Monday, March 10, 2008

Does The Latest Jobs Report Confirm A Recession?

There is a debate right now in the financial world concerning whether or not the U.S. has entered into a recession, but who is right? Does the government’s latest jobs report, which showed that employers eliminated 63,000 jobs last month, confirm the recession?

Ultimately no one knows exactly when we “officially” enter a recession or not. The government certainly won’t admitted to it if we are, and they are going to do their very best to delay any mention of it. To identify whether or not we are truly in a recession, we have to look at the GDP. A recession is defined as two straight quarters with negative GDP growth. The problem is that those numbers are reported so far behind, and then later adjusted (typically for the worse), that by the time we can look know what the real numbers are we’ll quite possibly have been in the recession for some time.

The job report came as a surprise to most people, as the official estimates anticipated an increase of around 25,000 jobs. Typically in a recession, jobs are a trailing indicator. It takes some time for businesses to start feeling the effects of a recession which ultimately lead to layoffs. The fact that jobs are declining would typically back up the argument that a recession is already here.

The difference in this jobs report, though, is that the unemployment rate actually fell (to 4.8 percent), which means that people were leaving the work force entirely. The baby boomers are beginning to retire, and so we are entering a period where this will be a common phenomenon. The question we have to ask is whether these jobs will be replaced. If companies are forcing employees into early retirement, or removing the jobs altogether, then it will still have the same net effect as typical job reductions. However, if these companies will eventually replace these retirees with new people, then the outcome is a little different.

My gut tells me that the first possibility (forced early retirement) is very prevalent. I have felt for sometime that we are looking at an unavoidable recession, and to me this is just the first round of “nice layoffs.” I suspect that there will be much harsher ones still to come.

So while this latest jobs report does not “officially” tell us a recession is here (as only the GDP numbers can do that), one can begin to see the writings on the wall. My advice is to start planning for a recession (save your money, “what if” you lose your job, etc), because if you plan and it doesn’t come you are much better off then if you didn’t plan and it does come.

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