March 6: Stocks end mixed after jobs report

Jobs report delivers a big warning

By James P. Miller |Tribune staff reporter

January 5, 2008

The nation's unemployment rate unexpectedly surged to 5 percent in December, making its steepest one-month increase since the economic tailspin of late 2001 and heightening concerns that the U.S. economy could be tottering toward outright recession.

While the government jobs report doesn't mean a recession is inevitable, it definitely represents "a major warning shot that the economy is in trouble," said Joel Naroff, head of Naroff Economic Advisers.

Friday's downbeat data was only the latest in a recent series of disappointing economic reports that have underscored the economy's increasing fragility. On Wall Street jittery investors responded with a sell-off that sent the Dow Jones industrial average plunging 256.5 points, or 1.96 percent. Through the first three days of 2008, the Dow is down by 3.5 percent.

Experts had been expecting U.S. employers to add 70,000 new workers to their payrolls last month, but even that lackluster performance couldn't be achieved. According to the Labor Department, only 18,000 new jobs were created nationwide.

December's dismal job production was the lowest level since August 2003, when the economy was still recovering from the 2001 recession.

The service sector managed to add a modest number of jobs last month, but those gains were almost completely offset by the combined 80,000 jobs shed by the construction and manufacturing segments.

Those two economically crucial segments are "hemorrhaging jobs at an increasing rate," as the financial drag caused by the housing sector's collapse ripples outward to affect consumer behavior and the broad economy, observed JPMorgan economist Haseeb Ahmed.

The jobless rate, which had been expected to inch up to 4.8 percent from November's 4.7 percent reading, instead climbed by three-tenths of a percentage point, to 5.0 percent.

For many observers, the surprise jump in unemployment was more alarming than the paltry job creation. Although the jobless rate is now at its highest level since November 2005, following Hurricane Katrina, it was the big one-month move, rather than the level itself, that drew the most attention.

"Historically," noted Northern Trust economist Asha Bangalore, "sharp increases in the unemployment rate are associated with recessions."

Single-month increases in unemployment as big as the December jump, echoed Nomura's David Resler, "occur only rarely and most often near business-cycle turning points."

For Economic Outlook Group economist Bernard Baumohl, December's "bleak" and "awful" jobs report indicates that "this business cycle is just about over," and "the only real question now is whether the economy will contract for one quarter or two." Baumohl expects unemployment to peak at 5.7 percent during this summer.

A rising jobless rate can become a potent political issue, and with the nation entering a presidential election year, President Bush went out of his way Friday to say that "this economy of ours is on a solid foundation." He added that "we can't take economic growth for granted," however, and urged Congress not to raise taxes.

Because it is so detailed, the Labor Department's monthly report is dense and frequently open to different interpretations. For one thing, the payroll data is compiled by a survey of employers, while the unemployment rate is determined by a survey of American households.

In December, both surveys were signaling weakness. Manufacturing employment contracted by 31,000 jobs last month, ending a year in which 212,000 manufacturing jobs disappeared. The sagging automotive sector accounted for 74,000 of the production jobs lost in 2007.

In the construction sector, 49,000 jobs were lost in December, and while bad weather may have amplified the loss, the Bureau of Labor Statistics pointed out that since peaking in September 2006, the housing sector's nose dive has caused the loss of a net 236,000 jobs in the construction sector.

Fields such as health care, government and food services saw payroll growth in December. But excluding the 31,000 jobs created by government entities, the private sector trimmed 13,000 workers in December.

The U.S. economy must generate about 100,000 new jobs monthly to accommodate population growth and hold the jobless rate steady. Over 2007, the Labor Department noted, employers added an average of 111,000 positions monthly, to create 1.38 million new jobs; that's down from the 189,000 monthly, or 2.26 million, created in 2006.

The latest figures make it more likely that the Federal Reserve will move to lower interest rates late this month. But the inflationary pressures caused by sky-high oil prices could complicate the Fed's efforts to stimulate the economy with lower rates.

The weak jobs report "sets the stage for another rate cut by the Fed to help forestall further weakening in the economy," said Economy.com's Sophia Koropeckyj, "if it isn't too late already."

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jpmiller@tribune.com

Behind today's Jobs(?) data

by taonow
Fri Dec 07, 2007 at 08:40:44 AM PST

Nonfarm payroll employment continued to trend up in November (94,000), and the unemployment rate held at 4.7 percent, the Bureau of Labor Statistics of the U.S. Department of Labor reported today

The November employment data came out today, and although there were no headline surprises in the data, there are some interesting trends if you look more closely.

I like to look at the data over a one year period to get a feel for underlying trends. The one month data is just too subject to random variation/manipulation.

So the good news is that since November of last year, the economy has created 2.5 million jobs. Now that sounds good, but the real interesting stuff is in seeing where the jobs were created. This will give us an idea of where the economy is headed and whether or not the jobs created are "good" jobs.

* taonow's diary :: ::
*

Overall:
Let's start with the big picture and look at the major categories of job growth/shrinkage

Goods producing (manufacturing etc.): Down 196,000 (down 0.9%)

Trade, transport, utilities: Up 687,000 (up 2.6%)

Professional and Business services: Up 416,000 (up 2.3%)

Health Care: Up 414,000 (up 3.2%)

Educational services (private sector): Up 278,000 (up 9.4%)

Local Government - education: Up 447,000 (up 5.6%)
State Government - education: Up 199,000 (up 8.6%)

Analysis:

As has been the case for some time manufacturing (goods producing) employment continues to shrink. More and more the country's economy is service based. This trend has been ongoing and shows no sign of reversing, even with the decline of the US dollar.

The majority of jobs created continue to be in services, with health and education being the main drivers. The big jump over the last year has been in education related employment, though so far I have not been able to uncover what is behind this other than local governments in the real estate boom having funds available to plow back into education.

On the trade transport and utilities side, the gains are almost all from retail. Retail employment is up 464,000. The gains here are broadly based with the biggest gains in general merchandise stores and department stores. As would be expected employment in building material stores was down.

In professional and business services the gains are broad based with the biggest jump percentage wise coming from management and technical consulting services (up 8.5%).

Other points of Interest:

Food services and drinking places is a huge employer (almost as many employees as under production workers in manufacturing). Here the increase in jobs was 233,000 (up 2.4%). By comparison manufacturing production workers decreased by 68,000 in the same period. It won't be too long before hamburger flippers and wait staff outnumber production workers.

As would be expected construction employment has fallen over the last year. The surprise is that the fall has not been bigger. Overall construction employment is down only 49,000, although this obscures the drops in residential construction (down 53,000) and residential building contractors (down 92,000). The rest of construction is basically flat. Somehow this number does not seem right. If the number of housing starts is down so much, how can residential building construction employment only be down 9.5%? Or Residential specialty trade contractors only down 4%?

Jobs in real estate continue to be relatively unaffected by the real estate slump down only 3,000 (0.2%) jobs. I find this one a bit hard to imagine.

Outside of education, governments at all levels are not adding significant numbers of jobs.

Conclusion:

Base on the government data enough jobs are being created to handle the increase in the labor force...BUT...there is some question as to the economic worth of the the jobs being created. The continued decline in manufacturing jobs remains a big problem. In addition the jobs picture remains vulnerable to a a number of possible slowdowns. Retail employment would fall with a drop in consumer spending, and a decline in taxes (real estate based) to local governments may cause backtracking on education related employment gains).

ADP Employment Report Shows Weak Job Growth

Employment in the U।S। private sector grew by 38,000 in August, the weakest in four years, according to the ADP employment report released Wednesday।The ADP report suggests nonfarm payrolls may have grown much slower than the 120,000 anticipated by economists. See Economic Calendar.It was the second straight weak reading in the ADP index; July's reading was revised lower to 41,000 from 48,000 initially reported."A deceleration of employment may be under way," ADP said in a release.First, there is some debate about the accuracy of both the BLS data and ADP data. The BLS data has to deal with the birth/death model adjustments, and the ADP data is a fairly new statistic that is still getting the kinks out.That being said, this is not the news the economy wants to hear. However, it does play into the bad news = good news because it adds to the possibility of a Fed rate cut at the September meeting. We'll know more with the Beige Book's release later today.I've looked at several employment areas that will probably be the first to show weakness





Posted by bonddad at 9/05/2007 08:37:00 AM
Labels: economic numbers, employment

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