July 03, 2003

Klong...

Unemployment news significantly worse than I thought it would be. Yet another disappointing surprise.

Jobless Rate Rises to 6.4 Percent; Highest in More Than 9 Years:

WASHINGTON (AP) -- The nation's unemployment rate shot up to 6.4 percent in June, the highest level in more than nine years, in an economic slump that has added nearly a million people to jobless rolls in the past three months.

Businesses slashed 30,000 jobs just last month, with cuts heavily concentrated on factory assembly lines, the Labor Department reported Thursday.

The 0.3 percentage point increase from May's 6.1 percent rate was the largest month-to-month rise since the Sept. 11, 2001 terror attacks. That surprised analysts who predicted a smaller rise, to 6.2 percent. The last time the overall rate was higher was in March 1994.

While recent economic indicators point to an economy struggling toward recovery, the latest report demonstrated that America's job market was still very much in a state of recession last month.

Since March, unemployment has increased by 913,000. Two million people were unemployed for 27 weeks or more last month, an increase of 410,000 since the start of the year.

Another factor behind the increase in the overall civilian unemployment rate was the increase in the number of people seeking work in June. Optimism about an economy rebound led over 600,000 people to resume their search for work.

Because the government calculates the overall unemployment rate based on a survey of American households, and because the lackluster economy wasn't producing enough jobs to accommodate an increasing number of job-seekers, that rate increased significantly.

Manufacturing led in payroll cuts last month, with 56,000 jobs lost. Since July 2000, the nation's factories have cut 2.6 million jobs.

That sector has been the weakest link in the economy's ability to get back to full speed. Slack demand at home and abroad and competition from a flood of imports have throttled back production.

Construction jobs helped offset manufacturing losses somewhat last month, with the fourth straight gain in hiring. Construction has added 101,000 jobs since February, reflecting strength in residential building.

The mortgage boom, stoked by record low rates, has been the bright spot in the dismal economy. People are buying new homes and refinancing their old mortgages. The extra cash from refinancing combined with solid home-value appreciation have kept consumer spending afloat.

Other hiring gains last month were in health care, leisure and hospitality and temporary employment services.

In a separate report, new claims for jobless benefits rose last week to 430,000, an increase of a seasonally adjusted 21,000 from the previous week's revised 409,000 claims.

The more stable, four-week moving average of claims, which smooths out weekly fluctuations, dropped to 425,000. That was the lowest level since April 5.

Posted by DeLong at July 3, 2003 07:03 AM | TrackBack

Comments

This raises an interesting question. If employment is a trailing indicator of economic recovery, and consumer confidence is a leading indicator of economic recovery, what happens if employment becomes a leading indicator of consumer confidence?

Kind of an economic paper, scissors, stone.

Posted by: Michael Robinson on July 3, 2003 07:12 AM

"If employment is a trailing indicator of economic recovery, and consumer confidence is a leading indicator of economic recovery, what happens if employment becomes a leading indicator of consumer confidence?"

Only the unemployment rate number is a lagging indicator. Payrolls and weekly claims are coincident and leading.

Posted by: snsterling on July 3, 2003 07:36 AM

I'm wondering if there isn't a bit of grit in the system. Temporary services hiring, typically a leading indicator of full-time hiring, has picked up by over 80,000 in the past 2 months, 38,000 in June alone. The logic of temps as a leading indicator of full-time hiring is that firms bring in temps to meet rising demand, until managers feel comfortable that the new increment of demand is permanent. Then they bring in permanent employees. However, with overall employment falling, I have to wonder if employers aren't substituting temps for full-time workers. Given that benefits costs are rising far faster than wages, a preference for temps over full-time workers wouldn't be hard to understand.

Now, about that non-manufacturing ISM report...

Posted by: K Harris on July 3, 2003 08:00 AM


I agree with you Bred - this is worse than I thought it was going to be. I'm going to have to re-assess what this means for aggregate demand.

We've been getting bits and pieces of news, some good, but on balance, things are not looking up. And also, the stock market is over-valued. My advice is to get out before this latest bubble implodes.

sz

Posted by: SZ on July 3, 2003 08:25 AM

The employment is significantly worse than I had thought. Loss of 30,000 jobs in June, loss of 70,000 jobs in May. Another 400,000 claims for unemployment insurance last week. We have a serious employment problem, a job creation deficit that keeps growing each month fewer than 85,000 to 125,000 jobs are created.

Lagging, lagging, lagging. I know, but this in adding to income and wealth inequality and delaying sustained 4% growth for more months.

Posted by: anne on July 3, 2003 08:38 AM

Lawrence Kudlow says not to worry.

Posted by: arthur on July 3, 2003 09:10 AM

What we are seeing is a significant deterioration in the labor force associated with the stall in the economy over the winter and spring.

The problem with conventional wisdom on what is a leading and what is a trailing indicator is that the US is no longer in the post war economic era, and the history of post-war recessions is not meaningful. The post-war economic era really ended in 1983 or 1984, and this new era doesn't have "inventory-interest rate" recessions where a sharp downturn leads to a sharp recovery.

The easiest way to see this is the July 1st posting on my blog http://home.earthlink.net/~stnewberry.

- - -

As for employment cycles, this report was as bad as I, at least, was expecting. If we measured the unemployment rate by the same means we measured it last recession, it would be considerably higher than the official number. That the official number is deteriorating isn't suprising, it has been propped up by a variety of means, all of which are running out.

The Executive hopes that the slump will be this summer, and that by 2004, there will be enough of a "jobs recovery" to hold congress - with some last minute gerrymandering of two states that they are in trouble in - and the presidency.

49% of the vote will suffice for both.

Posted by: Stirling Newberry on July 3, 2003 09:24 AM

Sadly, sadly, the unemployment rate for African-American adults is 10.8%, up a full percentage point last month. The rise appears to have been borne mostly by African-American women.

Posted by: lise on July 3, 2003 09:32 AM

Downward revisions to prior months' employment figures and the lower than expected showing for employment in June are bad news, no question, without regard to the jobs series position in the leading/coincident/lagging scheme of things. The fact that no major series on hours worked rose suggests no particular urgency to add jobs in July, either (though the ISM data argue otherwise). Not good news.

I am perplexed, though, at the attention to the jobless rate. Did anybody notice that the 0.3% rise in the jobless rate was accompanied by a 251,000 rise in employment reported by households? Yup, a big old rise. It was also accompanied by a 611,000 rise in the workforce, which is the reason a big rise in employment could coincide with a big rise in the jobless rate. All of which is to say, the jump in the jobless rate either didn't mean anything, or its a sign of job market health. Either people are being lured back to the job market by the 251k rise in employment, or this is just the household data flopping around in an uninformative way. I don't think it was a sign of health, so I don't think it means anything.

Posted by: K Harris on July 3, 2003 09:46 AM

Cheer up everyone! Every cloud has a silver lining!

At least Brad can cut down on the scratching:

"Every once in a while I stop, take a look at the labor market, and scratch my head. First, I'm impressed at how low the unemployment rate is given how bad most of the other labor market indicators are. Second, I'm impressed at how bad most of the labor market indicators are."

Posted by: Pooh on July 3, 2003 09:56 AM

I was startled to learn that the employment rate has been higher in Canada than in the U.S.,/a> since October 2002. I think this is the first time in my life that more people have been working for a living in "socialist" Canada...

Posted by: Kevin Brennan on July 3, 2003 10:22 AM

I was startled to learn that the employment rate has been higher in Canada than in the U.S., since October 2002. I think this is the first time in my life that more people have been working for a living in "socialist" Canada...

Posted by: Kevin Brennan on July 3, 2003 10:22 AM

K Harris writes:
> I am perplexed, though, at the attention to the jobless
> rate. Did anybody notice that the 0.3% rise in the jobless
> rate was accompanied by a 251,000 rise in employment
> reported by households?

Actually, I didn't. I mean, the target AP article says:

# Businesses slashed 30,000 jobs just last month, with cuts
# heavily concentrated on factory assembly lines, the Labor
# Department reported Thursday.

Obviously, I'm missing something here; is there a seasonal adjustment or something going on in these data?

Posted by: Jonathan King on July 3, 2003 11:20 AM

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

"In fact, labor market trends have grown somewhat more negative over the past six months.

"Between December 2002 and June of this year, payrolls are down by 236,000 and unemployment is up by 0.4 percentage points. Over the previous six-month period-June 2002 through December 2002-payrolls were down 185,000 and unemployment up by 0.2 points. Since the onset of the recession, total employment is down 2.6 million and the private sector has lost 3.1 million jobs."

Posted by: jd on July 3, 2003 11:23 AM

K. Harris' 251,000 rise in employment may be found in the BLS Employment Situation Summary. As for why it was left out of the NYT story.... well, our host once told Andrew Sullivan something like "you would know better than I why they do the things they do".

Posted by: Paul Zrimsek on July 3, 2003 02:54 PM

Jeebus, aren't ANY tags enabled here? The BLS document is at-- http://stats.bls.gov/news.release/empsit.nr0.htm

Posted by: Paul Zrimsek on July 3, 2003 02:58 PM

Oops... it's a lot easier to figure out why they do the things they do if you know who "they" are, namely the Associated Press and not the Times.

Posted by: Paul Zrimsek on July 3, 2003 03:13 PM

K Harris writes: "Either people are being lured back to the job market by the 251k rise in employment"

Or maybe they got out of school and started looking for work. (I mean unemployed people who went back to school to retrain for new careers or further their education and improve their skills, not 21 year old undergrads.)

Schools do tend to let out in June, after all, so that's when you'd expect the grads to start seriously looking for work.

Posted by: Jon H on July 3, 2003 03:24 PM

Didn't we have the pleasure of having Brad DeLong provide a graph of monthly monetary variability just a few days ago? So when K Harris notes that employment went up even as unemployment also went up - why is that so surprising. Unemployment is the difference between those measured as wishing to supply labor versus those who actually have jobs. I'd suspect both series would be quite volatile on a month by month basis. So isn't it quite possible that measured labor supply grew faster than employment during the month?

Posted by: Hal McClure on July 3, 2003 04:47 PM

Just went to www.bls.gov. From May to June, number of employed rose by 251 thousand but number of people in the labor force rose by 611 thousand. So BLS reports number of unemployed rose by 360 thousand. Even a CPA would agree the numbers tie. But that would provide much comfort to the rising number of folks who wants work but have not yet found a job.

Posted by: Hal McClure on July 3, 2003 04:55 PM

Hal writes
"I'd suspect both series would be quite volatile on a month by month basis."
Monetary aggregates are very noisy because the Fed keeps shoveling money in and out of the economy in open market operations that maintain a given interest rate (and many other things effect monetary aggregates)-They are meaningless on a month to month basis. Unemployment rates are specifically designed and can be compared on a month to month basis (when seasonally adjusted). The are very good barometers of what is going on. Two things happened one hopeful one not.

The hopeful part is more people were looking for a job. That means people think there are more jobs out there and is usually a sign of recovery. I would normally interpret this as a very good sign.

The not so good sign are the job losses. This is a very bad sign. We should be picking up more jobs than we are if there is a recovery-This is why many people thought that the unemployment number would be lower. They anticipated more people entering, but they thgought there would be more job creation.

Posted by: Lawrence on July 3, 2003 05:05 PM

Lawrence writes: "The hopeful part is more people were looking for a job. That means people think there are more jobs out there and is usually a sign of recovery. I would normally interpret this as a very good sign"

I wouldn't be so sure. See my theory about people getting out of school in June.

If I'm correct, it's not so much that they think the economy has improved.

They'd be thinking that their new skills/degree/certificate makes them more marketable in the economy as it was, so jobs might be available *to them* that might have existed before but for which they were not qualified.

Also, they might not have had time to work while they were in school. So again, their reentry into the job market is due to a change in their own circumstances, not a change in their perception of the job market.

Even if you don't think the job market has improved, when you complete a degree, the natural thing to do is to try and find work using that degree which you now owe lots of money for.

Posted by: Jon H on July 3, 2003 06:15 PM

We should be considering the important rise in African-American unemployment. We took 20 years to get African-American unemployment below 10%. There were great strides during the Clinton Administration, now we are back above 10%.

Posted by: lise on July 4, 2003 07:47 AM

Jon H,

Your theory about people getting out of school in June needs to be seasonally adjusted. That's what BLS would do, since that tends to happen every year. This year, there is the possibility that a discouraging labor market kept more people in school, so that there were more of them to let out when school ended. Confounding that idea, however, is that a lack of summer jobs makes the summer term an attractive alternative, reducing the number of June school leavers.

The point I was trying to make, however, was not that the big rise in employment reported by households was important, that it was actually good news, but rather that there is a strong chance monthly swings in the household data don't mean anything. The jobless rate is derived from household data, so monthly swings in the jobless rate probably don't mean much either. I would have to disagree with Jonathan, to the extent that he wants to rely on month-to-month swings. The trend in the jobless rate is helpful, sometimes. Brad has noted that the jobless rate doesn't seem to be doing what it ought to do when firms are reporting big job losses. That's right. The participation rate has slipped, masking the damage to households from employment losses. So even the trend is going to be problematic. A fairly safe assumption is that the jobless rate will continue to climb after the labor market improves, as potential workers are lured back in, driving up the labor force tally. The jobless rate will then signal bad news, when the news is at last good.

Posted by: K Harris on July 7, 2003 08:13 AM

>Even a CPA would agree the numbers tie.

The jobless rate, which is everyone that wants to work is 10.8%

The unemployment rate is only those actively engaged in a job search in the last 4 weeks who are not otherwise employed. Thus it does not count underemployed or underutilized workers.

Posted by: Stirling Newberry on July 14, 2003 08:34 AM

>Even a CPA would agree the numbers tie.

The jobless rate, which is everyone that wants to work is 10.8%

The unemployment rate is only those actively engaged in a job search in the last 4 weeks who are not otherwise employed. Thus it does not count underemployed or underutilized workers.

Posted by: Stirling Newberry on July 14, 2003 08:39 AM
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