Crescenzi: Job Market Deteriorating
Jobless claims fell 10,000 to 450,000 in the week ended Aug. 9, after reaching their highest level since March 2002 the previous week. Recent increases in jobless claims almost certainly reflect deterioration in the labor market, and it is likely that upcoming employment news will worsen.
The jobless claims figures will help investors come to terms with this dark period for the economy, but the question of the day is whether the claims figures and other indications of forthcoming weakness are enough, or whether it will take a couple of whoppers on the downside in employment before investors can feel comfortable with the idea that the worst economic news is already priced in.
In past recessions, investors eventually ignored bad employment data, having been numbed to the data by previous news and plentiful evidence of impending doom. In the current situation, particularly between now and the rest of the year, investors will have to grapple with whether the gloom could deepen as a result of the credit crisis and hence require more patience than usual in proclaiming that the worst news is already priced in.
Technical factors are also at play in boosting the jobless claims figures. For starters, the summer retooling of automobile factories tends to cause volatility in the claims figures. For example, the relatively low level of 348,000 claims in the week ended July 4 was likely the result of problems adjusting for the seasonal ups and downs of the automobile sector.
A second factor is the counting of filers for extended unemployment benefits. It is possible, according to the Department of Labor, that many people only recently realized that they are eligible for both extended unemployment benefits, which were recently authorized by the Congress, and regular jobless benefits (because these workers regained eligibility after returning to work). These filers are now showing up in the initial claims figures. There may also be bad accounting for the extended unemployment benefits, with some states reporting the extended filers incorrectly.
Through it all, jobless claims are trending upward and have moved decisively above the dividing line between recession and contraction in the U.S. economy, widely believed to be around 370,000. From March until the end of June, claims averaged precisely 370,000, suggesting the economy was treading water, and it has when the impact of the recent tax rebates are excluded from the equation.
The recent spike hence suggests that the U.S. economy has entered a dark period, which is likely to be marked by increased joblessness. Many are expecting the U.S. economy to contract in the fourth quarter, possibly by a large amount, and the claims figures increase the odds of such.
As I said, the claims figure will help investors come to terms with the idea that bad news is on the way, and after one or two plunges in the monthly payroll statistic, investors could become numb to the notion of much weaker economic activity. This means that the bottoming process is closer than it was before, because in the weeks and months to come, we will be able to more confidently say that much worse economic conditions are already factored into the financial markets.
Tony Crescenzi is the chief bond market strategist at Miller Tabak + Co., LLC, and advises many of the nation's top institutional investors on issues related to the bond market, the economy and other macro-related issues. At the request of the Federal Reserve, Crescenzi is a regular participant in the board's Livingston Survey of economic forecasters. He is also the author of the revised investment classic, The Money Market, first published in 1978 by Marcia Stigum, and The Strategic Bond Investor. At the time of publication, Crescenzi or Miller Tabak had no positions in the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Crescenzi also is the founder of Bondtalk.com, a popular Web site covering the bond market and the economy. Crescenzi appreciates your feedback; click here to send him an email.
TheStreet.com has a revenue-sharing relationship with Trader's Library under which it receives a portion of the revenue from purchases by customers directed there from TheStreet.com.
The jobless claims figures will help investors come to terms with this dark period for the economy, but the question of the day is whether the claims figures and other indications of forthcoming weakness are enough, or whether it will take a couple of whoppers on the downside in employment before investors can feel comfortable with the idea that the worst economic news is already priced in.
In past recessions, investors eventually ignored bad employment data, having been numbed to the data by previous news and plentiful evidence of impending doom. In the current situation, particularly between now and the rest of the year, investors will have to grapple with whether the gloom could deepen as a result of the credit crisis and hence require more patience than usual in proclaiming that the worst news is already priced in.
Technical factors are also at play in boosting the jobless claims figures. For starters, the summer retooling of automobile factories tends to cause volatility in the claims figures. For example, the relatively low level of 348,000 claims in the week ended July 4 was likely the result of problems adjusting for the seasonal ups and downs of the automobile sector.
A second factor is the counting of filers for extended unemployment benefits. It is possible, according to the Department of Labor, that many people only recently realized that they are eligible for both extended unemployment benefits, which were recently authorized by the Congress, and regular jobless benefits (because these workers regained eligibility after returning to work). These filers are now showing up in the initial claims figures. There may also be bad accounting for the extended unemployment benefits, with some states reporting the extended filers incorrectly.
Through it all, jobless claims are trending upward and have moved decisively above the dividing line between recession and contraction in the U.S. economy, widely believed to be around 370,000. From March until the end of June, claims averaged precisely 370,000, suggesting the economy was treading water, and it has when the impact of the recent tax rebates are excluded from the equation.
The recent spike hence suggests that the U.S. economy has entered a dark period, which is likely to be marked by increased joblessness. Many are expecting the U.S. economy to contract in the fourth quarter, possibly by a large amount, and the claims figures increase the odds of such.
As I said, the claims figure will help investors come to terms with the idea that bad news is on the way, and after one or two plunges in the monthly payroll statistic, investors could become numb to the notion of much weaker economic activity. This means that the bottoming process is closer than it was before, because in the weeks and months to come, we will be able to more confidently say that much worse economic conditions are already factored into the financial markets.
Tony Crescenzi is the chief bond market strategist at Miller Tabak + Co., LLC, and advises many of the nation's top institutional investors on issues related to the bond market, the economy and other macro-related issues. At the request of the Federal Reserve, Crescenzi is a regular participant in the board's Livingston Survey of economic forecasters. He is also the author of the revised investment classic, The Money Market, first published in 1978 by Marcia Stigum, and The Strategic Bond Investor. At the time of publication, Crescenzi or Miller Tabak had no positions in the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Crescenzi also is the founder of Bondtalk.com, a popular Web site covering the bond market and the economy. Crescenzi appreciates your feedback; click here to send him an email.
TheStreet.com has a revenue-sharing relationship with Trader's Library under which it receives a portion of the revenue from purchases by customers directed there from TheStreet.com.
Labels: unemployment
<< Home