Friday, July 8, 2011

The Incredibly Bullish Unemployment Numbers

Nonfarm payroll employment was up just a fraction in June (+18,000), and the unemployment rate was little changed at 9.2 percent, the U.S. Bureau of Labor Statistics reported today.
Across the board commentators have been out proclaiming an end to the world because of this number. Here's a sample:
A retweet by Henry Blodget:

Today's jobs report was delivered to White House doorstep in a brown paper bag and on fire

From Economist:

A very disappointing US jobs report -- employment up just 18k, unemployment rate ticks up to 9.2%

David M. Wessel:

Despite abysmal jobs report, Fed still unlikely to offer the economy any added help soon.

Catherine Rampell

HORRIBLE jobs report today. Job growth essentially stopped entirely in both May and June.
And with a "negative" jobs number, you just know that Paul Krugman would stretch it into a deflation indicator:
Ugh. That was a seriously ugly jobs report (pdf). Almost no job creation, with slow private-sector growth offset by falling public-sector employment; a falling employment-population ratio; and (I don’t know how many people have picked this up), an actual decline in wages, albeit a small one.

Let me emphasize that last point. My bottom line on the inflation-deflation issue has always been to look at wages; you can’t have a wage-price spiral if wages ain’t spiraling. And they aren’t, to say the least.
Here's what is really going on. Unemployment is a lagging indicator.

The economy tends to really get going before unemployment turns around. But the turn does not appear to be that far away. Silicon Valley, natural resource and technology are showing strong job markets already.

The only significant increases in unemployment in today's report were  in the government sector. Employment in government continued to trend down over the month (-39,000). Federal employment declined by 14,000 in June. Employment in both state government and local government continued to trend down over the month and have been falling since the second half of 2008. Overall only two sectors showed unemployment increases the government sector and the temporary help sector. Employment increased in every other sector.

Given there is a huge financial problem in the government sector, it is not a surprise that unemployment is climbing in this sector, but this has little to do with the overall economy.

Bottom line: The number looks very bullish to me. There were no increases in unemployment in the private sector. There was a slight slowdown in money growth earlier this year, which can account for the fewer hires, but money growth is back to the upside and is likely to result in an improving jobs picture in the very near future. Corporations are already lean, they are not cutting here, but if conditions improve, as I expect they will, the bidding for help is going to intensify.


  1. At first I thought this was sarcasm. You're not serious - you think this is a bullish number?

    Are you looking beyond the U3 to the U6? Are you taking the hilariously ridiculous "Birth Death" adds out of the top line number to see the net LOSS in jobs of over 100k?


  2. Oh, and I almost forgot. Is this bullish?

    Labor Force Participation Rate Drops To Fresh 25 Year Low

    or this:

    More Records: Average Duration Of Unemployment; People Not In Labor Force Who Want A Job Now Both At All Time High

    I know ZH can be a doomsayer site, but they sure did nail these two posts. Is that bullish?

  3. I like the contrarian analysis actually. Earlier people where screaming that the Challenger report was lagging the NFP and therefore the NFP was bunk. Now the NFP is lagging the Challenger and therefore the Challenger is bunk? I'd call that confirmation bias.

    Now, I do believe that the US employment problem has become a structural issue, but that doesn't mean there cannot be short bursts of inflation-driven economic activity. If inflation starts soaring, there is likely to be at least a temporary uptick in employment. Now, to solve the inflation problem they have to make the employment problem even worse than before, of course. And vice versa. Welcome to the 70's.

    If you're right in your analysis (and I would suspect you are), then the US will have monetary-driven "stimulus" bursting out of its nostrils soon, right? The scary part is the amounts that they've had to spend/print to get things this far.

    Just like Bernanke says on inflation, I suspect that the "recovery" in employment will be transitory though .....

  4. In the current context-size of labor force/population, # of jobs lost in 2007-9,
    nearly 2 years since the business cycle bottomed-this was a horrible result. If you add to that context the hugenormous monetary and fiscal stimulus, it is beyond horrendous-and the birth/death model assumption was +131K, which equates to a near 100K add to the final #, so jobs DECLINED without this bit of magic.
    At nearly 2 years beyond the (alleged) upturn in the business cycle,'not firing' more people is in not at all positive-even 'lagging' indicators have to turn up, and 22 months is well beyond prior post-WW2 employment acceleration. Given the total context noted above,including stimulus, we should now be north of 400K new payroll jobs every month, with no b/d or other statistical finagaling needed, with some 500K + months in there. That ADP +157K # number a few days ago was damn weak in context and should have been called out as such as well.
    I've seen many good, non-mainstream(i.e., non propagandistic) economic posts here, but if this one is not sarcastic, this site's credibility is totally destroyed.

  5. It's a sad day when Wenzel can spin in this into a bullish report.

    Employment-Population ratio is at the lowest it has been since the recession started.

  6. So what kind of employment report would Mr. Wenzel consider bearish? Not being facetious, would really like to understand.

  7. Geez, so much short sightedness here today. Mr. Wenzel is projecting out 2-3 months from today based on what is happening with the money supply and its accelerating growth.

    There's indication that some of the excess reserves held by the fed are breaking loose into the economy. That money has to go somewhere and will be noticed.

    Re-read the entire post and check where Mr. Wenzel put his qualifications regarding the bullish stance. (Hint: last paragraph)

    My own personal take on this month's report: Any reduction in government payroles is a boost to the economy. These unproductive workers are a drain on every other productive member of society. They get a check and spend it sure, but they don't create any wealth doing so. Their paychecks only exist because it was taken from someone else.

    It's not an exact correlation but factor that 39K loss out and the number is +57K. Tepid for sure, but keep an eye on money supply...

  8. You guys have been screaming that unemployment is a lagging indicator for 2 and a half years now.... your beginning to look like fools.

    This is structural not technical.