Unemployment: Uglier Than Expected
Considering that most analysts were expecting a figure of around 325,000 jobs lost in June,today’s report that the economy shed 467,000 comes as a nasty shock. What makes it worse is that the losses were spread across all industries so we cannot blame a specific event like the GM bankruptcy. This data shows jobs are being cut right across the board. So we are a long way from a turnaround. We have now lost 6.5 million jobs during this recession and at the pace things are going we will almost certainly lose between 8 and 9 million before we see a rebound.
That’s ugly by any account and should provide suitable steel for the spines of those who are advocating more stimulus. As I explained yesterday unemployment holds the key to our medium term future: we must start getting jobs back as soon as we can or else we will experience a long slow and relatively painful recovery. All those hoping for a typical ‘V’ shaped rebound surely must re-think after this morning’s report.
Having said that I must caution, as I always do, that we should not get too hysterical over one month’s data: let’s keep an eye on the moving averages. In that context the damage that today’s data does is that it suggests that any halt to job losses is still a way off. The slope of decline is no long as sharp as it was, so that’s good news, but we are not seeing any sign of a sharp upturn to compensate for the losses. Instead we appear to be entering a ‘war of attrition’ where each month represents a significant loss, perhaps not as huge individually as those we saw late last year and in the first quarter this year, but now relentlessly digging a deeper and deeper hole into the core of the economy.
The unemployment rate rose only a little, to 9.5%, which when coupled with the figure for the civilian workforce, which shrank slightly, illustrates that the number of ‘discouraged’ workers is increasing. This may be an early indicator that long term unemployment is becoming an issue as well. the longer the economy fails to show signs of generating jobs the more likely we are to see a sizable increase in the number of workers who stop considering themselves part of the workforce. That reduces our capacity for growth down the road, and is thus something that introduces a drag on a recovery.
Continuing in this mode is simply unacceptable: we should start now to discuss another round of stimulus.
The weak message conveyed by the lost jobs data is reinforced by the news about wages also contained in the report. There had been some talk that wages might show a slight increase: unfortunately they stayed flat.
Add all this together and the nature of the trajectory into the future seems to be becoming more clear: we are in for a very long and rough road.
It’s all about jobs. We just don’t seem to have them.
