 26 years is hardly consistent with a vibrant labour market.

Some self-incriminating evidence (Bernanke in his own words) supplied by David Leonhardt of the NYTimes:

* July 1, 2005 (responding to a CNBC question about whether there was a housing bubble and whether it could cause a recession): “It’s a pretty unlikely possibility. We’ve never had a decline in house prices on a nationwide basis. So, what I think what is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit. I don’t think it’s gonna drive the economy too far from its full employment path, though.”

* May 17, 2007: “We do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system.”

* July 18, 2007 (a month before the subprime mortgage market began having problems and five months before the recession began): “Employment should continue to expand. … The global economy continues to be strong. … Financial markets have remained supportive of economic growth.”

* Feb. 28, 2008: “Among the largest banks, the capital ratios remain good, and I don’t expect any serious problems … among the large, internationally active banks that make up a very substantial part of our banking system.”

* June 9, 2008 (six months into the recession and three months before the financial panic began): “The risk that the economy has entered a substantial downturn appears to have diminished over the past month or so.”

* May 5, 2009: “Currently, we don’t think [the unemployment rate] will get to 10 percent.” (Five months later, the rate reached 10.2 percent.)

A nice jobs report. A long way to go, as this chart from Calculated Risk shows:

A few thoughts, sports fans:

1)  The drop in the U3 rate is welcome news for the WH, congressional Dems (and US workers, of course). But it is really just a smoothing out of last month’s weird pop from 9.8 percent to 10.2 percent. As Action Economics notes:

The jobless rate also fell by a welcome two-ticks, to 10%, though this just reversed half of the surprising four-tick October pop to leave intact the recent uptrend of roughly 0.1% per month for this measure. We now assume a flat payroll figure in December, with the resumption of positive payroll growth in Q1, but we still expect a modest up-trend to remain in place for the unemployment rate.

2) That being said, there was certainly good news in both temporary hires and hours worked — though if the labor force participation rate had stayed steady, U3 would have been 10.1 percent.

3) But economics is one thing and politics another. The U3 rate is an ugly indicator to Americans that the economy is still broken.

4) Still a quite good chance that on Election Day 2010, unemployment for over a year will have averaged in double digits. This is virgin territory for political forecasters, and the single biggest reason why 2010 may be more like 1994 (incumbent Ds lose 52 House seats) than 1982 (Rs lose 26 seats). Average the two and you get a loss of 39 House seats — not a bad guess for a U-shaped recovery.