June 06, 2003

Unemployment Report

The expected bad employment report for May:

Unemployment rises to 6.1% - Jun. 6, 2003: NEW YORK (CNN/Money) - The unemployment rate rose to 6.1 percent in May as businesses cut thousands more jobs, the government said Friday, extending the labor market's prolonged slump.

Unemployment rose from 6.0 percent in April, the Labor Department said, to the highest level since July 1994.... Non-farm payrolls lost 17,000 jobs, the report said, after being unchanged in April.... Nine million people were unemployed in May, compared with 8.8 million in April.... Several labor-market indicators in recent weeks gave warning that a weak jobs report was on the way, especially a stream of new claims for unemployment benefits numbering more than 400,000 every week, a benchmark sign of weakness...

Remember, given population and trend labor force growth, a monthly payroll increase number of about 80,000 is needed to keep labor market conditions from getting worse.

Posted by DeLong at June 6, 2003 06:29 AM | TrackBack

Comments

>The expected bad employment report for May...

The 17,000 reported job loss was about one third the size of the forecast job loss.

Trying out for a job at the Times?

Posted by: Bucky Dent on June 6, 2003 07:07 AM

I don't think "we were 97,000 short of flat unemployment" is much of an improvement on "we were 120,000 short of flat unemployment."

Posted by: Jason McCullough on June 6, 2003 07:09 AM

Any comments on the revised methodology for calculating the stats? Wampum raises something that you might be able to address.

Posted by: MattS on June 6, 2003 07:30 AM

jason mccullough:
Yeah, that's why the market shot up like a rocket on the report. Because it wasn't much of an improvement.

People on the left remind of people on the right in the early stages of the clinton presidency when they let their political opinion of the opposition color their view of what was happening in the economy. It's better than you think. You'll see.

Posted by: William Utley on June 6, 2003 07:50 AM

Brad, please do comment on the new changes in the way unemployment is calculated at the BLS. Something about the "bias rate"?

Posted by: steve on June 6, 2003 08:12 AM

This should quiet those people who argued that the economy was looking up in April because more
individuals had entered the labor force; the labor force has pretty much retained its size and
the employment numbers continue to worsen. The
much maligned help wanted index seemed to have
gotten the picture correct. I wonder what the layoff report will have to say? Only in America
could bad news be viewed as good news because some experts thought things would be worse! I haven't looked carefully over the unemployment report. Are the non-farm gains temporary or seemingly part of a trend? I think Brad's concern is the correct concern: if we don't add enough new jobs, we can expect the unemployment rate to rise to 6.5%.

Posted by: Malcolm on June 6, 2003 08:12 AM

Brad, please do comment on the new changes in the way unemployment is calculated at the BLS. Something about the "bias rate"?

Posted by: steve on June 6, 2003 08:15 AM

This report should quiet those who claimed the April unemployment reprt represented good news because the labor force had grown. My quick look at the numbers suggests the labor force has stayed
at pretty much the same size; last months change was probably a one month blip. Only in America
can bad news be viewed as good news because some experts seemed to think it could have been worse!
It seems that this report validates the trend from the much maligned help wanted index report;
what are the layoff numbers? By the way, Bucky,
I suspect that Brad has it right in that the job losses don't portend future job gains large enough
to stabilize the unemployment rate. This is certainly bad news for the US economy. Should we be prepared for an unemployment rate of 6.5%? When
will it drop bach to the mid 4's?

Posted by: Malcolm on June 6, 2003 08:25 AM

OK, given revisions to prior month's data, what we have is a average monthly decline in employment over the past 2 months of roughly 8.5k jobs vs expectations of a decline of 50k-60k. The first 2 months of Q1 look pretty good against an average 136k monthly loss in the final 2 months of Q2. That reads like war worry in Q1, with the cloud lifting in Q2. Note also that, rather than a 332k job loss for the year through April, revisions reduce that loss to 131k, not good, but not half as bad as it looked yesterday. The one hitch is the methodological changes MattS mentions. So far, I can find no clarification from BLS as to the amount of recent revisions attributable to methodoloby vs standard revision practices. Aggregate hours worked rose 0.3% in May, a pretty good sign all by itself.

The job picture in factories, on the other hand, stinks. Job losses have accelerated, not slowed, in Q2. The spread of jobs losses among various factory sectors has also worsened in the first 2 months of Q2 vs the final 2 of Q1.

The unemployment rate rise was earned over the past year, when the rate was largely steady while job losses or inadequate job gains were posted every month. The rise in the rate has been expected for some time. A pick up in the labor market participation rate, itself a sign of confidence, is the proximate cause of the rise in May.

Mr Utley may have a point, but maybe not. I, for instance, often get a kick out of Bucky's posts, but let's just say I don't share his political views. Still here I am, arguing the labor market ain't as bad as folks thought. I cannot be the only one.

Posted by: K Harris on June 6, 2003 08:27 AM

If the total labor force is 145 million and we have lost 2.5 million jobs in the last two and a half years and if we need 80,000 jobs a month for unemployment rate to stay unchanged, why isn't the umemployment rate about 7.1% given that it was at 4.0% when Clinton left office?

Posted by: chris on June 6, 2003 08:28 AM

This report should quiet those who claimed the April unemployment reprt represented good news because the labor force had grown. My quick look at the numbers suggests the labor force has stayed
at pretty much the same size; last months change was probably a one month blip. Only in America
can bad news be viewed as good news because some experts seemed to think it could have been worse!
It seems that this report validates the trend from the much maligned help wanted index report;
what are the layoff numbers? By the way, Bucky,
I suspect that Brad has it right in that the job losses don't portend future job gains large enough
to stabilize the unemployment rate. This is certainly bad news for the US economy. Should we be prepared for an unemployment rate of 6.5%? When
will it drop bach to the mid 4's?

Posted by: Malcolm on June 6, 2003 08:28 AM

This report should quiet those who claimed the April unemployment reprt represented good news because the labor force had grown. My quick look at the numbers suggests the labor force has stayed
at pretty much the same size; last months change was probably a one month blip. Only in America
can bad news be viewed as good news because some experts seemed to think it could have been worse!
It seems that this report validates the trend from the much maligned help wanted index report;
what are the layoff numbers? By the way, Bucky,
I suspect that Brad has it right in that the job losses don't portend future job gains large enough
to stabilize the unemployment rate. This is certainly bad news for the US economy. Should we be prepared for an unemployment rate of 6.5%? When
will it drop bach to the mid 4's?

Posted by: Malcolm on June 6, 2003 08:30 AM

>The job picture in factories, on the other hand, stinks.

Factory employment, in absolute and relative terms, has been declining since Richard Nixon was vice president. Factory output, otoh, has held rougly steady, iirc.

Given the huge increase in overall living standards over the intervening generations, I have to conclude that the decline of factory sector employment has not been all that harmful.

Also, it will be interesting to see if the sharp dollar drop will help US manufacturers. Cynics, like me, assume this effect will kick in smack in the middle of the run-up to Election Day 2004.

Posted by: Bucky Dent on June 6, 2003 08:37 AM

Yes, Bucky, but factory jobs either fall fast or they fall slow. Right now, they are falling fast - the job market in factories stinks. I will grant that this may just get job losses out of the way - that the factory job losses of April and May would have come later if they hadn't com now. However, speed of adjustment counts for something, and right now, any job loss is bad news. We need those consumers, by jiminy!

Posted by: K Harris on June 6, 2003 08:58 AM

William Utley:

The market shot up because the results were in line with expectations and the current herd mentality in the market is that "the bear is dead." Anything that doesn't disconfirm the herd-think results in upward movement.

One should be concerned with that kind of correlated reaction. Because a string of bad news can cause use the strength of investor-to-investor correlation to push the market down to very low levels.

Right now the market has overreacted to every piece of positive and neutral news that its in for a pretty big correction when the statistics show signs of fluctuating in the other direction.

Posted by: Cheez Whiz on June 6, 2003 08:58 AM

"This report should quiet those who claimed the April unemployment reprt represented good news" but it sure won't quiet Malcom.

Posted by: brian on June 6, 2003 09:35 AM

The employment report was as usual these months awful. Of course, it was less awful than some had guessed it would be and so it can be viewed as a turning point in the job loss trend or even more so as "terrific." Still, another month, more job losses. Thankfully, I have a job. Oh, I guess that is another reason for thinking the report terrific. I get it.

Posted by: lise on June 6, 2003 10:12 AM

>>Yeah, that's why the market shot up like a rocket on the report. Because it wasn't much of an improvement.>>

On that path lies madness. The oracle bid for peoplesoft was no doubt a factor, as were a myriad of other factors

The market is now flat for the day. By your own logic that means ...

Posted by: richard on June 6, 2003 10:40 AM

http://epinet.org/content.cfm/webfeatures_econindicators_jobspict

Unemployment rose to 6.1% last month according to today's report from the Bureau of Labor Statistics (BLS). This is the highest level reached thus far in the current weak recovery, and the highest level since July of 1994. Payroll employment fell slightly, by 17,000, with larger losses in government and manufacturing. The share of the population employed is historically low, and long-term unemployment remains stuck at recessionary levels, suggesting that the jobless recovery is persisting.

Extensive revisions in today's BLS report also show that the nation's job deficit is deeper than was previously recognized. These revisions to the payroll data led to some significant changes in recent job trends. Over the longer term, the jobless recovery has been considerably more costly in terms of job loss than shown in earlier data. Most recently, however, job loss has been milder than previously reported.

Prior to the revisions, it appeared that 2.1 million total jobs and 2.7 million private-sector jobs were lost between the beginning of the recession in March 2001 and April of this year. With today's revisions, and including May's results, those losses have been revised to 2.4 million and 3.1 million. Both in terms of numbers and percentages, more private-sector jobs have been lost over this downturn than in any prior comparable period in post-WWII history.

Posted by: anne on June 6, 2003 10:43 AM

>Extensive revisions in today's BLS report also show that the nation's job deficit is deeper than was previously recognized.

The word "deficit" appears nowhere in the actual BLS report.

ftp://146.142.4.23/pub/news.release/empsit.txt

The folks at EPI are also looking for a job at the Times.

Posted by: Bucky Dent on June 6, 2003 10:48 AM

>>Yeah, that's why the market shot up like a rocket on the report. Because it wasn't much of an improvement.>>

- On that path lies madness. -

Sometimes the market perfectly reads and forecasts economic conditions, other times it does not. Just now the stock market is reading and forecasting a fine fine economy, the bond market is telling of misery.

What really are we to make of an S&P p/e at 29.9 on May 30, while the 10-year treasury is offering less than 3.4% interest? Madness???

Posted by: anne on June 6, 2003 11:07 AM

Perhaps the epinet.org analysis might actually be read. The New York Times is easily the finest newspaper in the world. No problem, the radical-right read Rupert Murdoch, except that they make sure their kids read the NYTimes and go to the schools and study in departments they sneer at in public, as say Princeton economics. Well, we all can't attend Bob Jones University can we?

Posted by: dahl on June 6, 2003 11:17 AM

I wonder how much a factor is the duration of this downturn? Here in Silicon Valley many, many people have been unemployed for a very long time. Almost all of these people are no longer receiving unemployment. Many have long since given up looking - there is no point in looking here becuase there are simply no jobs whatsoever of any kind, anywhere, period. A new starbucks opening up gets hundreds upon hundreds of applicants. A part-time receptionist job gets hundreds of applicants.

So there are a very large number of unemployed here who are not in the statistics because it has been so long since there were any jobs. Unemployment here would be much, much higher if they were counted.

Posted by: IssuesGuy on June 6, 2003 11:22 AM

The Times certainly WAS the finest paper in the world for many years, in an epoch when that was synonymous with being the finest English language daily information outlet in the world.

Now, between the explosion in alternative info sources, enhanced ability for individuals to access original source materials, and its own self-inflicted wounds, the Times is merely "just another" information source, albeit a mighty one.

Posted by: Bucky Dent on June 6, 2003 11:24 AM

http://www.cbpp.org/6-5-03ui.htm

"Joblessness Outlasting Federal Help For Two-Thirds Of Program Recipients"

Posted by: anne on June 6, 2003 11:37 AM

When the economy is growing below 2% and productivity is increasing above 4%, then it's simply not possible for there to be a healthy jobs picture.

Last week, the WSJ had an excellent front page article on this very matter (which, of course, Brad has been flagging as well). Of the previous 9 postwar recessions, during the early recovery period, GDP grew faster than productivity, and job gains surged. In the early recovery of the '91 recession, productivity grew just barely faster than GDP growth, and job growth was very slow.

The four most dangerous words in investing are: this time it's different. However, in terms of the economy, this time it IS different, and until we either see the economy growing faster or productivity growth slowing, we aren't going to see a robust job market.

Posted by: howard on June 6, 2003 11:38 AM

epinet.org

Employment rates-the share of a given group with jobs-are also indicative of how weak the labor market is for some groups of workers.

The employment rate for men, 68.7% is the lowest it has been since May 1983, when the unemployment rate was 10.1%, suggesting that the current 6.1% unemployment rate is not fully capturing the lack of job opportunities for these workers. Similarly, the employment rate for college graduates-75.4%-is the second-lowest rate in the history of this series, which begins in January of 1992 (the lowest rate was 75.2% last July), evidence of weakness among white-collar workers.

Other indicators of weak job creation include long-term unemployment and the share of the unemployed as a result of layoffs.

The share of the unemployed who were job losers rose from 54.2% to 56.5%, the highest level since October 1992. The average spell of unemployment fell slightly from 19.6 weeks to 19.2 weeks, but this indicator remains near the peaks of earlier, and much deeper, recessions.

This is another in a series of weak reports on labor market conditions. While revisions show fewer payroll losses thus far this year, the slow-growth economy has left us with a gaping jobs deficit, far larger than in any post-war recovery by this stage of the business cycle. It will take many quarters of consecutive fast growth to repair the damage.

Posted by: anne on June 6, 2003 11:42 AM

Where do the jobs come from with GDP growth below productivity growth plus potential labor force growth and industrial capacity at 75%? There is a job deficit, a serious job deficit that grows as GDP grows more slowly than the potential labor force.

Posted by: jd on June 6, 2003 11:53 AM

Can someone give a detailed reason for what the possible reasons for long term rates being as low as they are?

Posted by: theCoach on June 6, 2003 12:02 PM

Anne -

This is a wonderful "traders" market. Listen to or read Jim Cramer on trading. I've loved this stock market for months. The numbers simply make me cautious and willing to take profits, but this is a market being driven by liquidity and I am going along.

Posted by: bill on June 6, 2003 12:09 PM

"What really are we to make of an S&P p/e at 29.9 on May 30, while the 10-year treasury is offering less than 3.4% interest? "

By the Federal Reserve's rule of thumb P/E should be about 100 / 10yr-yield which means the current relationship between stocks and bonds is right in line with that formula. There are also many ways to measure earnings which give higher values--there are just as many tricks to make earnings seem lower before a comeback as there are to make them seem higher before a fall.

I'm not saying there's a lot of money to be made in stocks, but with such competition to find investments, even 6% might not be so bad an average return over the next few decades, at least in taxable accounts. The current situation makes a heck of a lot more sense than a few years ago when there were P/E's even higher, low quality earnings, and bonds were sure to outperform over the long term.

Posted by: snsterling on June 6, 2003 12:19 PM

Why are interest rates so low? Robert Rubin has always said that the bond market is the best reflection of the strength or weakness of the economy. When I look at the prices of bonds, I see the reflection of a weak economy. I see an economy that is growing too slowly to allow for much pricing power. So, bond holders are willing to settle for treasuries, corporates, GNMAs or municipals according to portfolio limits at rrates that would seem absurd if GDP growth could be sustained at 4%.

The bond bull market began in September 1981 and reached a peak for municipals on June 5 and for 5 to 10-year treasuries and corporates on June 4.

Clear signs of economic strength would seem to be dangerous for bonds, but beyond the headlines of "better than expected" are there really clear signs of strength?

Posted by: anne on June 6, 2003 12:25 PM

>are there really clear signs of strength?

Housing, equities, commodities and commodity currencies (AD,NZ,CD) are all firm.

The real economy is more likely than not to pick up, barring another 9/11ish shock.

Alas, employment is a lagging factor, and will not turn up promptly.

Posted by: Bucky Dent on June 6, 2003 12:34 PM

The so-called Federal Reserve rule of thumb was coined by some by-gone bull. [Forgot the name.] Study after study has shown the rule has no use if the point is buying high priced stocks because interest rates are low. Buying decently valued stocks is the way to healthy returns, unless one opts to trade. Of course, Dow 36,000 could yet prove right.

Posted by: bill on June 6, 2003 12:34 PM

Yes, employment has been a lagging factor in recession recoveries for decades. I wonder if this time might be different. Can demand growth pick up for long unless the job market improves? That is my worry. The stock market says all will soon be well, the bond market says "oh dear." I do hope the stock market is right.

Posted by: anne on June 6, 2003 12:55 PM

But, unemployment is only part of the picture. Many of those now employed are situated in new jobs paying less than their previous ones.

The median inflation adjusted weekly pay fell 1.5% from 1st Q 2002 to 1st Q 2003. Similar declines were experienced between 2001 & 2002, 2000 & 2001.

Furthermore, as we all know, personal savings rates are the lowest in four decades. Conversely, household debt ratios are the highest in US history.

If there is going to be any real demand for US produced goods, it will have to come from outside the country as a result of the weak dollar.

US consumers are tapped out.

Anyhow, what is needed is not necessarily more employment, but more employment at higher wages.

Posted by: arslan on June 6, 2003 01:02 PM

http://www.nytimes.com/2003/06/06/opinion/06KRUG.html

Perhaps there will be a turn for the better in economic growth over the coming months, however I am aghast at the damage that has been done to the economy for the long term by this horrid tax bill. Paul Krugman has a superb article showing what this radical-Republican Administration is about. Of course, I now can deduct up to $100,000 for the cost of a Hummer and that eases the worry.

Posted by: lise on June 6, 2003 01:05 PM

the bond market appears to be reacting to its perception that alan greenspan is sufficiently concerned about deflation to be talking about it in public (note that brad has been on this beat for a while).

in addition, we have benefitted from the willingness of foreign investors to underwrite our budget deficit at low interest rates, although as the dollar declines, that propensity may change as the interest is to low to pay for the currency risk.

In addition, while companies are refinancing older debt aggressively, they are, net, cleaning up their balance sheets, not taking on more debt, so we aren't yet seeing the "crowding out" effect that sooner or later the bush deficits will bring into play.

So, as long as the bond market perceives greenspan's focus to be on deflation, as long as foreign investors don't flea our bond market, and as long as we aren't seeing corporations in an aggressive investment mode, long bond rates are likely to be low.

To me, the likeliest condition to change is that foreign investors may decide to stop underwriting our deficit at quite such an attractive price, leading to an uptick in rates.

Meanwhile, while it is true that employment is a lagging indicator, the same wsj front-pager i referred to earlier reminds us that we've had 2.7% annualized growth since 4th quarter '01 (it's slower, now, of course), and the lag shouldn't last that long. That's why the productivity gains are all important. They are great for the long term, and we should all want to see 4% productivity growth for the rest of our lives, but until top-line revenue (and more broadly, GDP) starts growing, we aren't going to see a robust job market.

In short, the lag could be quite long this time.

Posted by: howard on June 6, 2003 01:09 PM

http://www.cbpp.org/6-6-03tax.htm

THE NEW SENATE CHILD CREDIT LEGISLATION WHAT IT DOES AND DOES NOT DO

The only families the legislation would make newly eligible for the child tax credit are higher-income families. Moreover, many families with incomes above $150,000 particularly in the $150,000-$200,000 range would be among the new beneficiaries.

The bill does benefit low-income working families, but it does not make any low-income families eligible for the credit who are not already eligible. The bill benefits 6.5 million low-income families with 11.9 million children by accelerating into 2003 a provision of current law that is scheduled, starting in 2005, to raise the amount of the child credit they already receive.

Posted by: lise on June 6, 2003 01:12 PM

Howard

I still can not imagine buying bonds, especially treasuries now. The gains are going to be minimal at best, the losses could be fierce. No way. Time to take profits on investment grade bonds if you have not yet done so.

Posted by: jd on June 6, 2003 01:35 PM

jd, i agree wtih you completely.

i'm sorry that it wasn't clear.

i was responding to theCoach's asking for an explanation of why long rates are as low as they are.

i think now would be a terrible time to buy bonds, absolutely....

in fact, i'll go further - i think we're heading towards a period of stagflation, not purely '70s style, but 2 - 2.5% growth and 3-4% inflation (which is where i expect us to be 18 months out) is stagflation in my book, and stagflation is an absolutely abysmal time to buy bonds.

Posted by: howard on June 6, 2003 03:02 PM

Howard - Interesting.

There just might be enough price stickiness in the American service economy to allow for GDP growth less than is needed to spur employment while inflation runs at 3%. Might. I am thinking.

Posted by: jd on June 7, 2003 09:07 AM

to assist you in your thinking, jd, pro or con, let me note that i believe that the falling dollar is going to be the catalyst to a pick-up in inflation (thereby providing american businesses an opportunity to raise prices a touch themselves), but that it will take 12-18 months for the effects to work their way through, hence my timetable.

there are lots of things that could go wrong with my theory (deflation could actually happen; the dollar could drop too far too fast, forcing interest rates up and putting us back into true recession; foreign producers could choose to maintain market share and not raise prices; etc.), so i'm not certain about my projection, but i'm worried....

in fact, talk me out of it. please.

Posted by: howard on June 7, 2003 09:31 AM

I suppose the question mostly involves guessing how much of a demand stimulus will there be from the tax cut and the decline in the dollar.

GDP growth of 4% and inflation of 3% seems fine. The tax cut stimulus will be offset by the cuts in state and city budgets. The dollar stimulus will be offset by matching declines in Asian currencies. How much are the offsets?

I say less inflation than you, because I believe there will be a determined effect by exporters to America on keeping prices low. China and Japan and Singapore are not going to allow currencies to decline in value. We do not import all that much from Europe and the British pound is stable against the dollar. Canada is another matter.

Posted by: jd on June 7, 2003 10:52 AM

in the spirit of idea exchange, jd, let me say that: a.) i agree that 4% gdp growth and 3% inflation would be perfectly fine; b.) i personally don't expect 4% gdp growth, partly because the bush tax cut is so poorly constructed as stimulus and partly because i anticipate that consumers/houeholds are going to look to reduce debt, not expand it; and c.) yes, i agree that because the dollar isn't sinking against all currencies, perhaps the inflationary impact will be muted.

which is why i'm not convinced about stagflation, but i still think it likelier than not.

Posted by: howard on June 7, 2003 11:06 AM

So far, I think slow growth low inflation a bit more likely.

Thanks!

Posted by: jd on June 7, 2003 01:20 PM

Stagflation perhaps if the natural gas situation gets worse.

Posted by: snsterling on June 7, 2003 02:23 PM

Two things to consider about the so-called "unemployment rate": (1) since Reagan tried to fudge the figures, members of the Armed Forces and other government employees are considered "employed" even though they are not eligible to receive unemployment compensation (this only makes a few points of differnce after the decimal), and (2) the "unemployment rate" only considers people currently receiving unemployment (those who have been out of work for less than six months). Given these numbers, and an analysis of the number of jobs lost each month, the percentage of people who are unemployed even though they would like to work is more like 12.5-13% than the reported 6.1%.

Posted by: Russell Kurtz on June 12, 2003 04:40 PM

Two things to consider about the so-called "unemployment rate": (1) since Reagan tried to fudge the figures, members of the Armed Forces and other government employees are considered "employed" even though they are not eligible to receive unemployment compensation (this only makes a few points of differnce after the decimal), and (2) the "unemployment rate" only considers people currently receiving unemployment (those who have been out of work for less than six months). Given these numbers, and an analysis of the number of jobs lost each month, the percentage of people who are unemployed even though they would like to work is more like 12.5-13% than the reported 6.1%.

Posted by: Russell Kurtz on June 12, 2003 04:41 PM
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