October Jobs Report Shows Slight Improvement

Unemployment and underemployment are down and payrolls are up, according to the latest report from the U.S. Department of Labor. Unemployment dropped .1% to 9.0% for the month; however, the number of unemployed hasn’t strayed more than two percentage points from this level in seven months. Despite improvement, the numbers are not as high as predicted and are still far too low considering population growth. While private-sector payrolls are up construction and government payrolls saw an overall decline, which does not bolster predictions of economic recovery. For more on this continue reading the following article from Tim Iacono.

The Labor Department reported that nonfarm payrolls increased by 80,000 in October after an upwardly revised gain of 104,000 in August and 158,000 in September as the jobless rate fell from 9.1 percent to 9.0 percent.

While the October payrolls gain came in slightly below consensus estimates, total upward revisions of 102,000 for the prior two months helped to offset this disappointment, however, the U.S. labor market continues to add jobs at a pace that is failing to keep up with the growth in the population, payroll gains averaging just 90,000 over the last six months and 123,000 so far this year.

The unemployment rate was little changed last month and has now stayed within a narrow range of between 9.0 percent and 9.2 percent for the last seven months. The number of unemployed persons fell from 14.0 million in September to 13.9 million in October while the number of long-term unemployed fell by 366,000 to 5.9 million, or 42.4 percent of total unemployment.

The broader U6 measure of underemployment (including discouraged workers and those settling for part-time work instead of full-time work) fell from 16.5 percent to 16.2 percent and the civilian labor force participation rate was steady at 64.2 percent.

Private sector payrolls increased by 104,000 in October paced by gains of 35,000 in trade, transportation, & utilities and 32,000 for professional & business services, almost half of which were new temporary positions. Education & health care services added 28,000 jobs and there were 22,000 new positions in leisure & hospitality.

Some 20,000 fewer jobs at the state level paced an overall decline of 24,000 in government payrolls and a net reduction of 22,500 in nonresidential construction jobs drove the construction category sharply lower.

Overall, this report is consistent with the recent “slow growth” performance of the U.S. economy where economic activity is, basically, just keeping pace with population growth but nothing more.

This blog post was republished with permission from Tim Iacono.

Jobless Claims Down, Recession Worries Persist

New numbers from the U.S. Labor Department show a decline in jobless claims, but analysts say it is not enough to offset negative effects caused by the slow growth in manufacturing and job creation. Fears of a new recession loom based on an outlook that doesn’t anticipate any improvement in the near future. Optimists, however, believe once Japan picks up speed in parts manufacturing that trouble in the U.S. and elsewhere could be averted. For more on this continue reading the following article from The Capital Spectator.

Initial jobless claims dropped last week by a modest 6,000 to a seasonally adjusted total of 422,000. That’s a sign that the labor market isn’t poised to deteriorate further, but the still-elevated pace of new applications for unemployment benefits also suggests that job growth is still struggling. In one respect, we dodged a bullet--for now. But let's be clear: nothing less than robust job growth will suffice to offset what looks to be a new summer slowdown in the offing. It's still too early to talk about a new recession, but the risk is inching higher. That threat remains small, but the change in trend isn't encouraging.

The recently stalled decline in new jobless claims is particularly worrisome in the wake of yesterday’s news from 1) ADP on the sharp slowdown in job creation last month and 2) the downshift in manufacturing activity for May. That leaves us waiting for confirmation or rejection of ADP’s estimate with tomorrow’s update on May nonfarm payrolls from the Labor Department. The consensus forecast among economists expects a sharply lower number vs. April’s 268,000 gain in private jobs, according to Briefing.com, but nothing quite so steep as the ADP reversal that was reported yesterday.

Meanwhile, Ed Yardeni of Yardeni Research writes in a note to clients today that he’s not all that surprised by the latest batch of soft economic reports. What's more, he suggests that once the statistical dust clears, the forces of growth will retain the upper hand. As he explains:

When initial unemployment claims rebounded back over 400,000 during the week of April 9, we suspected that the shortage of Japanese car parts might be a bigger problem for manufacturers, especially in the auto industry, than was widely recognized. By May 2, we were convinced. That’s when we lowered our estimates for real GDP growth to 2% for both the second and third quarters.

And on his blog Yardeni advises:

A shortage of parts made in Japan is temporarily disrupting global manufacturing, in general, and the auto industry, in particular. In the US, the purchasing managers index (PMI) for manufacturing declined from 60.4 during April to 53.5 in May. It was led by sharp drops in the New Orders Index (from 61.7 to 51.0) and in the Production Index (from 63.8 to 54.0). Interestingly, the Employment Index dropped by less (from 62.7 to 58.2), and it remained above 50. The Inventory Index dropped below 50 (from 53.6 to 48.7). That’s consistent with the view that manufacturers are drawing down their parts inventories while they wait for more supplies from Japan.

Given Japan’s crucial role in supply parts to auto manufacturers around the globe, “the soft patch has gone global,” Yardeni concedes. But he stresses that a soft patch isn’t the same thing as a new recession. He notes that severa manufacturers'l purchasing managers indices (PMIs) around the world, while falling lately, are still above 50, indicating growth. “Please notice that there is no great tragedy in any of these PMI indicators.”

In short, a bit of optimism from one analyst in a world that’s suddenly knee-deep in pessimism. Tomorrow may shed new light on whether Yardeni’s optimism is warranted.

This post was republished with permission from The Capital Spectator.

Is Snow To Blame For The Surge In Jobless Claims?

In the midst of what many are proclaiming to be "economic recovery" the latest surge in jobless claims came a bit unexpectedly. However, an analyst from the Labor Department is saying that the recent bout of bad weather, and particularly snow, likely played a major role in the poor numbers. James Picerno from The Capital Spectator takes a closer look at the numbers in his blog post below.

New jobless claims rose sharply last week, surging 51,000 to 454,000 on a seasonally adjusted basis, the Labor Department reports. New filings for unemployment benefits are now at the highest since last October. Is it time to rethink the economic revival that appeared to be chugging along anew in recent months?

The four-week moving average of new claims is drifting higher now too, suggesting that there’s more than weekly volatility at work here. It may all prove to be temporary, of course. This series is known for whipsawing the audience. Nonetheless, it’s getting harder to ignore the lack of continued progress in jobless claims.


But maybe there's less risk than it appears. Reuters reports that the jump in new claims was partly due to snow. "I'll buy that it can be blamed on the weather," says Peter Tuz of Chase Investment Counsel. "But it does show that the recovery is growing in fits and starts."

Meanwhile, Dow Jones advises:

A Labor Department analyst said seasonal factors, particularly bad weather, likely distorted the latest numbers. Alabama, Georgia, North Carolina and South Carolina all reported a higher than expected increase in claims because of snow, he said.

"I'm fairly certain the data was distorted," the analyst said. Snow can lead to higher jobless claims because schools are closed, delivery trucks can't run and construction stalls.

If nothing else, there's one more reason to cheer on the arrival of spring. Unfortunately, it's still January.

This post was republished with permission from The Capital Spectator.

Jobless Claims Spike May Suggest Economic Rough Patch

A lower than expected monetary stimulus, falling labor productivity, and a spike in weekly jobless claims are not boding well for the near term outlook for the economy. A 1.6% increase in the US Dollar Index suggests that risk aversion may be on the rise as the economy appears to have hit a rough patch. See the following article from The Capital Spectator.

For months, it was treading water. That was bad enough. But now it’s rising, raising fears that it could go higher still. Today’s update on weekly jobless claims shows that new filings for unemployment benefits rose to 484,000 last week—the highest since February.

On a weekly basis, the change was small—a gain of 2,000 on the week, albeit a rise over a modest upward revision in the previous week’s number. The bigger problem is the trend. As the chart below shows, there’s upward momentum where there was a sideways bias previously. Since bottoming at 427,000 weekly claims in mid-July, new filings have risen by 13% through last week.



In the grand scheme of this series, there’s still reason to wonder if it’s all still statistical noise. Weekly claims are a volatile beast and so next week's number could wipe away months of statistical misery. Yes, anything's possible. In addition, there’s quite a bit of precedent for these numbers to meander and even rise after the end of recessions, so we can't say we're in uncharted territory. But that’s all cold comfort given the recent deterioration in other economic metrics.

It’s been clear for several months now that the markets have been pricing in the risk of new economic weakness and today’s jobless claims report only throws more fuel on this fire. Granted, today’s update doesn’t materially change what we already knew and what we've been analyzing on these pages for months: the economy’s hit a rough patch. Still, it’s hardly encouraging to learn that initial jobless claims are inching higher. Ground zero in the economic problems is the spare level of net job creation, and for the moment the outlook is a touch darker than it was yesterday.

No wonder that risk aversion is the new new thing again. One clue is the sharp rise in the dollar yesterday while gold held its ground. The US Dollar Index gained a robust 1.6% on Wednesday while gold remained flat. As we discussed in May, the dollar and gold tend to move in opposite directions. That implies that when they’re both relatively strong, it’s a sign that risk aversion is on the march. True three months ago, true today.

More so at the moment, in fact. What we didn’t know in May was that the labor market recovery would continue to remain sluggish, labor productivity would fall and costs would rise, and the Fed would disappoint the markets at its August 11 FOMC meeting on the issue of raising the bar for fighting the deflationary winds.

You can argue that brighter days are coming, and that's almost certainly true if you look out far enough. But in the short run the case for optimism has fallen on hard times, and it's not obvious that the trend is set to undergo a miraculous change for the better any time soon.

This article has been republished from James Picerno's blog, The Capital Spectator.

Breaking Down September's Jobs Numbers

The new filings for jobless benefits are still very high, but both new claims and continuing claims are trending downward. James Picerno from The Capital Spectator breaks down the latest numbers and why the downward trend is not necessarily an indicator of recovery. See the following post for more.

This morning's update on initial jobless claims offers more encouragement for thinking that the economic contraction has bottomed out. That's still distinct from proclaiming the arrival of a recovery worthy of the name, as we've been discussing for months, including here and here. Nonetheless, the downward trend in initial jobless claims—a valuable leading indicator of the business cycle, as we explained back in March—continues to signal that the recession on a broad macro scale is over or nearly over.

Granted, last week's decline in new filings for jobless benefits to 550,000—the second-lowest so far this year—may be skewed because of this past weekend's Labor Day holiday. As always, we'll have to wait for more number crunching by our trusty servants in Washington. Meantime, the chart below doesn't give us any reason to think that initial claims aren't biased toward lower levels in the future, albeit erratically and slowly, but downward nonetheless.



Another encouraging trend in today's unemployment numbers arrives by comparing initial claims with so-called continuing claims, by far the higher number of the two. Indexing this pair to measure the trends on an apples-to-apples basis suggests that we're finally seeing some progress in reducing continuing claims, as our second chart below shows.



Continuing claims reflect the ranks of the unemployed who've previously been collecting jobless benefits. A decline in this series suggests—emphasis on "suggests"—that people who've been on the unemployment rolls are finding work. Generally speaking, a decline in initial jobless claims is all the more persuasive if continuing claims are falling too. As the second chart directly above suggests, there now appears to be greater downward momentum in both series, which is encouraging, at least on its face.

We qualify the last point because it's not yet clear if the decline in continuing claims is a quirk. One possibility is that continuing claims is falling for less than bullish reasons. For example, the shrinking number of continuing claims may reflect that the jobless are falling off the government's radar because their unemployment benefits have expired.

In short, the data looks mildly encouraging as reported but we're still a long way from declaring the Great Recession over as it relates to Main Street. (Wall Street's perspective is another story.) But this much is clear: a recovery of some degree in the labor market is critical in order to repair the damage of the past year or so. Today's numbers tell us there's still a lot of pain, but at the very least today's report suggests that the trend isn't getting any worse and maybe, just maybe, it's getting marginally better.

This post has been republished from James Picerno's blog, The Capital Spectator.

Data Shows Reasons To Be Optimistic on Economy

Are the subtle signs of an improving economy, such as decreasing jobless claims, enough to warrant optimism? Or should investors be cautious until we see employers actually increase hiring and the unemployment rate decrease? According to The Capital Spectator, we should be both cautious AND optimistic.

In early March we asked: When Will It End? At the time, we argued that watching the weekly squiggles of new filings for jobless benefits was a productive effort for estimating when the cycle would turn.

The reasoning is that a careful study of history shows that initial jobless claims have a habit of peaking concurrently or just ahead of the technical end of the recession, as defined by the National Bureau of Economic Research. Waiting for NBER to proclaim the downturn's denouement isn't practical, since the organization takes its sweet time on such matters. Watching initial jobless claims, then, may be a more timely reading of what comes next for the business cycle. It shouldn't be analyzed in a vacuum, but as part of a broader review of leading economic indicators it's a valuable tool for discounting the future.

Today's jobs report, along with yesterday's update on jobless claims, offer another round of data releases for thinking that our counsel in March is still valid. Although the economy shed lots of jobs again last month, the decline was relatively mild compared to the magnitude of losses in the recent past. Nonfarm payroll employment fell by 345,000 in May, or roughly half the average monthly decline for the prior 6 months, the Labor Department reports.

Meanwhile, yesterday's update on initial jobless claims shows that new filings fell again last week, dropping to 621,000. That's still high and on its face the one number implies the recession rolls on. On the other hand, the trend of late offers some encouraging clues. As our chart below illustrates, last week's claims are still well below the peak of 674,000 that was set back in the final week of March. By virtue of its general decline over the past two months, modest though it is, the jobless claims indicator continues to predict that the recession has ended. We can't be sure, of course, at least not yet. But for the moment, there's mounting reason for hope, which is bolstered by today's jobs report.



Of course, the technical end of recession, especially one as painful as the current one, isn't easily forgotten. Indeed, while the leading indicators point to recovery, the lagging indicators, as expected, continue to get worse. Unemployment, for instance, rose last month to 9.4% from 8.9% in April. More of the same is probably coming.

In terms of people's lives, the official end of the recession is likely to have little meaning for many months or even quarters. The signal that Joe Sixpack is looking for—the creation of new jobs—is still probably a ways off. Nonetheless, a thousand-mile journey must begin with the first step, and so an economic recovery necessarily begins quietly, starting with the end of the recession.

We're not completely confident that the contraction has ended. Indeed, the fall in jobless claims, although obvious so far, isn't fully convincing. A dip below the 600,000 mark, however, would help tip the scale in favor of optimism. Nonetheless, the trend so far can't be denied, at least not today. Anything's possible when it comes to the slippery business of projecting economic trends in the short term, but the odds that it's over are rising, or so the numbers suggest.

Keep in mind that jobless claims are but one of several forward-looking indicators predicting revival. In the June issue of The Beta Investment Report, we report that our proprietary index of leading indicators continues flashing a strong signal that recovery is near, or at least that the downturn's momentum is lessening.

Even if the recession is over, and one day it will be, there remains the bigger question: What magnitude of rebound awaits? On that point we remain quite wary. One reason is that if a rebound is underway, the shift implies a new set of challenges lurking in the future, starting with the issue of debt, interest rates and inflation, all of which threaten in the medium- to long-term outlook.

But for now, let's savor the moment. There are a few extra data points that offer reason for mild optimism. Monday, of course, is another day.

This post can also be viewed on capitalspectator.com.