James Pethokoukis

Two fun factoids:

1) During the past two recessions, the unemployment rate kept rising for 15 months (1990-91 downturn) and 19 months (2001 downturn) after the recession officially ended, according to the National Bureau of Economcic Research.  If that happens now, we are looking at rising joblessness right smack into Election Day 2010.

2) During the first quarter of the last 10 economic recoveries, real GDP rose 5.8 percent on average, with a high of 17.2 percent during the first quarter of 1950 and a low of 1.4 percent during Q4-2001. That from Ed Yardeni. Here are the first two quarters of growth from each of the past three recessions: 1981-82 (0.3, 5.1), 1990-91 (2.7, 1.7), 2001 1.4, 3.5).

Bottom line: There is going to be a quarter coming up that Obama can crow about — but won’t because of rising unemployment.

Larry Summers didn’t mention this metric in his speech:

Economist David Rosenberg thinks the jobs report was, in effect, a boot heel stomping all over the green shoots:

1) The headline came in at -467k compared with -350k consensus and the back revisions were negligible (+8k). At no time in the 1990 or 2001 recessions did we ever come close to seeing such a detonating jobs figure, not even at the depths of those downturns, and yet we have a whole industry of ‘green shoot’ advocates today telling us that the recovery has already arrived. As always, the devil was in the details.

2) In almost every industry, job losses were deeper in June than they were in May. The diffusion index fell to 28.6 from 31, which means that nearly three-quarters of the corporate sector is still in the process of shedding jobs.

3) The Household Survey showed a 374k job decline, and all centered in full-time jobs. In fact, we have lost a record 9 million full-time jobs this cycle, more than triple what is normal in the context of a post-WWII recession, with over 2 million pushed onto part-time work (and the number of people now working part-time because they have no other cho! ice due to the weak economy has more than doubled).

4) This in turn has take the total hours worked in the private sector down to a new record low of 33 hours from 33.1 hours in May – in fact, what this means is that if companies had kept hours worked at May’s levels, then to achieve the same labour input that they achieved would have required a 800,000 job slice!

According to the Labor Department, the economy lost 467,000 jobs and the unemployment rate ticked up to 9.5 percent in June.  But lots of workers have stopped looking for work and that skews the unemployment rate. If workers were looking for jobs in the same numbes as they were in June 2008 (we are talking about the labor force participation rate which was 66.1 percent then and 59.5 percent now), the unemployment rate would be at 10 percent.

Also consider that the broader unemployment measure (unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers) is 16.5 percent. Even worse, the unemployment duration numbers took a sharp dive.

Oh, and those folks who are working are working fewer hours:

In June, the average workweek for production and nonsupervisory workers on private nonfarm payrolls fell by 0.1 hour to 33.0 hours–the lowest level on record for the series, which began in 1964.  The manufacturing workweek rose by 0.1 hour to 39.5 hours, and factory overtime  was unchanged at 2.8 hours.

WH spokesman Robert Gibbs echoes what his boss said recently:

The U.S. unemployment rate is likely rise from already high levels to 10 percent in the next couple of months, a White House spokesman said on Monday.

“I think the president has said this, and I would certainly say this, I think you’re likely to see unemployment at 10 percent within the next couple of months,” White House spokesman Robert Gibbs told reporters.

The U.S. unemployment rate already stands at 9.4 percent, the highest level in about 25 years, and many analysts believe it could continue to climb despite the $787 billion economic stimulus package passed early this year by Congress.

Earlier this year, the Obama administration had predicted the unemployment rate would peak at 8 percent before beginning to fall toward the end of 2009.

Some doom and gloom from David Wyss of S&P via the NYPost:

David Wyss, S&P’s chief economist said banks should brace for a plastic meltdown as credit-card losses track the unemployment figures almost exactly. “Credit-card losses, on average, are equal to the unemployment rate plus about 5 percent,” he said, noting his estimates that the nationwide jobless rate could rise as high as 12.5 percent by 2011.

“If one more thing goes wrong, say oil goes over $100 a barrel, or the banks have to deal with another big hit like the commercial real-estate market dropping substantially, unemployment could continue to rise through 2011,” Wyss said.

When will the Federal Reserve begin to execute its exit strategy? Well, as far as the interest rate component goes, keep an eye on the job market.  At least that is how economists John Ryding and Conrad DeQuadros see things:

It is an empirical fact that since the Fed adopted interest rate targeting, it has never made the first move to hike rates after a recession until the unemployment rate had peaked. Although the funds rate target is unusually low, at 0%–¼%, it is also the case that the unemployment rate is unusually high, at 9.4%, and expected (by both ourselves and the Fed) to move higher. In the post-war era, only the 1981-82 recession has seen a higher unemployment rate than the current rate and that recession was accompanied by a rapid disinflation from 10.4% at the start of 1981 to 4.7% at the start of 1983.

The below chart, highlighted by Jeffrey Frankel of RGE Monitor, provides a counterpoint to the idea that the labor market is improving and employers are gearing up to hire. If they were, wouldn’t they first push their folks to work more hours?

From IHS Global:

The economy remains on track to bottom out soon—at least in output terms. We expect the rate of contraction in GDP to slow in the current quarter (to minus 2.8%), before GDP edges higher in the second half of the year. But a rapid recovery is not in prospect, after so extreme a financial shock. Economists may be able to declare the recession technically “over” some time in the third quarter, but it won’t feel that way for the unemployed, with the unemployment rate peaking at 10.3% in the first half of 2010.

The San Francisco Fed paints a gloomy outlook for the U.S. labor market with unemployment hitting near 11 percent next year and above 9 percent through 2011(bold is mine):

We combine data on involuntary part-time workers with the standard unemployment rate to arrive at an alternative measure of labor underutilization. We plot this measure in Figure 3, which shows that the labor market has considerably more slack than the official unemployment rate indicates. The figure extends this labor underutilization measure using the Blue Chip consensus forecast for the unemployment rate as a benchmark and then adding a share of involuntary part-time workers based on the proportion of workers in that category to the unemployed during the current recession. This projection indicates that the level of labor market slack would be higher by the end of 2009 than experienced at any other time in the post-World War II period, implying a longer and slower recovery path for the unemployment rate. This suggests that, more than in previous recessions, when the economy rebounds, employers will tap into their existing workforces rather than hire new workers. This could substantially slow the recovery of the outflow rate and put upward pressure on future unemployment rates.