Buy the dip no longer sounds sufficient to calm fears, nor will forward guidance. Jerome Powell will...
It’s All About Jobs
06/05/2008 12:00 am EST
Updated Friday, June 6, 2008
It’s a recession when your neighbor loses his or her job, the saying goes; it’s a depression when you lose yours.
By those standards, we’re in neither—yet.
And despite Friday’s big half-point jump in the unemployment rate, other markers of employment—maybe the single best indicator of the economy’s health—have held up surprisingly well despite a global financial crisis, housing meltdown, and $4-a-gallon gasoline.
Thursday’s jobless claims release was only the latest example of hard data that show the US economy has so far not fallen into the abyss. (Another one was the upward revision of GDP growth to 0.9% in the first quarter.)
In the week ending May 31st, the Labor Department reported, initial claims for unemployment totaled 357,000, down 18,000 from the previous week and well below consensus forecasts. The four-week moving average of such claims was down by 2,750.
That’s much lower than they were in the last two recessions, but still higher than a year ago, and other employment indexes showed weakness last month. (The big increase in May’s unemployment rate to 5.5% was well above consensus projections, but some economists speculated the big move may have been overstated.)
A recent study prepared for the Joint Economic Committee of Congress found initial jobless claims and the unemployment rate were the best signposts of a recession.
“The best pre-recession employment indicator is actually weekly claims for unemployment insurance,” writes economist Tim Kane.
“The unemployment rate spiking up dramatically is almost a defining characteristic of a recession,” says Professor James D. Hamilton of the University of California, San Diego.
(The professor’s own indicator, posted at www.econbrowser.com, puts the probability of recession at 26.9%, based on data from last year’s fourth quarter.)
That’s why June’s unemployment report will be particularly important to see if the trend continues.
Meanwhile, the monthly Monster Employment Index, released Thursday, declined in May after three months of gains.
The index, which tracks job postings at various employment Web sites, is off 12% from last May’s figures, and so far in 2008, the number of postings is down from 2007 levels.
And this week outplacement consulting firm Challenger, Gray & Christmas released its monthly report on announced job cuts, which it has been tracking since 1993. In May, job cuts topped 100,000 for the first time since 2006, and the firm said, “The pace of job-cutting this year is 17% ahead of 2007.” (That doesn’t include job reductions announced this month by UAL and Continental Airlines.)
That’s not good, of course, but if it continues at that rate, the number of announced cuts will be a little shy of 900,000 in 2008—higher than the last two years but well below the huge reductions we saw a few years ago.
As the table shows, there were almost two million announced job cuts in the recession year 2001, and nearly 1.5 million the following year. Job cuts slackened off a bit in 2003, but they remained above a million annually through 2005—long after we emerged from the last recession.
That may be why employment has held up so far: We already lost many jobs in the early 2000s that would have been cut this time around.
The Internet bust, the September 11th attacks, and the Enron/WorldCom scandals all prompted big retrenchments and huge staff cuts in corporate America. Throw in globalization and the pervasive integration of information technology in enterprises and you had a quiet but massive restructuring of US industry.
Hence, all the worries about outsourcing and offshoring, and all the talk of a “jobless recovery” that continued well into the 2004 presidential campaign. The fact is, the best US companies have gotten much leaner and more efficient about using human resources. So, they simply never bulked up again, even as the economy recovered.
“Total employment growth after the 2001 recession was much slower than in previous recoveries,” says Professor Hamilton.
“There is no question we didn’t see those excesses in hiring,” adds John A. Challenger, chief executive officer of Challenger Gray.
Case in point: Merrill Lynch. The beleaguered financial giant cut more than 20,000 jobs from 2000 to 2003, but the firm added back only two-thirds of those positions by the end of 2007.
And large companies have continued to trim workers even as they remained profitable and the economy grew strongly. And, much of the service sector continues to thrive while finance, manufacturing, and housing-related industries languish.
So, is it any wonder that college grads, usually the canaries in the coal mine when the economy gets wobbly, aren’t having too many problems finding jobs this year?
Look, I don’t want to sound like a Pollyanna. Many average Americans are struggling to make ends meet because of plunging home values and higher food and energy prices. And lots of people are fearful about the future.
I’m concerned, too. If fuel prices don’t fall (which I think they will), it could have a big ripple effect on the economy. And I’ll be watching the unemployment reports very closely in the months ahead. “I think there’s still room for deterioration,” says Hugo Sellert, research manager for Monster Worldwide Inc.
Perhaps. But until we see a big increase in jobless claims and a continued rise in the unemployment rate, I’m not ready to declare that the game is up.
Howard R. Gold is executive editor of MoneyShow.com. The opinions expressed here are his own and are not necessarily the views of InterShow or MoneyShow.com.
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